I was pleased to read earlier today that Eugene Fama et al received the Nobel Prize for Economics. Given that Fama's work form the foundation of modern corporate finance and corporate finance research, this is a great result! My favourite papers must be on the topic of random walks and efficient market hypothesis from the 60s and 70s. The Nobel award however are recognising their work on market price movements.
In other news, I'm currently reading 'Superfreakonomics' - the sequel to 'Freakonomics'- which is as mad as the title suggests. It is worthy of an analysis in a future post!
Monday 14 October 2013
Tuesday 1 October 2013
Discounters go big
THE US budget situation is big news, but I am actually finding something else far more interesting at the moment.
Poundland, the UK's best known 'pound shop' chain, is possibly heading for an IPO and definitely heading for growth. Strong sales (£880 million at the March 2013 year end) has driven the firm to open 1000 stores in the UK and Ireland in the coming years; currently there are 458 stores in both countries.
Likewise, the situation is much the same for Aldi, the German discount supermarket chain. Next month, it will open its 500th Aldi store (and more subsequently), based on strong performance in the past year (pre-tax profit of £157.9 million in 2012, an increase of 124% from 2011). Some of these stores will be based in more affluent areas in the UK to reflect changing demographics of the store's customers. It will also create premium lines for Christmas and other products to draw in sales. In fact, Aldi is the UK's fastest growing supermarket, challenging the likes of Tesco and Asda. For now however, Aldi only has 3.7% of the market share whereas Tesco holds 30%.
There are a few factors driving the growth of large discount retailers. Aldi, for example, partially appeals to customers due to their sourcing of local produce from meat to fruit & veg. More generally, the discount retail sector is becoming more mainstream and more 'integrated' into the industry. The fact that the mindset for many consumers at present is to spend less where possible also contributes to this somewhat 'boom'.
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| Will you be shopping here? |
We've seen a string of high street casualties but Aldi and Poundland - which stocks the goods we depend on for daily living - certainly won't be added to that list.
JH
Friday 20 September 2013
Breaking BlackBerry news
There is quite exciting BlackBerry news going on at the moment. The company has taken a dramatic turn for maybe the worst...their shares are suspended for trading in New York and Toronto and a 40% global workforce cut will result. The driving factor is a huge projected and somewhat unexpected Q2 loss...follow it now, if you're interested!
Thursday 19 September 2013
A busy summer for TMT
OF ALL sectors this summer, many of the largest and many of the high profile deals have originated from the TMT sector. Most recently, there was the Verizon $130 billion buyout of Vodafone's stake in Verizon Wireless. Total TMT buyouts of this past quarter amounted to $240 billion worldwide. Total M&A deals in this period reached $520 billion worldwide, surpassing many previous quarters. One recent notable M&A transaction is Microsoft's acquisition of Nokia phone business for 5.4 billion euros.
So after a few uncertain years, it is suffice to say that the era of 'big deals' and corporate confidence are making a return. However, it is worth noting that TMT is a far more innovative and fast paced an industry than say, consumer retail. Given the speed of innovation (think how often the likes of Samsung or HTC or Blackberry release a new product/version of an existing product), strategic moves of M&A or buyouts are the easiest and quickest way to hedge against competition. Innovating organically could be too slow and ergo, useless. Further, I believe that such deals were not snap strategic decisions; in fact, they probably have been contemplated for a while. The time to execute them now is attractive because of a potential rise in interest rates, raising the cost of capital and - related to the previous point - due to the increased pace of innovation and the associated competition.
After these strategic moves, I believe there could be more coming along. In the Vodafone and Verizon case, this deal could put pressure on competitors such as AT&T to make strategic moves, such as speeding up their plan to tap into the European market. This transaction has also granted Vodafone with a considerable amount of cash. With this cash, it makes sense for them to enter into acquisitions. Conversely, Vodafone could be targeted themselves.
