Tag: US Market
Business Strategy & Outlook
Poshmark is among the largest apparel resale platforms on the market, boasting an interactive marketplace that benefits from a triumvirate of secular tailwinds: social commerce, an ongoing mix shift toward online retail sales, and the stratospheric growth of the apparel resale market. The firm’s strategy coalesces around four key priorities: product innovation, category expansion, international growth, and buyer acquisition. As a slew of firms have entered the resale space, competition has arisen around exclusive access to customers, inventory assortment, and distribution channels, with long-term equilibrium remaining uncertain. Consolidation looks inevitable, evidenced by the firm’s pending acquisition by narrow-moat South Korean Conglomerate Naver (expected to close in the first quarter of 2023), particularly as the scope of resale firms’ offerings see increasing category, price point, and geographic overlap. Poshmark’s right to win hinges on its ability to convincingly answer the “why Poshmark?” query, attracting platform participants with some combination of competitive seller services, frictionless listing, quick inventory turnover, attractive fees, broad assortment, and authentication services. Working in its favour, the firm now has access to the resources of a profitable multinational sponsor, affording investments in marketing and international expansion that were previously off the table as investors demanded a quicker route to profitability.
Each international market must be approached as a greenfield development, with local competitors boasting a home field advantage at the outset. Winning any of a handful of culturally similar markets (Canada, Australia, the U.K., Germany, France) would meaningfully expand the long-term addressable market, but the firm’s entry into India will remain dubious, which has proven notoriously difficult to monetize. Finally, the management is to target efforts at ameliorating the shipping pain point, with more diversified last-mile providers and a thrust toward higher-priced products likely helping to defray costs that currently constitute about a quarter of average order values, weighing on GMV growth.
Financial Strengths
Poshmark’s financial strength is sound. The firm carries no long-term debt, has $581 million in cash and cash equivalents on its balance sheet as of the second quarter of 2022, and the firm is to be free cash flow positive (operating cash flow plus capital expenditures) by 2024. The management has adequate wiggle room to pursue moat-bolstering investments, while narrowing operating losses should provide a route to enduring operating profitability by 2026. Provided that the firm realizes the planned $30 million run-rate synergies from its acquisition by narrow-moat South Korean conglomerate Naver, Poshmark could achieve operating profitability as early as 2024.Poshmark’s waterfall of investment priorities as consistent with other high growth firms: pursuing internal investments and strategic mergers and acquisitions. There’s no pressure building for shareholder returns through repurchases or cash dividends until the firm achieves operating profitability, with the model suggesting the inception of a modest repurchase program in 2027, though this timeline could be delayed by a strategic acquisition or more circuitous route to positive earnings. As Poshmark emerges from its high-growth phase, it will encourage management to consider optimizing the firm’s capital structure (adding debt) and initiating a cash dividend, but this remains a long-dated concern as forecasts don’t contemplate a dividend until 2030.
Bulls Say
- Five straight quarters of operating profitability during 2020 and 2021 (ending in the third quarter of 2021) suggest a strong underlying business model once customer acquisition costs normalize.
- Early traction in Australia and Canada could augur well for long-term success in those and other culturally similar markets.
- The firm’s planned acquisition by Naver could accelerate marketing spending, customer acquisition, and position Poshmark more effectively to win the peer-to-peer resale space.
Company Description
Poshmark is one of the largest players in a quickly growing e-commerce resale space, connecting more than 30 million active users on a platform that sells men’s and women’s apparel, accessories, shoes, and more recently consumer electronics and pet products. The marketplace operates in four countries–the U.S., Canada, Australia, and India–with a capital-light, peer-to-peer model that dovetails nicely with prevailing trends toward social commerce, apparel resale, and an ongoing pivot toward the e-commerce channel. With $1.8 billion in 2021 gross merchandise volume, or GMV, hence the firm captured about 13%-14% of the domestic online resale market, with rolling lockdowns and tangled supply chains providing a meaningful impetus for channel trial during 2020 and 2021.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
Alibaba is a Big Data-centric conglomerate, with transaction data from its marketplaces and logistics businesses allowing it to move into omnichannel retail, cloud computing, media and entertainment, and online-to-offline services. There’s a strong network effect allows leading e-commerce players to extend into other growth avenues, and nowhere is that more evident than with Alibaba. Alibaba’s internet services had annual active consumers of over 1 billion as of March 2022, versus the 1.2 billion online population in June 2022 per Quest mobile and the 1.4 billion population in China. This provides Alibaba with an unparalleled source of data that it can use to help merchants and consumer brands develop personalized mobile marketing and content strategies to expand their target audiences, increase click-through rates and physical store transactions, and bolster return on investment. Alibaba’s marketplace monetization rates have reduced recently, due to increased compliance of antitrust laws, more competition, and weak consumer sentiment. Gross merchandise volume per annual active user was CNY 8,833 for the year ended March 2022 for Alibaba, higher than CNY 3,285 in 2021 for Pinduoduo and CNY 5,905 in 2021 for JD.
