Dear Partners,
We are pleased to report that 2024 was an excellent year for Rowan Street, with our fund achieving a net gain of +56.6%, significantly outperforming the S&P 500’s +25.0% total return. The biggest contributors to our outperformance were Meta (+66%), Spotify (+138%), theTradeDesk (+63%), Shopify (+37%), and Netflix (+83%).
A Defining Moment and The Comeback
The past three years have been formative for Rowan Street, marked by the challenges of 2021-2022—a period that required deep reflection and, ultimately, a strong resurgence in performance. In June 2022, we outlined our refined investment philosophy in The Next Chapter for Rowan Street, reaffirming our commitment to the long-term ownership of what we believe to be a select few exceptional businesses. These businesses are led by visionary, passionate, and mission-driven leaders—preferably Founder CEOs—who act as owner-operators and treat shareholders as partners. These entrepreneurs share our long-term mindset, prioritize enduring value creation, and embody the qualities we believe are essential for extraordinary success.
Exceptional businesses are rare, and opportunities to acquire them at sensible prices are even rarer. Our focus is on buying right and holding on—a task that may sound simple but, in practice, demands extreme patience, discipline, and an unwavering belief in the underlying quality of the businesses we own.
Since the 2022 drawdown, our primary focus has been to rebuild value for our investors. We are pleased to report that Rowan Street has rebounded significantly, with our portfolio appreciating by +217% (net) since 2022—thank you for your patience and trust!
Importantly, we have not collected any performance fees since June 2021, when we last reached our High Water Mark (HWM). Our compensation structure ensures we only get paid when we deliver value to our investors—a principle we remain deeply committed to.
Notably, during this period, we maintained our investments in the same core group of companies (we will go through them in detail later in this letter), as outlined in our Next Chapter for Rowan Street letter. These businesses have continued to deliver strong business results, and the robust returns in 2023 and 2024 are a testament to their resilience and long-term compounding potential.
Our Guiding Principles
Our recent success underscores the soundness of our refined investment strategy and the foundational values that guide everything we do. Over the years, as we’ve gained experience and learned from both successes and mistakes, we’ve revisited and sharpened our approach to better reflect the lessons we’ve absorbed.
The Guiding Principles we have outlined aren’t just something nice to have on our website; they are the cornerstone of how we operate and make investment decisions. Our primary goal in refining these is to provide clear direction for future decisions, ensuring that we, as managing partners, remain grounded and avoid costly distractions. Additionally, we hope these principles will help new investors understand the philosophy driving the selection process for the companies in our portfolio. We strongly encourage you to review our updated investment framework.
Looking ahead, we are committed to managing the fund with the same discipline and focus that have defined our recent success. The lessons we’ve learned and the values we’ve solidified during this period now form the bedrock of our approach to building long-term value.
We are profoundly grateful for the trust and confidence you’ve placed in us and remain as committed as ever to compounding your capital in the years to come.
Top Five Holdings
Below, we’ve outlined the historical annual returns for the five largest holdings in our portfolio. As you’ll notice, stock prices often exhibit wild swings from year to year, driven by the ever-changing moods of Mr. Market. The emotional extremes have been particularly pronounced over the past five years. However, businesses themselves don’t change their fundamentals nearly as rapidly as stock prices suggest. Over time, the market inevitably aligns with the underlying performance of the business, even if it takes a detour or two along the way. Below, we’ll delve into the fundamentals of these companies and examine how they’ve translated into their longer-term stock price performance.
Meta Platforms (META)
Investment Initiated: April 2018
Internal Rate of Return (IRR*): 22%
*IRR represents the annualized rate of return on an investment, accounting for the timing and magnitude of cash flows over the holding period.
For META, our 22% IRR aligns closely with the company’s compounded growth in earnings per share (EPS) and free cash flow per share during the six-year holding period, as shown below:
Looking ahead, Meta is expected to grow its revenues, earnings, and free cash flow per share at mid-teens rates over the next two years. There’s a good possibility that it could exceed these estimates, considering the breadth of growth initiatives currently in place, such as advancements in AI, monetization of Reels, expansion into business messaging, and the ongoing development of the metaverse.
We’ve written extensively about Meta Platforms (META) over the past few years. For a deeper dive into our thoughts and analysis, we encourage you to review our November 2022 Note: Does a $750 billion decline in Meta’s market cap make sense? and our Q3 2023 Letter: Meta Platforms (META): $550 billion rebound in market cap in less than a year.”
Spotify (SPOT)
Investment Initiated: May 2018
Internal Rate of Return (IRR): 14%
Our IRR for Spotify, while solid, has been influenced by the timing and size of our investments. Over the past six years, the company has achieved exceptional growth in users, revenues, and gross profits—as highlighted in the chart below. However, our IRR does not fully reflect this growth due to the cash flows involved in building our position.
We began buying Spotify shares in 2018 at an initial cost basis of $135 per share but continued to add to the position over the years, ultimately raising our average cost basis to $216 per share. Had we maintained our initial cost basis, the IRR on this investment would have been closer to 22%, which better aligns with Spotify’s fundamental growth in key metrics such as Monthly Active Users (MAU), revenues, and gross profits.
In early December, we published an article titled, From $15 Billion to $100 Billion: Lessons from Our Spotify (SPOT) Investment, and we encourage you to review it for additional insights into this investment.
theTradeDesk (TTD)
Investment Initiated: March 2020
Internal Rate of Return (IRR): 54%
TheTradeDesk has been our most successful investment to date. March 2025 will mark five years since we opportunistically initiated our position at a cost basis of $17.40 (split-adjusted). Since then, TTD has appreciated more than sevenfold, delivering an annualized return of approximately 54%.