Lenovo is looking to acquire in the area of smartphones and tablets. Blackberry is considering their sale. I don't think this would be an unlikely match as their is much synergy between the two. Much of their products are created for business but Blackberry's breakthrough to consumers in recent years coupled with Lenovo as a tech power could send more challenge to Apple/iOS or Android phones than Blackberry or Lenovo doing it alone. On a related note, Lenovo ended their interest for HTC over a year ago, blaming HTC's poor quality products. Nevertheless, Chinese firms, ZTE and Huawei, who are more equipment makers at the moment, could make a bid for HTC especially when HTC's shares are trading exceptionally low compared to two years ago. The question is when? I would say not this year. The HTC One - their flagship model - has been doing well and the company's outlook is not too weak.
There has also been talk of Microsoft to sell its Xbox business - now that Ballmer is leaving - as a stand alone one for around $17 billion. Xbox, despite its widespread popularity, actually produces one of the lowest margins and does not help to sell the company's core products. I think Xbox could be a successful entity by itself and there is plenty of room for growth, but only if it can access enough investment for R&D to survive competition. Microsoft's cash pot will no longer be accessible!
Meanwhile in Japan, Yahoo! Japan is also seeking out acquisitions to expand their mobile products for smartphones within Japan. I believe we can expect announcements here shortly; their hiring of former Goldman Sachs M&A VP, Ryu Hirayama, shows Yahoo! is serious.
I think that one of the most interesting things about the current TMT sector is that it creates opportunities for other sectors. For example, apps have made digital advertising huge and we saw the $35 billion merger of Omnicom and Publicis to form one giant advertising house.
So after a few uncertain years, it is suffice to say that the era of 'big deals' and corporate confidence are making a return. However, it is worth noting that TMT is a far more innovative and fast paced an industry than say, consumer retail. Given the speed of innovation (think how often the likes of Samsung or HTC or Blackberry release a new product/version of an existing product), strategic moves of M&A or buyouts are the easiest and quickest way to hedge against competition. Innovating organically could be too slow and ergo, useless. Further, I believe that such deals were not snap strategic decisions; in fact, they probably have been contemplated for a while. The time to execute them now is attractive because of a potential rise in interest rates, raising the cost of capital and - related to the previous point - due to the increased pace of innovation and the associated competition.
After these strategic moves, I believe there could be more coming along. In the Vodafone and Verizon case, this deal could put pressure on competitors such as AT&T to make strategic moves, such as speeding up their plan to tap into the European market. This transaction has also granted Vodafone with a considerable amount of cash. With this cash, it makes sense for them to enter into acquisitions. Conversely, Vodafone could be targeted themselves.
Lenovo is looking to acquire in the area of smartphones and tablets. Blackberry is considering their sale. I don't think this would be an unlikely match as their is much synergy between the two. Much of their products are created for business but Blackberry's breakthrough to consumers in recent years coupled with Lenovo as a tech power could send more challenge to Apple/iOS or Android phones than Blackberry or Lenovo doing it alone. On a related note, Lenovo ended their interest for HTC over a year ago, blaming HTC's poor quality products. Nevertheless, Chinese firms, ZTE and Huawei, who are more equipment makers at the moment, could make a bid for HTC especially when HTC's shares are trading exceptionally low compared to two years ago. The question is when? I would say not this year. The HTC One - their flagship model - has been doing well and the company's outlook is not too weak.
There has also been talk of Microsoft to sell its Xbox business - now that Ballmer is leaving - as a stand alone one for around $17 billion. Xbox, despite its widespread popularity, actually produces one of the lowest margins and does not help to sell the company's core products. I think Xbox could be a successful entity by itself and there is plenty of room for growth, but only if it can access enough investment for R&D to survive competition. Microsoft's cash pot will no longer be accessible!
