How We See Intrinsic Value:�Two Case Studies

By Daniel Mahncke & Shawn O'Malley

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What Is The Intrinsic Value Portfolio?

15-20

Target Positions

12%

Target Annual Return

Our Approach

• High-quality compounders�
• Strong management & capital allocation�
• Recurring revenue models�
• Monopolies or duopolies�
• Network & scale effects

“Growth and Value Investing are Joined at the Hip” — Warren Buffett

Future Growth

• Intrinsic value determined by expected future growth�
• The intrinsic value is sensitive to growth rate assumptions & discount rates (time value of money)�
• We like companies that can plausibly grow for a long time�
• I.e., Mercado Libre

Attractive Valuation

• Modest growth expectations needed for satisfactory investment — earnings yield alone is sufficiently attractive �
• Meaning = buy high-quality assets at a more than fair price�
• I.e., Universal Music Group

Growth & Value Are Part of the Same Equation

The Intrinsic Value Equation (simplified)

The Spectrum of Intrinsic Value

Intrinsic Value: Through The Lens of Future Growth

Mercado Libre

Overview of Mercado Libre

E-Commerce Segment

$64.5B

GMV

+26% YoY

Micro Growth Drivers:

Take Rate Expansion

• Expansion from Logistics and Ads
• Seller Fee has been flat since 2021

Items per Buyer rising:

• Items sold per Buyer up 15% YoY
• Share of buyers purchasing 3+ categories per month rose ~20ppts over 5 years

More Unique Buyers:

• Unique Buyers compounded at 23% since 2023

21%+

3P Take Rate

90% of Marketplace

120M+

Unique Active Buyers

+21% YoY

$16.3B

Commerce Revenue

+34% YoY

Macro Growth Drivers:

E-Commerce Penetration

• 14% vs 30%+ Potential

Tailwind from Cash to Online Payments

• Cash Halved, Cards Doubled

LATAM Demographics

• Young and increasingly wealthy

High Share of Solopreneurs

• ~90% of SMEs are Solopreneurs

E-Commerce Segment

Value-Added Services: Ads

Growth & Competition

• 67% FXN growth in Q4 2025
• Leader in Brazil, Mexico, Argentina
• Only 2% of GMV vs. 8% for Amazon (4x upside)
• Growing competition is Shopee

Ad Real Estate

• On- and offsite placements
• Potential on Mercado Pago
• Near-100% margin at scale
• Key margin expansion driver

The Spectrum of Intrinsic Value — Our Portfolio

Fintech Unit Economics

$12.5B

Credit Portfolio

+90% YoY

~20%

Risk-Adjusted

Margin

~3.5mo

Avg. Portfolio

Duration

Credit Quality:

• NPL: 15d 7%, 90d 17.5%
• Provision: 15d 105%, 90d 146%
• Nubank: 4% / 7% (comp)
• CC 15-90d NPL at historic low: 4.4%

Growth Drivers:

• Credit Cards: $5.7B (+114% YoY)
• Frequent repayment cycles
• More behavioral data from commerce
• Shift to more asset-backed loans
• Mature Margin Potential: 30%+

~$280B

Total Payment Volume

+40% YoY

Fintech

75%

Shipments within 48 hours

3x

Faster than competitors in Brazil and Mexico

30+

Fulfillment Centers

Full Fulfillment

Cross-Docking

Flex

• Equivalent to Amazon’s FBA
• Seller ships inventory to MELI warehouse
• MELI picks, packs, ships
• Most expensive and fastest

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• Seller ships sold items to MELI sorting hubs
• MELI consolidates and routes it through network
• Contracted Last-Mile delivery

• Seller ships directly to Buyer using MELI-contracted Courier
• MELI provides seller relationship (bulk discounts)

Logistics: An Unmatched Regional Network

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Logistics

The Flywheel / Moat

E-Commerce

More buyers → more sellers → better selection

Fintech

More checkouts → more Pago usage → higher trust

Logistics

More volume → denser network → faster delivery

Ads & Data

More data → better credit & ads → �more monetization

Competitive Landscape: Shopee

Overview:

