At the recent 2022 Berkshire Hathaway annual meeting weekend in Omaha, senior analyst Todd Wenning presented our current thesis on Masimo at the MOI Best Ideas conference.

Among other topics, Todd discussed our thoughts on the controversial acquisition of Sound United, a consumer audio business. The $1.025 billion deal raised questions about Masimo’s future business model, which had previously been concentrated on its in-hospital operations.

You can listen to the 13-minute audio recording and view the slideshow presentation by clicking here.

For additional thoughts on Masimo, please see the following blog posts: MASIMO: DOING WELL BY DOING GOOD and WEBINAR TRANSCRIPT: MASIMO UPDATE.

The Business Brew podcast offers long form interviews with investors and business people by the insightful host Bill Brewster. Earlier this month, Ensemble Capital’s CIO Sean Stannard-Stockton sat down with Bill to discuss:

  • The state of financial markets and the economy, the risks at hand, and the extraordinary investment opportunities available today for long term investors.
  • How Ensemble’s research team works to manage emotions and decision making performance during conditions of high stress.
  • How we are thinking about the unexpectedly weak corporate performance of Netflix so far this year and why we view the decline in the stock price as extremely excessive even while fully recognizing the challenges at hand.
  • Why investors are poorly served by attempting to jump back and forth between different stocks or classes of business when economic conditions change, and are much better off focusing on owning resilient, strong companies at all times.
  • The unusual ways that COVID has scrambled the economic cycle such that parts of the economy are busting while other parts are booming at the same time.
  • The way that remote work presents a huge opportunity for investment firms to greatly improve the quality of their research and decision making processes, and why firms that resist this shift will face significant challenges in the years ahead.

In addition to the embedded audio above, you can find the interview on Spotify, Apple Podcast, or most other podcast players.

In early March we first started talking about a Stagflation Panic that we believe has gripped the market. Since then, we have observed an accelerating disconnect between the current economic reality of the vast majority of our portfolio companies’ reported corporate results, and the behavior of their stock prices.

Now that first quarter earnings season is mostly done, we would like to share a brief summary of what our portfolio companies are reporting about the state of their businesses and their current outlooks. This is not a complete list of our investments, but it covers every stock in our portfolio with over a 2% position size.

These brief highlights focus on just the metrics that illustrate the core aspects of each company’s current business conditions. Every quarterly report always includes details that are positive and negative. Our assessment of our investments is based on detailed analysis of their corporate results within the context of their operating environment. But given the huge disconnect between the share prices in our portfolio and the operating results of the businesses they represent, we felt that this brief review would be helpful.

Booking Holdings (online travel agent)

The company reported blowout revenue and earnings growth. The company said that after a very brief pause in hotel bookings in the week after the Russian invasion of Ukraine, business came roaring back. In April, demand went vertical with hotel bookings exceeding pre-pandemic levels. Gross bookings (the total value of travel reservations) jumped to 30% above 2019 levels.

Broadridge Financial Solutions (software and services for banks and brokers)

The company reported better than expected earnings and increased their full year guidance to the high end of the range they had offered previously. Broadridge’s business is so stable that it is the only company in our portfolio whose core results were barely impacted in 2020 and 2021 by the pandemic. This stability continues in 2022.

Charles Schwab & Co (brokerage and custody services)

The company reported revenue that was approximately equal to what they reported in the first quarter of 2021. A year ago, they had experienced a massive 80% surge in revenue as market values and trading boomed. The company is expected to return to double digit revenue growth this year as they move past the surging revenue of early 2021. One of the most powerful drivers of future earnings for the company would be higher interest rates which cause the company to generate much higher levels of earnings on the cash that clients hold in their brokerage accounts. Despite rising interest rates, the stock has fallen sharply this year causing the CEO to personally buy $10 million worth of stock in the days after the company updated investors on the state of their business, something we have not seen him do in years, indicating his enthusiasm for the outlook of the business.

Chipotle (fast food)

The company delivered first quarter revenue and earnings above expectations and guided for growth to accelerate as recent menu price increases have not slowed customer demand. Chipotle is accelerating the speed with which they open new locations as the shift to digital ordering has opened up opportunities for new store formats. They expect to increase store count by 8%-10% per year and believe they can more than double their total store base over the long term.

First American Financial. (title insurance)

While refinancing of home mortgages has fallen dramatically causing the volume of title policy orders to fall sharply, high levels of home price appreciation has driven up revenue from much more valuable home purchase title policies. Commercial real estate transactions and prices remain very strong driving continued growth in this segment as well. The stock now trades at its lowest earning multiple outside of the housing crash of a decade ago and the company bought back 3% of their shares in the first four months of the year saying if the stock stays at this level they see share buybacks as an excellent use of capital. The company reiterated their full year guidance.