These exceptional results far outpace the company’s strong fundamental growth, with revenues and earnings compounding at approximately 25% annually over this period (refer to the table below). The primary reason for this outsized return lies in the price at which we were able to acquire TTD during the early days of the pandemic, when market fears briefly drove it down to just 10x revenues. Today, the valuation has expanded significantly to approximately 25x revenues, amplifying our returns.
This investment underscores the critical importance of opportunistic entry points. While identifying extraordinary businesses is essential, the price you pay for them does matter.
Looking ahead, TTD is expected to grow its revenues, earnings, and free cash flow at rates north of 20%. While the stock’s current valuation is lofty and reflects significant enthusiasm for the company’s long runway for growth, we believe its strong fundamentals will drive solid returns over time. Even if valuation multiples were to compress, which we expect they might, we still anticipate a solid return from our position—potentially doubling our investment over the next five years.
Shopify (SHOP)
Investment Initiated: February 2022
Internal Rate of Return (IRR): 23%
Our IRR for Shopify aligns closely with the growth in revenues and gross profits the company has delivered over the past three years since we first purchased it in February 2022 (as shown in the table below). However, the path to achieving this return has been far from smooth—as is often the case with investments.
In fact, for the first 2.5 years of holding Shopify, our position generated little to no return. Nearly all of the gains have come within the past six months. This illustrates a fundamental principle of long-term investing: the longer your holding period, the more closely your returns will reflect the underlying fundamentals of the business.
Looking ahead, Shopify is expected to grow its revenues and gross profits at rates north of 20% annually over the next two years, with cash flow from operations projected to grow in the high 20s as the company continues to convert more of its revenues into cash. While Shopify’s valuation multiples remain lofty—as they almost always do—this reflects Mr. Market’s recognition of the massive opportunity the company has in the e-commerce space. Even if market enthusiasm for Shopify’s long-term growth moderates in the coming years, which we expect it likely will, we still anticipate generating respectable double-digit annual returns from this investment.
Topicus (TOI.V)
Investment Initiated: March 2021
Internal Rate of Return (IRR): 16%
As a reminder, Topicus is a Dutch company that acquires, manages, and builds vertical market software (VMS) businesses, primarily in Europe. These businesses provide mission-critical software solutions tailored to the specific needs of customers within particular vertical markets. Topicus was spun off from Constellation Software, a Canadian company, in February 2021. It was established as an independent, publicly traded entity and merged with Total Specific Solutions (TSS), a key player in the European VMS sector.
We initiated our position in Topicus shortly after its spin-off in March 2021. Since then, our Internal Rate of Return (IRR) on this investment has been 16%—a satisfactory rate, though below the company’s impressive fundamental performance over the same period (see table below). Revenues and operating income have grown at a robust 21% annual rate, while operating cash flow per share has increased by 18% annually.
The primary reason for the gap between our IRR and Topicus’s fundamentals is a modest compression in valuation multiples. This decline reflects tempered growth expectations as the pace of acquisitions has recently slowed. This slowdown suggests to us that management is being disciplined in the current environment and finding fewer attractive acquisition opportunities.
We have confidence in the management team’s judgment and expect them to maintain their disciplined acquisition strategy. Looking ahead, we anticipate growth to reaccelerate over the next several years as the company continues to identify and execute on high-quality opportunities in the European VMS sector.
As always, it’s a privilege to manage your capital, and we sincerely appreciate the trust and confidence you‘ve placed in us. We look forward to updating you again at the end of the first quarter, and we are always around if you would like to chat.
Best regards,
Alex and Joe
DISCLOSURES
The information contained in this letter is provided for informational purposes only, is not complete, and does not contain certain material information about our fund, including important disclosures relating to the risks, fees, expenses, liquidity restrictions and other terms of investing, and is subject to change without notice. The information contained herein does not take into account the particular investment objective or financial or other circumstances of any individual investor. An investment in our fund is suitable only for qualified investors that fully understand the risks of such an investment. An investor should review thoroughly with his or her adviser the funds definitive private placement memorandum before making an investment determination. Rowan Street is not acting as an investment adviser or otherwise making any recommendation as to an investor’s decision to invest in our funds. This document does not constitute an offer of investment advisory services by Rowan Street, nor an offering of limited partnership interests our fund; any such offering will be made solely pursuant to the fund’s private placement memorandum. An investment in our fund will be subject to a variety of risks (which are described in the fund’s definitive private placement memorandum), and there can be no assurance that the fund’s investment objective will be met or that the fund will achieve results comparable to those described in this letter, or that the fund will make any profit or will be able to avoid incurring losses. As with any investment vehicle, past performance cannot ensure any level of future results. IF applicable, fund performance information gives effect to any investments made by the fund in certain public offerings, participation in which may be restricted with respect to certain investors. As a result, performance for the specified periods with respect to any such restricted investors may differ materially from the performance of the fund. All performance information for the fund is stated net of all fees and expenses, reinvestment of interest and dividends and include allocation for incentive interest and have not been audited (except for certain year end numbers). The methodology used to determine the Top 5 holdings is the largest portfolio positions by weight. The top 5 do not reflect all fund positions. The Top 5 can and will vary at any given point and there is no guarantee the fund will meet any specific level of performance. Net returns presented are net of fund expenses and pro-forma performance fees. Rowan Street Capital does not charge fixed management fees.