Meanwhile in Japan, Yahoo! Japan is also seeking out acquisitions to expand their mobile products for smartphones within Japan. I believe we can expect announcements here shortly; their hiring of former Goldman Sachs M&A VP, Ryu Hirayama, shows Yahoo! is serious.
I think that one of the most interesting things about the current TMT sector is that it creates opportunities for other sectors. For example, apps have made digital advertising huge and we saw the $35 billion merger of Omnicom and Publicis to form one giant advertising house.
JH
Sunday 15 September 2013
Tokyo 2020: An all-over confidence boost
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| And its congratulations to Toyko; commiserations to Madrid and Istanbul |
IN CASE you haven't heard the news, earlier this week, Tokyo was selected by a majority vote to become the host city of the 2020 Olympic Games. Sure, its seven years away but the Games have already had a positive effect right from the moment of announcement. The Topix Index rose 2.2% and unsurprisingly, winners were construction, tourism and real estate companies. The biggest performers included Taisei Corp, a building firm expected to play a role in the Games' infrastructure, who rose by 14% on the day of the announcement. This rally is of course short-lived, but the shares of companies in real estate, infrastructure, construction, transport, tourism and retail related to the Games are valuable equity to hold overall - I see growth in these. Coupled with 'Abenomics' (read about it here), the Olympics is something that will boost consumer confidence and their mood, the optimism of investors and output. It is a force that will help halt Japan's two decades of deflation. You could say that Tokyo 2020 is the fourth arrow of Abenomics. It has been predicted by Japan's bid team that the Games will create 150,000 jobs in Japan and generate $30 billion. The government estimated that an additional 0.3% of GDP will be generated. This is quite a modest amount and I believe it will be more similar to that of the UK's, at 0.6%-0.7%.
The Olympic Village will be in close proximity to Tokyo Bay, which has seen its share of problems over the past 20 years such as abandonment and deflation of property prices. With the Games, I see property price in this area rising a considerable amount due to rejuvenation - influx of people, businesses, shops, transport, parks, stadiums - into the area, just as Tokyo 1964 turned the wasteland of Komazawa into an Olympic Village and then into a trendy neighborhood in central Tokyo. An example closer to home would be Stratford. The development of Tokyo Bay will benefit landowners - prominent corporate owners include Mitsubishi Estate and Daiwa House Industry who have already seen their stocks rally. From the property developers and real estate side, I suppose they are also eager to make Tokyo become a hot property market in Asia again.
In the next post: I will discuss some recent M&A deals that have interested me
JH
Tuesday 10 September 2013
Move over, Moshi Monsters
I HAVE a much younger sibling and about two years ago, from her, I learnt of something called Moshi Monsters. You may have heard of Moshi Monsters and you have probably 'seen' it around from their copious and varied range of merchandise that is widely available So, what is Moshi Monsters? Well, Moshi Monsters is an online virtual game that allows the user to choose from one of six pets to care for. It is also a social environment where users can add friends, send messages or virtual gifts.The aim of the game is for the user to create a 'home' for the pet; items are bought with 'rox' (Moshi Monster currency) earned from playing games or completing tasks. Users can purchase premium membership to access the underground disco and such like things... From seeing the game myself, the interface is relatively simple and I would say that it is aimed at the ages of 7-10. But realistically, because the interface is simple, children will bored playing the game beyond the age of 8-9, a point I will return to later.
Moshi Monsters was developed and released by Mind Candy (a UK company) in 2008 and interest in it was slow at first. But by the end of 2009, it had 10 million users. Now, there are over 80 million users globally. I believe that this success can be attributed towards Mind Candy's first mover advantage into a market that did not really cater for young children, who are ever so comfortable with technology, games and the web. It is also built on the idea of 'nurturing' which kids love. 90s kids like me may not have played Moshi Monsters but we will fondly remember caring for the 'aliens' in eggs, Furby, Tamagotchi or even caring for our Neopets (another virtual pet game for slightly older users still up and running today). The communication and social media features of Moshi Monsters also helped it to take off.