Fastenal (manufacturing supplies)

This company serves a wide range of manufacturing businesses providing them parts and supplies. Revenue grew 20% and slightly exceeded expectations. The company said that demand strength was broad based across different customer types. They also said that they are seeing inflation slow in their industry and expect it to “drop fairly sharply” in the second half of this year.

First Republic Bank (banking for high net worth families)

San Francisco based First Republic reported their highest ever level of loan originations with revenue growing 23%. They maintained their 2022 guidance for mid-teens loan growth. When asked about the impact of higher mortgage rates on housing, the company said that housing supply is so far below demand that even if higher rates markedly reduces the number of buyers, there will still be multiple bidders on nearly every home for sale. This comment is supported by the fact that despite higher interest rates, a record high percentage of new home listings nationally are selling within just two weeks of going on the market. First Republic operates in some of the most supply constrained housing markets in the country such as San Francisco and New York, while also operating as one of the most conservative mortgage underwriters in the business.

Google (online advertising)

Despite having grown revenue at faster than typical 26% a year over 2020 and 2021, the company posted another quarter of elevated growth with first quarter revenue up 23% or 26% excluding the headwind from the strong US dollar. Looking only at their US revenue, the company grew revenue at a blistering 27%, even faster than their US growth rate across 2020-2021. While the company does not offer guidance, they were clear that they continue to invest heavily in the business in the face of significant growth opportunity. They are buying up real estate for new offices and told investors to expect their 20% annualized growth rate in hiring new employees to continue. The company has been buying back its stock at an accelerating rate and authorized a new buyback plan that implies this acceleration will continue in 2022.

Home Depot (home improvement)

Home Depot has not yet reported earnings, but the company and their competitor Lowe’s said at investor conferences a month ago that demand remained very strong, and they reiterated their full year outlook. Last week, home improvement company Floor & Décor reported better than expected revenue and earnings and reiterated their guidance for the year. The company noted repeatedly that they saw particularly strong growth with professional contractor customers, who make up half of Home Depot’s revenue base.

Illumina (genetic sequencing equipment)

The company reported better than expected first quarter earnings with as expected revenue growth of 12%. They reiterated their full year revenue growth guidance of 13% to 15% despite headwinds to international revenue from the strong US dollar and the COVID wave in China driving near term disruptions. In addition to strong growth in revenue, management also reported record backlog levels driven by strong adoption of gene sequencing in clinical applications like oncology and rare disease testing.

Landstar Systems (trucking)

The company reported 53% revenue growth and better[…]

During our first quarter portfolio update, we profiled portfolio holding, Alphabet (GOOGL). Below is a replay of our live commentary on the company from our quarterly portfolio update webinar and an excerpt from our QUARTERLY LETTER.


Google is one of the most extraordinary businesses of the digital age. Its mission is “to organize the world’s information and make it universally accessible and useful.”  This is such a broad organizing principle for a company whose value is built on doing just that. When you think about the mass adoption of the Internet, smartphones, social and digital media, and ecommerce among billions of users every day, and the exponential growth of data that has brought, we all know how valuable Google’s role in collecting, organizing, and filtering all that information has become in our daily lives.


NVidia’s CEO Jensen Huang put the challenge really well in an interview with Tech Analyst Ben Thompson recently:

“We know that there are a trillion things on the Internet and the number things on the Internet is large and expanding incredibly fast, and yet we have this little, tiny personal computer called a phone… how do we possibly figure out of the trillion things in the internet what we want to see on our little tiny phone?

Well, there needs to be a filter in between… basically an AI, a recommender system. A recommender that figures out based on the nature of the content, the characteristics of the content, the features of the content, based on your implicit and your explicit [preferences], find a way through all of that to predict what you would like to see.

I mean, that’s a miracle! That’s really quite a miracle to be able to do that at scale for everything from movies and books and music and news and videos and you name it.”

While Huang was talking about the role of artificial intelligence more generally amidst the data explosion, it’s hard not to think of Google as most fitting the role of the Internet’s leading “recommender system,” with its de facto role as the gateway to the Internet. In fact, it’s no coincidence that Google is a leader in AI technology, which it applies across most all of its services.

To effectively deliver high performance, relevant information services, it’s a requirement to have strong competence in artificial intelligence technology and Google goes far beyond just developing the algorithms and software, as they develop specialized chips that accelerate execution to building the largest scale computing systems comprised of entire data centers. As a result of its success, Google enjoys a 90% share of all searches in the world.

