August 5, 2019 BARRON’S 9
Congrats on the Huge TAM
WHAT A WEEK FOR TAM. ON THURSDAY EVENING ALONE,
AristaNetworksinvokedtheacronymthreetimesin
a single earnings call, while Motorola Solutions dis-
closedtheTAMofarecenttakeover,andCardtronics
and Qorvo talked about TAM expansion.
Itdidn’tcomparewithIntel’seight-TAMearnings
call the week before, but still.
TAM, or total addressable market, is the theoretical revenue col-
lectedfroma100%marketshareforaproductorservice.
Pleasedon’tconfuseitwithtwootherfinancial-modeling
termsthatnoneofthepopularpeopleareusingrightnow.
SAMisserviceableavailablemarket,andSOMisservice-
able obtainable market.
Topitchventurecapitalists,don’tgetboggeddownin
details about what you can service or obtain. They get
muchmoreexcitedabouttheaddressingpart.Anddon’t
bring up profits. If you’re worried about those so soon,
you might be woefully under-TAMmed.
InUberTechnologies’initialpublicofferingfiling,itcitedaTAMso
large it fogged investment bankers’ glasses: $5.7 trillion for rides, plus
$2.8trillionformealdelivery,plus$3.8trillionforfreight.That’s$1,
for each person on Earth. Don’t think of Uber as a company valued at
$71billion that is expected to burn through $9 billion over three years.
Think of it as a company that so far has reached only 0.1% of its TAM.
Seasoned companies and analysts who cover them must be learning
fromunicorns,becausesuddenlyeveryone’stalkingaboutTAMonearn-
ingscalls.JustlookatthecompaniesofallsizesintheS&P1500index.
Overthe12monthsendedonAug.1,therewere163callsthatmentioned
TAM, up 17% from the prior year, based on a search of FactSet data.
Folks,Idon’twanttojinxanything,soI’mgoingtocasuallymention
thisnextthinglikeit’snobigdeal.Werecentlycompletedour10thcon-
secutiveyearofgrowthinearningscallswhereTAMcameup.Ifthat’s
not a sign of strength, I don’t know what is. Earnings aren’t growing
this quarter, but you can’t have everything.
It gets even better for TAM. Over the past decade, the compound
annualgrowthrateofearningscallswithoneormorementionsofTAM
is17%.Thatcompareswitha14%annualreturnfortheS&P1500over
the same period. That’s right: TAM is beating the market.
Note,too,thatTAMmentionsoverthepastyearsharplyreacceler-
atedafteracoupleofyearsofsluggishgrowth.Atwhatpointisitap-
propriatetodiscussthesecondderivativeofTAMmentionsasabullish
indicator? Never? That’s cool.
Let’satleastgivesomeshout-outs.IntelisalongtimeleaderinTAM
talk. Each of its past four earnings calls have had multiple mentions,
includingan11-TAMmasterclasslastOctober.Somesmallercompanies
areTAMmingwellabovetheirweight.PaymentsprocessorGreenDot
hadnineduringaFebruarycall,andsoftwaremakerBlackbaudbroke
double digits back in October.
One thing that bothers me is the lack of diversity. The tech sector
hascorneredthemarketontalkingaboutTAM.It’srefreshingtosee
that Molson Coors Brewing fielded a TAM question during a call last
February. Let’s have more of that.
Iknowwhatyou’rethinking,andyes,IfilteredmyTAMsearchto
remove a handful of mentions of qui tam lawsuits. Whistle-blowers
should really leave that word to us big thinkers.
Morecontroversially,Ididn’tcountcaseswherespeak-
ersusedthefullwords.Here’salinefromTrimbleayear
agothatIneededaGPStonavigate:“Onalongitudinalba-
sis,ouraddressablemarketanalysispointstowardattrac-
tivepenetrationopportunitiesoutsideofNorthAmerica.”
Itturnsout“addressablemarket”comesupmoreoften
than“TAM”—403callsoverthepastyear,upfrom327the
yearbefore.ButIviewthatasacontrarianindicator.Time
spent laboring over every syllable of “addressable” could
have been used to theorize about bigger TAMs.
Shares of the company that makes Budweiser beer are up more
than 50% this year. Wait, what?
LastIlooked,youngrevelerswerealldrinkingpie-flavoredbourbon;
or triple-hopped, sustainably sustained craft beer; or loganberry-
flavoredspikedseltzer.Butlo, Anheuser-BuschInBev (ticker:BUD)
reportedonJuly25itsbestquarterlyvolumegrowthinfiveyears:2.1%.
IntheU.S.,BudandBudLightarestillslipping,butMichelobUltra
isgrowingnicely—impressive,consideringthatthehard-seltzermarket
appears to have tripled in size in a year. The real action is away from
home: Budweiser revenue grew 5.6% outside the U.S., and Corona,
23.7% outside Mexico. Stella Artois surged, too.
BUDstockisreboundingfromabeatinglastyearonbloateddebt
from its 2016 buy of SABMiller and an October dividend cut. Bank of
America Merrill Lynch analysts upgraded it to Buy from Neutral on
July 29, in part because they expect debt repayment and a return to
dealmaking.Thestockisworth24timesforwardearnings,theyargue,
up from a recent 20. Foamy for my tastes, but we’ll see.
They also point out that A-B InBev’s largest market for profits is
now “Middle Americas.” No, Nebraska isn’t on a bender. Sometimes,
people use that term to mean Central America plus Mexico, because
theyknowthatMexicoisinNorthAmerica,buttheysuspecttherest
of us don’t know. B of A means parts of South America, too. Anyhow,
BUD shareholders should say salud to our friends down south—and
hope flavored seltzer doesn’t catch on there.
email: [email protected]
“Totaladdressable
market”isthehot
buzzword.Don’t
eventhinkof
mentioningprofits.
Streetwise
By Jack Hough