Book Review: Nothing but Net

Nothing But Clean: 10 Timeless Stock Picking Lessons From One of Wall Street’s Top Tech Analysts. 2021. Mark SF Mahaney. McGraw Hill.

In Nothing but Net, the well-known American technology analyst Mark Mahaney has encapsulated his life’s work in more than 300 pages. The book offers 10 invaluable lessons that investors can use to pick tech stocks in the coming years. These lessons are taught through business case studies, making the book fun to read.

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The book provides an informative history of some prominent tech stocks that thrived and others that failed. It covers Amazon, Facebook, Google, Netflix and Uber in detail, exploring their product innovation, customer centricity, revenue growth and management strength. The narrative also examines companies like Yahoo, eBay, Priceline, Spotify, Blue Apron, Zulily, Groupon, and Snap for intriguing insights.

Mahaney demonstrates analytical rigor while presenting his key points in a structured manner. For example, it offers three action questions to address the high valuations of Internet companies, four logic tests to assess the profitability potential of companies, and several key characteristics to assess the quality of management.

The author draws on his 23 years of research experience to provide concrete guiding principles to follow before investing in a technology action. Companies that are customer-centric rather than investor-centric, he says, win in the long run. Analysts should examine a minimum of three to five years of experience in public markets before drawing conclusions about the quality of management. Mahaney also advises readers to use a company’s app before making an investment decision.

At various points in the book, the author offers individual investors substitute sources of information that only institutional investors have access to. What stands out to me is using a Netflix subscription as a proxy for a broad consumer survey available to institutions. Obtaining a subscription allows a person to judge the quality of the content and the ease of use.

Some of the terms Mahaney uses, such as DHQ (dislocated high-quality stock), DAM (direct addressable market), and step-fixed costs, will be etched in your mind forever. More importantly, it has managed to answer several questions that concern investors about new-age businesses:

  • How to identify positive and negative turning points for companies?
  • What metrics should be monitored periodically?
  • Does profitability matter to high-growth tech companies?
  • When should these shares be sold?
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There are a few other topics that I would have liked to have been covered in the book. The first is the way markets widened technology company multiples as interest rates fell. (More relevant today is what happens to multiples when interest rates rise.) Second, the role of exchange-traded funds (ETFs) in providing dedicated flows to these stocks and whether this has had an impact on ratings. Third, the experience curves of international stocks, especially in Europe and Asia. Fourth, are the ways in which American technology companies have adapted to the environment outside the United States and why some failed. Finally, is it important for tech companies to choose investors wisely? This question arises because the road to positive free cash flow is long, so further financing will be required.

Nothing but Net describes the experiences of tech stocks through the author’s US lens, but the powerful methodologies the author provides are valid for new-age companies around the world. Experience curves for tech stocks elsewhere may turn out to be similar to those that occurred in the United States. Similarly, market participants already familiar with US Internet stocks through years of tracking can enjoy Mahaney’s narrative and draw some valuable lessons for their analysis. As the number and power of technology companies grow both inside and outside the United States, this book deserves a place on investors’ bookshelves for years to come.

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All posts are the opinion of the author. Therefore, they should not be construed as investment advice, nor do the views expressed necessarily reflect the views of the CFA Institute or the author’s employer.

Image courtesy of Paul McCaffrey

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Shravan Kumar Sreenivasula, CFA

Shravan Kumar Sreenivasula, CFA, heads the Investment Solutions and Advisory Group at Avendus Wealth Management in Mumbai. Provides investment guidance to UHNIs, family offices and corporate treasuries in all asset classes. He brings over a decade and a half of experience in multi-asset and multi-manager products to his role as a fund manager at leading asset management firms.

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