The execution of its mission is demonstrated in the value Google provides to billions of users around the world with not just search but also other massively scaled and easy to use information services that consumers and businesses find uniquely useful, several times each day.

It has 9 services that have over a billion users each – Android, Chrome, Gmail, Google Drive, Google Maps, Google Search, the Google Play Store, YouTube, and Google Photos. It answers billions of search queries a day (over 3 trillion searches per year!), delivers billions of YouTube videos daily, and counts more than half the global population as consumers of its services.

Google makes life easier and better for its consumers, and for the most part for “free” – no one has to use Google’s services, but most everyone with an internet connection cannot live without it. That is how essential Google’s services are.

Its dominance is what creates its moat. In the information business, the scale of data it can gather from its huge user base encapsulating their daily activities, needs, and desires upon which it can develop and run sophisticated algorithms make it hard for new and old companies to compete. Its data scale allows its algorithmic results to be better, and the better results bring it more users and more data.

This, of course, leaves regulators who worry about a Google monopoly stuck in a bind – consumers and businesses choose to use Google’s services bringing it network and scale monopoly advantages, yet it provides huge benefit to its users, mostly for free. Traditionally monopolies are considered “bad” because they can gouge huge profits from their customers if they have no other options. But in Google’s case, it’s clear that the value it creates is mutually shared and its customers always have other, albeit less effective, options. It has power, but there’s little evidence that it’s been abused over the past two decades.

Google monetizes the insights from all that data by matching millions of businesses with billions of consumers, creating huge value for both. Merchants compete on Google’s auction style advertising platform to reach those consumers, with consumers given the option to click on ads of interest which drives the merchant’s return on investment for that spending. In this way hundreds of billions in value are created out of thin air (or more appropriately, from electrons)!

Google’s platform of services has been so effective that its revenue has grown nearly 7x from $38 billion to $257 billion over the past decade, with an incredible $75 billion added in 2021 alone. Adjusted profits surged to $84 billion from $12 billion in the decade and nearly doubled in 2021 alone. Adjusted profits exclude certain expenses like spending on incubating companies within the parent holding company Alphabet, referred to as “Other Bets,” to better reflect “core” Google profitability. The scale and rapidity of revenue growth in 2021 also demonstrated just how inherently profitable Google’s core business can be – about half of every incremental dollar in revenue dropped to the operating profit line.

This rate of growth has been possible because Google reinvests tens of billions every year in R&D and Capex, and tuck in acquisitions to support these services and build new ones. Some of these acquisitions can take years of investment to commercialize and some would have been enviable standalone businesses, yet within Google’s platform can come to fruition with its years of patience, financial support, and scale inclusive of its data trove and talent pool.

While the global behaviors around COVID helped 2021 trends, we don’t believe there will be much of a reversal as we move forward, though growth will obviously slow from the 41% observed in 2021. Google’s services are essential for merchants and consumers. Just as with Mastercard mentioned earlier, nominal spending is benefitted by higher inflation rates. Given the tight link between consumer spending and merchant ROI on advertising, we believe Google will continue to benefit from nominal GDP growth in the US and around the world.

Furthermore, scaling businesses within Google like YouTube and Google Cloud Platform (GCP), have really found their footing in the past couple of years and have reached a size that will see them contribute meaningfully to future growth of the business. YouTube generated nearly $30 billion in 2021 and is expected to grow over 20% in 2022, while GCP generated nearly $20 billion in revenue and expected to grow 30%+[…]

During our first quarter portfolio update, we profiled portfolio holding, Chipotle (CMG). Below is a replay of our live commentary on the company from our quarterly portfolio update webinar and an excerpt from our QUARTERLY LETTER.


In a recent blog post called Great Companies are Forged During Crisis we discussed why companies with economic moats, relevant products and services, and those that create stakeholder value are more resilient in the face of crisis than the average company. Less advantaged competitors, in turn, struggle, which creates opportunities for great companies to get even better.

We think Chipotle navigated the COVID environment better than any major quick-serve restaurant and has consequently gone from strength to strength. Indeed, from March 1, 2020 to March 31, 2022, Chipotle shares gained 106% versus the S&P 500 Restaurants Index’s 28% return, including dividends.


To be sure, going into 2020, Chipotle had some recent experience in managing through a crisis. Its self-inflicted foodborne illness crisis that occurred in 2015 and 2016 threatened to permanently impair Chipotle’s brand value and damage customer trust. While the company made some changes at the top, bringing in Brian Niccol as CEO, and reorganized its food preparation processes, it did not abandon its mission of providing customers with freshly-prepared, sustainably-sourced food. Even at the nadir of its crisis, the average revenue of a Chipotle restaurant remained in line with the average fast casual restaurant in the US.