• #2 behind Mercado Libre in Brazil
• More asset-lite but building logistics
• Avg. delivery time: 3-19 days
• Payment arm with Monee
• Willing to sacrifice margins
• If MELI loses lower tier, Shopee gets flywheel benefits

Difference in LATAM:

• Price > Convenience in LATAM
• Shopee would’ve lost in U.S., but competes in LATAM
• MELI likely to benefit from wealth increase
• MELI forces Shopee to subsidize with R$19 threshold

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Competition

Amazon & New Entrants: �Growing Pressure

Competition

Amazon

• Head-to-head with MELI in Mexico
• Launching free FBA logistics in Brazil
• Amazon Prime bundles attract affluent buyers
• Strong ad platform could compete
• MELI Capex in 2025: $1.3bn
• Amazon capex in 2025: $130bn

New Entrants

• TikTok Shop expanding in Brazil & Mexico
• Temu entering LATAM with ultra-low prices
• Social commerce may shift buyer behavior
• Multiple fronts compressing take rates

Margin Compression & �Macro Headwinds

Margins and Uncertainty

11.1%

2025 Operating

Margin

-450bps

Q4 Op. Margin

YoY Change

6.9%

2025 Net

Margin

Margin Concerns

• Free shipping subsidies may be permanently needed
• Sellers demanding lower take rates (competition)
• Heavy capex in logistics and 1P

Macro Headwinds

• Argentina hyperinflation
• FX volatility across LATAM
• Political & regulatory uncertainty

Valuation Scenarios

What Matters Going Forward

• What will “Maturity Margins” look like?
• What does Growth look like?
• When do Investment Cycles stop?
• Risks of the lending business

Intrinsic Value: Through The Lens of Valuation

Universal Music

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Why I Like Universal Music Group: Stable Oligopoly

Music is Beloved (and Under Monetized)

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Music is Beloved (and Under Monetized)

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Key Financial Metrics

€12.74B

Revenue (2025)

~16%

Operating Margin

11%

5y Revenue CAGR

46%

Avg. 5yr ROE

Capital Allocation

— Dividend: 50%+ of adj. earnings paid annually (~2%+ yield)�

— Low Reinvestment Needs: Capital-light model means excess cash for shareholders�

— Valuation: ~19.7x EBIT. Discount to inferior competitor: Warner Music (24x EBIT)

• ^^ Per capita music consumption rising globally
• 71% of people say music is critical to mental health
• 21 hours/week — average time people spend listening to music globally. That’s 18%+ of all waking hours.

The Macro & Micro

• Revenue up 60%, Operating Profit up 40+%, since 2021 IPO
• Stock down 20% from IPO price despite fundamentals
• Capital-light royalty on global music consumption

Stock Situation & Micro Tailwinds

Macro Tailwinds

Streaming industry growth

Three Pillars of Revenue

Recorded Music (~80%)

Master recordings — the actual sound wave.

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Every stream on Spotify, iTunes purchase, or Peloton ad using the track pays UMG. Marginal cost of another stream is near zero.

Music Publishing (~18%)

Composition rights — lyrics, melody, sheet music.

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Earned from covers, remixes, radio play, live concerts, bars/restaurants, and TV broadcasts. Inflation-linked and lasts decades.

Merch & Other (~2%)

Bravado merchandise, fan events, vinyl records, experiential content.

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Monetizes superfans who consume disproportionately. Growing as vinyl makes a comeback.

Growing fast: 9% 5-Yr CAGR

How The Money Flows

Subscriber

$10–20/mo

Premium subscription

or free w/ ads

Streaming Platform

Keeps ~30%

Spotify, Apple Music,

YouTube, etc.