In terms of revenues, Moshi Monsters makes half from premium memberships which of course, all the kids want their parents to pay for. The other half comes from merchandise where Mind Candy receives around 15-20% in royalties. Currently, there are 130 licensing deals including one with McDonald's Happy Meals. In March 2013, Mind Candy announced "£250 million of total gross retail", so approximately £37.5-£50 million could be Mind Candy revenue. The last set of results filed were in 2011, where it made £28.7 million in revenues and £7.4 million in profits.
There was talk of a Mind Candy IPO last year aimed at in a few years time. But for now, Moshi Monsters is facing considerable challenges so I believe that until Moshi Monsters can tackle its challenges head on, it shouldn't even consider an IPO.
So if reading about Moshi Monsters makes you slightly confused, then now try to consider Bin Wheevils - Moshi Monsters' arch enemy. Without going into much detail (because I don't really understand the game myself having not played it!), Bin Wheevils, founded in 2008 under Nickelodeon is also a virtual gaming environment allowing kids to create a character (a wheevil-like creature that lives in a bin) and take it around in a virtual city on all kinds of adventures. It has a grimy and slimy undertone to it all, which is why I suppose kids love it. Currently, there are around 20 million users worldwide and 30,000 users are signing up daily. Like Moshi Monsters also, there is a premium membership option and its merchandise are fast filling up in the many aisles of major retailers globally. While it is behind Moshi Monsters in terms of user count, it will prove be far more popular with youngsters in the long term because Bin Wheevils provides a far more entertaining, fun and an interactive and social environment which makes it difficult for users to log off. I have been told by my sister that every time she visits Moshi Monsters, the virtual streets are empty but on Bin Wheevils, the streets are so crowded that she can barely see her character. This tells a story: the truth is that Moshi Monsters has become boring with its limited features and games. Kids are instead turning to Bin Wheevils. It also seems that the Bin Wheevils themselves have more persona and character than the Moshi Monsters. Mind Candy Entertainment is no longer so entertaining.
Moshi Monster's plan is to go more global - break into the US more and into the Far East as well enter into tablet gaming for children (which will be a challenging venture in itself). It is also hiring game developers for their San Francisco office to launch new games. However, no one at Mind Candy has quite realised that many of their features and the monster characters have become just dull. And dullness in the gaming market is detrimental.
JH
Moshi Monsters was developed and released by Mind Candy (a UK company) in 2008 and interest in it was slow at first. But by the end of 2009, it had 10 million users. Now, there are over 80 million users globally. I believe that this success can be attributed towards Mind Candy's first mover advantage into a market that did not really cater for young children, who are ever so comfortable with technology, games and the web. It is also built on the idea of 'nurturing' which kids love. 90s kids like me may not have played Moshi Monsters but we will fondly remember caring for the 'aliens' in eggs, Furby, Tamagotchi or even caring for our Neopets (another virtual pet game for slightly older users still up and running today). The communication and social media features of Moshi Monsters also helped it to take off.
In terms of revenues, Moshi Monsters makes half from premium memberships which of course, all the kids want their parents to pay for. The other half comes from merchandise where Mind Candy receives around 15-20% in royalties. Currently, there are 130 licensing deals including one with McDonald's Happy Meals. In March 2013, Mind Candy announced "£250 million of total gross retail", so approximately £37.5-£50 million could be Mind Candy revenue. The last set of results filed were in 2011, where it made £28.7 million in revenues and £7.4 million in profits.
There was talk of a Mind Candy IPO last year aimed at in a few years time. But for now, Moshi Monsters is facing considerable challenges so I believe that until Moshi Monsters can tackle its challenges head on, it shouldn't even consider an IPO.
