Today, we introduce a leading digital payments company, with a dominant competitive position and world-class capital efficiency. Recent operational stumbles have created a near record discount in its share price, but we make the case for a rebound and 20% compounded returns from here.
This Classic Fintech Disruptor Could Deliver 20% Annual Returns
Activists Intervene to Get This Competitive Business Back on Track
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“Watch this.”
Those were almost Elon Musk’s last words.
It was March 2000, and 28-year-old Musk had just dropped a cool million on the legendary McLaren F1 – one of the fastest supercars in history. The F1 had a gold-plated engine and topped out at just over 240 mph.
It was an intimidating “mine is bigger than yours” car. So, naturally, Musk figured he’d take rival entrepreneur Peter Thiel out for a spin.
He should probably have signed up for a couple of extra driving lessons first.
Musk and Thiel – whose offices were next door to each other in a Silicon Valley high-rise – were developing competing online payments systems. (Back then, most online business transactions relied on physical checks – and the notion of paying online was revolutionary.)
Musk’s company, X.com, and Thiel’s, Confinity, both offered a platform to make secure online payments while protecting sensitive credit card details. And both companies grew like kudzu, seeing double-digit increases in users on a weekly basis during 1999.
The rival teams slept in the office, brought their kids to work on weekends, and gave away millions of dollars – in $10 and $20 increments – as “signup incentives” for customers curious to try online payments. “It was kind of a race to see who could run out of money the fastest,” Musk said later.
By early 2000, the Hatfield-and-McCoy-style feud between X.com and Confinity had escalated to the point of semi-serious death threats in memos and motivational posters. “KILL THEM DEAD. DIE. DIE. DIE” Musk exhorted employees in one email – while a Confinity employee celebrated his own birthday with a cake that said “Die X.com.”
After a year of living in a pressure cooker – and postponing his honeymoon – Musk just needed to crack the lid a little. So he bought the McLaren.
There was just one problem: Elon didn’t realize that driving a 627-horsepower beast isn’t the same thing as getting behind the wheel of an off-the-lot Honda or Ford.
What he lacked in experience, Musk – kind of – made up for in bravado. “Watch this,” he said as Peter Thiel climbed into the shotgun seat. Then Musk floored it.
And… flipped it.
The seven-figure car promptly hit an embankment… went airborne… and landed belly-up, with shattered windows and a snapped suspension.
Neither Musk nor Thiel were wearing seatbelts. Miraculously, the two tech geniuses crawled out of the wreckage without a scratch. (The uninsured McLaren, however, required extensive repairs.)
X.com and Confinity could both have died that day, but they survived. It seemed like a sign. Musk and Thiel – after hitchhiking back to the office – officially ended their rivalry and joined forces.
But the way forward was far from a smooth stretch on the Autobahn…
Musk and Thiel continued to feud from opposite sides of the boardroom. Musk won out on the company name, which stayed X.com thanks to greater brand recognition. But he couldn’t get Thiel to budge on the entity’s business model. Thiel wanted to stick with the online payments sector, while Musk wanted to expand into a wide variety of other markets like online brokerage and insurance (today, he still harbors dreams of an “everything app” called X.com).
In September 2000, Musk finally took his wife on their long-delayed honeymoon – and while the happy couple was flying to Australia, the board voted to fire Musk and install Thiel as X.com’s CEO.
Soon thereafter, the company was rebranded to PayPal. Then, in 2002, eBay bought PayPal for $1.5 billion – handing Musk, who’d retained his ownership stake in the company, a handsome payday.
Today, Musk and Thiel are on much friendlier terms, with Thiel joking about the car crash, “I’d achieved liftoff with Elon, but not in a rocket.” The McLaren – now repaired – recently went up for auction at England’s Goodwood Festival of Speed.
And PayPal – an attractive business that has also spun off the road in recent years – is now refurbished and up for sale at a compelling price…
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