When COVID arrived, Chipotle quickly made changes to its strategy. It had planned on doing a marketing push for its new Queso Blanco cheese dip in March 2020 but pivoted to free delivery to ensure its customers could get Chipotle during quarantine. Because Chipotle restaurants are all company-owned (versus most fast-food chains being franchise models), it was nimble amid panic in the restaurant industry. The company continued to build restaurants (161 new stores in 2020) and seized the opportunity to move into prime locations and add more “Chipotlane” drive-thrus.

Chipotle recently surpassed its pre-foodborne illness crisis average unit volume (AUV) levels, despite having nearly twice as many locations today. Its relevance has never been higher, boasting 26.5 million rewards members at the end of 2021 versus 19.5 million a year prior. Chipotle’s loyalty program was only launched in March 2019 and quickly became one of the most popular such programs in the US.

Management is pressing its advantage, recently upping its long-term North America store count target to “at least 7,000.” Before COVID, management dreamed of 5,000 to 5,500 locations. What changed in just two years was that the COVID period pulled forward customer preference for digital ordering and delivery, which plays well to Chipotle’s strengths. As we’ve discussed in prior communications about Chipotle, most locations have “second-line” food preparation areas where staff can prepare digital orders without disrupting flow for customers ordering in-person. Those second lines at Chipotle are so productive that if they were standalone operations, they would generate over $1 million in revenue per year, on average.

As a result of its digital success, Chipotle has rapidly increased investment in Chipotlane drive-thru locations, which have grown from 16 in June 2019 to 355 in December 2021. You cannot order at Chipotlanes in person – you need to place the order digitally and pick it up at the window. This is not only the highest-margin fulfillment type for Chipotle but is also a more efficient experience for both customer and company.

In addition to Chipotlanes bolted onto traditional store formats that include dine-in space, Chipotle recently rolled out digital-only locations without seating. These smaller, digital-only formats allow Chipotle to move into smaller markets than was previously assumed and add more locations in larger markets with less risk to cannibalization. Management discussed on the most recent call that they believe they can now go into markets with as little as 40,000 residents without sacrificing sales volume. In the coming decade, we believe Chipotle will serve and delight millions more North American customers with freshly-prepared, sustainably-sourced food at a reasonable price. And the ability to deliver on that promise at scale is ultimately what Chipotle does better than any other quick-serve restaurant. No other restaurant is even close.

Beyond North America, where Chipotle has a clear runway to more than double its current store count, we see potential for hundreds of locations in Europe. Chipotle has long held ambitions to expand in Europe but has not to date had much traction. There are currently 11 locations in London, England, five in Paris, France, and two in Frankfurt, Germany. A common denominator among these cities is they have considerable American expat communities and tourist traffic, which help support demand for Chipotle.

But for Chipotle to scale in Europe, it needs to win over customers outside major cities. We believe that European taste for Central American food is growing but is well behind where it is in North America. One metric we track is avocado demand, which tends to find itself included in Mexican recipes. According to Eurostat, Europe increased avocado imports by 53% between 2016 and 2020. While per capita avocado consumption is just a third of what it is in the United States, that type of growth suggests the gap should close. The more that European palates adjust to Central American flavorings, the better positioned Chipotle is to expand.

Encouragingly, Chipotle’s food offerings travel well in the delivery format and fast-food delivery in Europe has surged as a fulfillment method, a trend that began before COVID and has accelerated since. The more densely-populated European cities and towns allow for more efficient food delivery than in North America.

Finally, we believe Chipotle has pricing power to offset rising input costs and wages and benefits. Going into COVID, Chipotle already offered top-tier benefits relative to its peer group but pressed that advantage further in recent quarters. To address these incremental costs, Chipotle has increased prices, but the company’s scale allows it to keep prices competitive while maintaining its quality standards. In the latest earnings call, Niccol noted that CMG had raised prices by 10% in 2021 but emphasized that raising prices is “really the last thing we want to do, but we’re fortunate that we can [raise prices] and we’re seeing no resistance to date with the levels we’re currently at.” He then noted that you can still get Chipotle burritos for $8 in most parts of the country. We believe Chipotle could raise prices even more aggressively to boost near-term margins but has the ability due to its scale to lag industry price increases, which enables it to pick up market share.

Smaller, local restaurants that might compete with Chipotle on freshly-prepared, sustainably-sourced food do not have these scale benefits and we believe Chipotle’s pricing will remain relatively attractive against this set of competitors as well as national chains on a food quality-to-price basis.