So if reading about Moshi Monsters makes you slightly confused, then now try to consider Bin Wheevils - Moshi Monsters' arch enemy. Without going into much detail (because I don't really understand the game myself having not played it!), Bin Wheevils, founded in 2008 under Nickelodeon is also a virtual gaming environment allowing kids to create a character (a wheevil-like creature that lives in a bin) and take it around in a virtual city on all kinds of adventures. It has a grimy and slimy undertone to it all, which is why I suppose kids love it. Currently, there are around 20 million users worldwide and 30,000 users are signing up daily. Like Moshi Monsters also, there is a premium membership option and its merchandise are fast filling up in the many aisles of major retailers globally. While it is behind Moshi Monsters in terms of user count, it will prove be far more popular with youngsters in the long term because Bin Wheevils provides a far more entertaining, fun and an interactive and social environment which makes it difficult for users to log off. I have been told by my sister that every time she visits Moshi Monsters, the virtual streets are empty but on Bin Wheevils, the streets are so crowded that she can barely see her character. This tells a story: the truth is that Moshi Monsters has become boring with its limited features and games. Kids are instead turning to Bin Wheevils. It also seems that the Bin Wheevils themselves have more persona and character than the Moshi Monsters. Mind Candy Entertainment is no longer so entertaining.
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| Bin Wheevils: Here to conquer a piece of the market |
Moshi Monster's plan is to go more global - break into the US more and into the Far East as well enter into tablet gaming for children (which will be a challenging venture in itself). It is also hiring game developers for their San Francisco office to launch new games. However, no one at Mind Candy has quite realised that many of their features and the monster characters have become just dull. And dullness in the gaming market is detrimental.
In the next post: I will discuss how Tokyo 2020 will give Japan a much needed economic (and confidence) boost
JH
Saturday 31 August 2013
The next IPOs and M&As
THERE ARE a few companies out there I believe should/could debut on stock exchanges in 2014 or the year after. This post is a short analysis of two of them:
Dropbox (online file storage and sharing; mainly targeted for personal use)
Dropbox works by storing users' data with cloud storage and synchronising files, eradicating the need to carry portable storage devices or storing to your computer. There are now over 200 million users of Dropbox who are mostly individuals rather than enterprises, unlike Dropbox's main competitor, Box. Dropbox nevertheless in the past year has been pushing a version of its storage service for enterprise use, charging a considerable fee. In terms of other monetised/premium services, individual users can buy more space although not many users have opted for this at the moment. Still, Dropbox have enjoyed strong revenue streams (the figure is a Dropbox secret) and also secured $250m of venture capital recently. Their valuation is around $4 billion (to grow substantially) and I believe an IPO could help raise a huge amount, most likely to be used for expanding via further acquisition of technologies (also not to mention the acquisition of talent in this process) that are compatible with smartphones and also the technology to store music, sound. The storage of map and app data can be a further area to venture into; either to develop organically or through acquisition.
So from this latter point, I think such opportunity is also Dropbox's number one challenge affecting valuation and stock performance after an IPO: it is really the ability to innovate storage technology so it copes as new devices, apps and platforms are changed and introduced. Another is the changing scene of cloud storage. When I started using Dropbox a few years ago, there weren't really that many 'well-known' competitors around. Now, there are several: Google, Microsoft and Amazon being the three I can think of at the top of my head. With these places giving space away for free, they could very easily snatch away Dropbox's users and eat into their profit margin. However, there is a lot of scope for growth at Dropbox which hasn't even started. Its clean-cut piece of stand alone technology giving users secure storage, a simple interface and fast software earns everyone's trust. Google and Microsoft for example, have been implicated in privacy breaching.
Box, valued at $1.2 billion is also poised for an IPO in 2014.