Rights Holders

Receives ~70%

Labels (UMG) then

split with artists

Artists

50–60% of label’s share

Varies by deal;

stars get more

Why Streaming Changed Everything�

70%+ of all music streams are tracks older than 18 months — catalog music ages like wine, not milk. Viral TikTok moments can push decades-old songs back to #1.��Streaming flattened UMG’s revenue from spiky album cycles to an almost 24/7 annuity-like structure. Over 2/3 of total revenue now comes from streaming.

The Moat: A Tollbooth�on Global Music

Irreplaceable Catalog

• 4M+ tracks including The Beatles, Taylor Swift, Drake, BTS. �You can’t recreate Hey Jude
• Big 3 labels own 98% of top 1,000 singles

Negotiating Leverage Over Big Tech

• Spotify can’t exist without UMG’s catalog, but UMG existed long before Spotify
• TikTok’s user exodus during UMG’s brief takedown proved platforms need UMG more than UMG needs them

Global Scale & A&R

• Operations in 60+ countries with local A&R teams. Largest resources to sign, develop, and promote talent globally
• First dibs on emerging stars

Why Top Artists Stay With UMG

CEO Lucian Grainge + Billie Eilish

What Labels Do For Artists

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• Fund recordings & studio time upfront
• Market new songs/albums globally
• Build social media brand & presence
• Collect & distribute complex royalty payments
• Plan tours, fan events, merch
• Negotiate licensing across platforms

UMG takes the financial risk: If a $10M album flops, UMG absorbs the loss, not the artist.

A “Utility Stock for Pop Culture”

Like a Utility

• Consistent, annuity-like revenue stream

• Essential product everyone consumes daily

• Dividend payer (50%+ payout ratio)

• Low business risk: hard to imagine music consumption shrinking

Unlike a Utility

• Not regulated — can raise prices and grow freely

• Global growth runway (billions of unmonetized listeners)

• Pricing power over platforms (Spotify, YouTube, TikTok)

• IP compounds: new artists + catalog = growing moat

"It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price." — Warren Buffett

UMG is Trading Near its�Lowest Valuation Ever

The Pershing Square Proposal

April 7, 2026 — Bill Ackman proposes merging UMG with Pershing Square SPARC Holdings to create �“New UMG” listed on the NYSE

Transaction Structure

Per share: €5.05 cash + 0.77 shares New UMG�

Total cash: €9.4B funded by Pershing (€2.5B), SPARC rights holders (€1.05B), new debt (€5.4B), Spotify stake proceeds (€1.5B)�

17% share cancellation — New UMG will have 1.541B shares outstanding�

NYSE listing with U.S. GAAP financials → S&P 500 eligibility

Issues This Addresses

Bolloré overhang: Cash component lets them exit cleanly�

U.S. listing: NYSE + S&P 500 eligibility = broader investor base�

Capital allocation: All excess FCF after dividends → buybacks

�Governance: Michael Ovitz as Chairman + refreshed board

The Pershing Square Proposal cont.

The Upside Math

Offer to shareholders: �Monetize 23% of your position at €22/share valuation

+��Roll 77% of your investment into a re-listed, more levered, version of UMG w/improved governance

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UMG: The Bottom Line

Business’s Value Is Well Established Today, Fairly Priced, With Upside Optionality

A capital-light royalty on 1/3 of the world’s music — the “utility stock for pop culture”

Irreplaceable catalog (Beatles, Swift, Drake, BTS) + oligopoly positioning (Big 3 own 98% of top hits)

Streaming has flattened revenue into an annuity; 70%+ of streams are catalog tracks >18 months old

Global growth runway: paid streaming penetration still <5% in India, Brazil, Indonesia

Pershing Square merger could unlock significant shareholder value via NYSE listing, buybacks, and governance fixes

Added to our Portfolio at 7% weighting — a bond-like bet on ever-growing music royalties

Closing Thoughts

Value and Growth are Joined at the Hip

Intrinsic value derived from more tangibly observable cash flows

Intrinsic value derived from terminal value (longer-dated cash flows)

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The Spectrum of Intrinsic Value — Our Portfolio

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Intrinsic Value Portfolio — Weightings

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