The Taobao/Tmall marketplaces as Alibaba’s core cash flow drivers, it is also believed AL iCloud and globalization offer long-term potential. While AL iCloud will remain in investment mode in the medium term, accelerating revenue per user suggests a migration to value-added content delivery and database services that can drive segment margins higher over time. On globalization, third-party merchants are successfully reaching Lazada’s users across Southeast Asia, something that should continue as the company rolls out incremental personalized mobile marketing and content opportunities.
Financial Strengths
Alibaba is in sound financial health. As of December 2020, the company had CNY 456 billion in cash and unrestricted short-term investments on its balance sheet against CNY 117 billion in short- and long-term bank borrowing and unsecured senior notes. Although Alibaba remains in investment mode, the strong cash flow profile of its e-commerce marketplaces offers it the financial flexibility to continue investing in technology infrastructure and cloud, research, marketing, and user experience initiatives through its current balance sheet and strong cash flow profile. Additionally, the company has the capacity to add leverage to its capital structure, which could allow it to take advantage of low borrowing rates to fund growth initiatives, introduce a cash dividend when it sees limited investment opportunities with good returns on investment, or repurchase shares. The company is to pursue acquisitions that could further improve its ecosystem, including online-to-offline, physical retail, and increased logistic capacity or capabilities.
Bulls Say
- Gross merchandise volume per annual active user was CNY 8,833 for the year ended March 2022 for Alibaba, higher than CNY 3,285 in 2021 for Pinduoduo and CNY 5,905 in 2021 for JD.
- Core annual active users on Alibaba’s China retail marketplaces had a retention rate of over 90% for the year ended September 2021.
- Alibaba’s China commerce adjusted EBITA margin was 32.5%, higher than JD Retail’s 3.1% non-GAAP EBIT margin and PDD’s 12.4% non-GAAP EBIT margin for the 12 months ended December 2021.
Company Description
Alibaba is the world’s largest online and mobile commerce company as measured by gross merchandise volume (CNY 7.5 trillion for the fiscal year ended March 2021). It operates China’s online marketplaces, including Taobao (consumer-to-consumer) and Tmall (business-to-consumer). Alibaba’s China commerce retail division accounted for 63% of revenue in the September 2021 quarter. Additional revenue sources include China commerce wholesale (2%), international retail/wholesale marketplaces (5%/2%), cloud computing (10%), digital media and entertainment platforms (4%), Cainiao logistics services (5%), and innovation initiatives/other (1%).
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
Carnival remains the largest company in the cruise industry, with nine global brands and 91 ships as of October 2022. The global cruise market has historically been underpenetrated, offering cruise companies a long-term demand opportunity. Additionally, in years prior to the pandemic, the repositioning and deployment of ships to faster-growing and under-represented regions like Asia-Pacific had helped balance the supply in high-capacity regions like the Caribbean and Mediterranean, aiding pricing. However, international travel has waned as a result of COVID-19, which could spark longer-term secular shifts in consumer behavior, challenging the economic performance of Carnival over an extended horizon. As consumers have resumed cruising since the summer of 2021 (after a year-plus no-sail halt), cruise operators have been able to reassure passengers of both the safety and value propositions of cruising (offering a holiday product at 25%-50% less than land alternatives).
On the yield side, Carnival is to see some pricing pressure as future cruise credits continue to be redeemed through 2023, a headwind partially mitigated by the return of capacity via rising occupancy. And on the cost side, higher spend to maintain tighter health protocols should begin to alleviate in 2023, helping manage expenses. Higher than normal dry dock days could temper profits as the fleet is redeployed, crimping near-term profitability. As of Sept. 30, 2022, 95% of capacity was already deployed and eight of the company’s nine brands will have their entire fleets sailing by year-end. These persistent concerns, in turn, should lead to average returns on invested capital including goodwill, that are set to languish below the 10.4% weighted average cost of capital estimate until 2028, which supports no-moat rating.
Financial Strengths
Carnival has secured adequate liquidity to survive its slow resumption of cruising, with around $7 billion in cash and investments at the end of September 2022. This should help finance the little cash burn remaining through the end of the redeployment ramp-up, which earlier in the pandemic had run around $500 million or more per month. The company has raised significant levels of debt since the onset of the pandemic with $35 billion in total debt, up from around $12 billion at the end of 2019. The company is focused on reducing debt service as soon as reasonably possible in order to reduce future interest expense. It has also actively pursued the extension of maturities, limiting the cash demand on debt service over the near term. By math, Carnival has more than one year’s worth of liquidity to operate successfully in a no-revenue environment. There’s no imminent credit crunch in the near term, as long as capital markets continue to function properly. Liquidity remains accessible, as Carnival was able to issue $1 billion in senior unsecured notes during its second quarter (due 2030), which was set to help refinance certain 2023 debt maturities while supporting capital spend. In August, Carnival was also able to extend the maturity (to 2024) of its convertible notes while maintaining the original rate (5.75%). Additionally, in order to free up cash to support operating expenses, Carnival eliminated its dividend in 2020 ($1.4 billion in 2019). Another $4.8 billion in current customer deposits were on the balance sheet, offering working capital that can be utilized to run the business and indicating demand for cruising still exists. And equity markets have also been accommodating, with the company facilitating a $500 million at-the-market equity raise in early 2022, indicating access to cash remains.