Twitter (microblogging/social media tool, for those unfamiliar with Twitter)
There has been a lot of talk and hype about Twitter's IPO especially in recent days. It has been reported in the financial press that initial talks between Twitter with several investment banks have started. J.P.Morgan, Goldman Sachs, Morgan Stanley, BAML, Credit Suisse and others are vying for a lead role in this prestigious IPO. The social media platform also advertised for a 'Form S-1 preparer with other financial reporting duties' for "when we go public" on Linkedin, although it was later taken down. Reasons for Twitter going public are fairly simple. Twitter is valued at $10 million with its shares valued at around $20 on the private market and increasing in an IPO. Twitter's financial performance ($350 million in revenues in 2012; estimated $500 million in revenues this year; estimated $1 billion next year) and strong user and advertising interest makes it a good time to go public. Future prospects for social media companies like Twitter are good. They can capitalise on digital advertising through its huge user base & user data and channel more links with app developers. I believe that part of the financing raised from the IPO will be spent on a further string of acquisitions, given Twitter's recent track of them. Seeing what happened to Facebook's shares after their IPO, it is no surprise that Twitter is cautious about an IPO. Indeed, there will be a lot of comparisons between the IPOs of these two social media giants. There are a few lessons from the Facebook experience that Twitter can learn from, and hopefully avoid: overvaluation, using a dutch auction and not delaying the IPO too long so that there is no inflation of the market value - ergo a bubble waiting to pop.
From the M&A side, I think there are currently a few potential M&As which has the synergy to work well together.
I previously talked about Blackberry's case for a joint venture with Tactus Technology to develop a microfludic keyboard for a touchscreen phone/tablet. (See here). Tactus has the technology while Blackberry already has the credentials to bring such a product to market. Such a radical innovation before anyone else on the mainstream market launches it could just be Blackberry's final life saver before it considers going private.
TMT aside, in the food sector, I believe Krispy Kreme is a good target for acquisition by a supermarket. The doughnut chain/franchise business had been suffering from a volatile bottom line in a recent years for a number of reasons such as accounting irregularities and aggressive but often unprofitable growth in its USA franchises. Revenues have grown but this has attracted more tax, eating away at profit. Yesterday, Krispy Kreme released their financial results, missing their revenue target and causing their share price to drop 13.3%.
Krispy Kreme doughnuts are stocked in selected Tesco stores in the UK as well as in Target and Walmart in the USA, but I believe Krispy Kreme could fare better in a supermarket for the increased consumer exposure because at the end of the day, Krispy Kreme is a highly desirable, unique and special brand. One way it has done this is through its designs of doughnuts, the packaging and the fact the chain has managed to keep itself relatively exclusive by having few stores compared to other 'occasion' confectionery and bakery retailers such as Thornton's and Millie's Cookies.
An acquisition by an international supermarket such as Tesco, Safeway or Kroger could give Krispy Kreme far more consumer exposure through Krispy Kreme doughnuts being sold in more supermarket stores. The theme of making junk food 'healthy' is also an important thing Krispy Kreme cannot ignore. It could be useful to use the cash of a parent company (Safeway for example has considerably more cash than Krispy Kreme) for product development and marketing in this area.
JH
Dropbox works by storing users' data with cloud storage and synchronising files, eradicating the need to carry portable storage devices or storing to your computer. There are now over 200 million users of Dropbox who are mostly individuals rather than enterprises, unlike Dropbox's main competitor, Box. Dropbox nevertheless in the past year has been pushing a version of its storage service for enterprise use, charging a considerable fee. In terms of other monetised/premium services, individual users can buy more space although not many users have opted for this at the moment. Still, Dropbox have enjoyed strong revenue streams (the figure is a Dropbox secret) and also secured $250m of venture capital recently. Their valuation is around $4 billion (to grow substantially) and I believe an IPO could help raise a huge amount, most likely to be used for expanding via further acquisition of technologies (also not to mention the acquisition of talent in this process) that are compatible with smartphones and also the technology to store music, sound. The storage of map and app data can be a further area to venture into; either to develop organically or through acquisition.
So from this latter point, I think such opportunity is also Dropbox's number one challenge affecting valuation and stock performance after an IPO: it is really the ability to innovate storage technology so it copes as new devices, apps and platforms are changed and introduced. Another is the changing scene of cloud storage. When I started using Dropbox a few years ago, there weren't really that many 'well-known' competitors around. Now, there are several: Google, Microsoft and Amazon being the three I can think of at the top of my head. With these places giving space away for free, they could very easily snatch away Dropbox's users and eat into their profit margin. However, there is a lot of scope for growth at Dropbox which hasn't even started. Its clean-cut piece of stand alone technology giving users secure storage, a simple interface and fast software earns everyone's trust. Google and Microsoft for example, have been implicated in privacy breaching.
Box, valued at $1.2 billion is also poised for an IPO in 2014.
*****
Twitter (microblogging/social media tool, for those unfamiliar with Twitter)
There has been a lot of talk and hype about Twitter's IPO especially in recent days. It has been reported in the financial press that initial talks between Twitter with several investment banks have started. J.P.Morgan, Goldman Sachs, Morgan Stanley, BAML, Credit Suisse and others are vying for a lead role in this prestigious IPO. The social media platform also advertised for a 'Form S-1 preparer with other financial reporting duties' for "when we go public" on Linkedin, although it was later taken down. Reasons for Twitter going public are fairly simple. Twitter is valued at $10 million with its shares valued at around $20 on the private market and increasing in an IPO. Twitter's financial performance ($350 million in revenues in 2012; estimated $500 million in revenues this year; estimated $1 billion next year) and strong user and advertising interest makes it a good time to go public. Future prospects for social media companies like Twitter are good. They can capitalise on digital advertising through its huge user base & user data and channel more links with app developers. I believe that part of the financing raised from the IPO will be spent on a further string of acquisitions, given Twitter's recent track of them. Seeing what happened to Facebook's shares after their IPO, it is no surprise that Twitter is cautious about an IPO. Indeed, there will be a lot of comparisons between the IPOs of these two social media giants. There are a few lessons from the Facebook experience that Twitter can learn from, and hopefully avoid: overvaluation, using a dutch auction and not delaying the IPO too long so that there is no inflation of the market value - ergo a bubble waiting to pop.
*****
I previously talked about Blackberry's case for a joint venture with Tactus Technology to develop a microfludic keyboard for a touchscreen phone/tablet. (See here). Tactus has the technology while Blackberry already has the credentials to bring such a product to market. Such a radical innovation before anyone else on the mainstream market launches it could just be Blackberry's final life saver before it considers going private.
TMT aside, in the food sector, I believe Krispy Kreme is a good target for acquisition by a supermarket. The doughnut chain/franchise business had been suffering from a volatile bottom line in a recent years for a number of reasons such as accounting irregularities and aggressive but often unprofitable growth in its USA franchises. Revenues have grown but this has attracted more tax, eating away at profit. Yesterday, Krispy Kreme released their financial results, missing their revenue target and causing their share price to drop 13.3%.
Krispy Kreme doughnuts are stocked in selected Tesco stores in the UK as well as in Target and Walmart in the USA, but I believe Krispy Kreme could fare better in a supermarket for the increased consumer exposure because at the end of the day, Krispy Kreme is a highly desirable, unique and special brand. One way it has done this is through its designs of doughnuts, the packaging and the fact the chain has managed to keep itself relatively exclusive by having few stores compared to other 'occasion' confectionery and bakery retailers such as Thornton's and Millie's Cookies.
An acquisition by an international supermarket such as Tesco, Safeway or Kroger could give Krispy Kreme far more consumer exposure through Krispy Kreme doughnuts being sold in more supermarket stores. The theme of making junk food 'healthy' is also an important thing Krispy Kreme cannot ignore. It could be useful to use the cash of a parent company (Safeway for example has considerably more cash than Krispy Kreme) for product development and marketing in this area.
JH
In the next post: I will be discussing the future of 'Moshi Monsters' and 'Bin Wheevils'
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