Bulls Say
- As Carnival continues to deploy its fleet, passenger counts and yields could rise at a faster pace than the current capacity limitations are repealed.
- A more efficient fleet composition (after pruning 23 ships since the onset of the pandemic) may benefit the cost structure to a greater degree than initially expected, as sailings fully resume.
- The nascent Asia-Pacific market should remain promising post-COVID-19, as the four largest operators had capacity for nearly 4 million passengers in 2020, which provides an opportunity for long-term growth with a new consumer.
Company Description
Carnival is the largest global cruise company, with 91 ships in its fleet at the end of fiscal 2021, with all of its capacity set to be redeployed in 2022. Its portfolio of brands includes Carnival Cruise Lines, Holland America, Princess Cruises, and Seabourn in North America; P&O Cruises and Cunard Line in the United Kingdom; Aida in Germany; Costa Cruises in Southern Europe; and P&O Cruises in Australia. Carnival also owns Holland America Princess Alaska Tours in Alaska and the Canadian Yukon. Carnival’s brands attracted about 13 million guests in 2019, prior to COVID-19.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
Netflix is a pioneer in subscription video on demand and is now the largest online video provider in the U.S. and the world. The economic moat rating of narrow is based on intangibles resulting from the use of data stemming from the firm’s massive worldwide subscriber base. From its origin in the U.S., Netflix expanded rapidly into markets abroad as the service now has more subscribers outside of the U.S. than inside. The firm has used its scale to construct a massive data set that tracks every customer interaction. It then leverages this customer data to better purchase content as well as finance and produce original material such as “Stranger Things.” However, the firm has recently ramped up its production using more traditional methods. Many consumers use, and will continue to use, SVODs like Netflix as a complementary service, especially as SVOD prices increase and pay television bundle prices decrease (due to the shift to over-the-top, or OTT, delivery). With a number of new services from media firms launched over the last five years, many consumers now pay for or have access to multiple services.
One potential issue for these platforms is the potential for consumers to move between the services with minimal friction. This usage pattern and increased competition will constrain Netflix’s ability to raise prices without inducing greater churn. Netflix will trial an ad-supported tier in fourth-quarter 2022 into 2023 as the firm looks to capture potential subscribers that were unwilling to pay the ad-free price. While the potential audience could be large, particularly in emerging markets, management will need to ensure that the lower-priced tier doesn’t cannibalize the full-price subscriber base in more saturated markets like the U.S. Netflix will expand further into local-language programming to augment its offering in many countries. This will generate a competitive response from the firm’s global and local rivals, which will augment their own first-party content budgets. In turn, Netflix’s international expansion will continue to hamper margin expansion.
Financial Strengths
Netflix’s financial health is poor due to its weak free cash flow generation, large number of content investments that require outside funding (primarily debt), and content obligations. Debt has been taken on to fund additional content investments and international expansion. The company’s weak free cash flow due to this spending is a concern, as one doesn’t see the need to spend decreasing in the near future. The net cash burn was over $2 billion in 2017, over $3 billion in 2018, and $3.5 billion in 2019. While the firm generated positive free cash in 2020 due to pandemic-related production shutdown, Netflix returned to a slight cash burn in 2021. As of June 2022, Netflix has $14.2 billion in senior unsecured notes that do not have borrowing restrictions, but a relatively small amount due in the near term ($700 million due 2022, $400 million due 2024, and $800 million due 2025), as the firm generally issues debt with a 10-year maturity. Netflix also has a material quantity of noncurrent content liabilities ($3.0 billion recognized on the balance sheet and $15.6 billion not yet reflected on the balance sheet).
Bulls Say
- Netflix’s internal recommendation software and large subscriber base give the company an edge when deciding which content to acquire in future years.
- Netflix has built a substantial content library that will benefit the firm over the long term.
- International expansion offers attractive markets for adding subscribers.
Company Description
Netflix’s primary business is a streaming video on demand service now available in almost every country worldwide except China. Netflix delivers original and third-party digital video content to PCs, internet connected TVs, and consumer electronic devices, including tablets, video game consoles, Apple TV, Roku, and Chromecast. In 2011, Netflix introduced DVD-only plans and separated the combined streaming and DVD plans, making it necessary for subscribers who want both to have separate plans.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.