We assess the threat from the business of aggregators forAmazon. We look, How vaccination is ruining Southwest Airlines' business. We are trying to assess the damage or benefit of Parker-Hannifin from the purchase of the English Meggitt.
Disclaimer: when we talk about, that something has grown, we mean a comparison with the same quarter a year earlier. Since all issuers are from the USA, then all results in dollars. When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
Business in tans Amazon: Should we wait for the uprising of aggregators
Fortunet company, providing intermediary services in the field of online commerce, released a report What Amazon aggregators are really looking for, dedicated to consolidation among the aggregators-sellers from the Amazon platform (NASDAQ: AMZN). Amazon is so big, that its ecosystem has its own dynamically developing sub-sector, in which large-scale mergers and acquisitions take place.
About 56% Goods, sold on the Amazon platform, does not fall on Amazon itself, and third party sellers. Some independent sellers and stores on the Amazon platform are quite large, and they are bought by aggregator companies, who collect such businesses.
Huge amounts. To buy one seller on the platform 90% aggregators are ready to spend more than a million dollars: 8% ready to spend up to 5 million, 25% - up to 10 million, 5% - up to 30 million, and more than half - 53% - no price limits. For example, aggregator Thrasio recently bought three sellers for $100 million, in total, the company owns about 200 Amazon stores.
They can only go big. Almost all aggregators buy sellers for the purpose of further management and business development. And only 3% buy for the purpose of resale.
Added value. IN 61% the sellers they buy have their patents or their sketches - this is how they often attract buyers. Furthermore, 63% deals - these are only sellers of goods under their own brand. Resellers of goods are less popular, 30% aggregators buy only resellers. The last type of seller is growing very fast in terms of revenue., but, in fact, owns nothing. Aggregator buyers are interested in independent brands.
Further more. All respondents plan to actively buy sellers over the next 12 Months. Moreover, a large proportion of those, who plans to buy on a large scale: 15% plan to buy over 50 sellers, 10% — 20—30, 28% — 15—20, 8% — 10—15.
Buy everything, what is moving. When 18% Aggregators are ready to buy deals even sellers without a history of transactions. Although 40% aggregators are ready to buy sellers with a sales history of more than a year, and 33% - with a history older 2 years. Interesting, that no one asks for a sales history older 3 years.
Social networks for schoolchildren. For 63% of aggregators, when making a purchase decision, it does not matter, whether the seller has a meaningful social media presence. This leads to a not-so-pleasant conclusion for Facebook shareholders., Twitter, Snap and other advertising air sellers: someday other legal entities will begin to think about, is it worth spending money on ads on these platforms.
Too Much Amazon. For 63% of aggregators, the presence of a direct sales channel to a client does not play a special role in making purchasing decisions, bypassing the Amazon infrastructure. 80% aggregators will also not add more money when offering a purchase to the seller, whose products are distributed through other channels, like eBay and Walmart, for example.
All in all, After reading the Fortunet report, two things become clear. First: there are many other legal entities feeding around Amazon with their own goals and objectives. And there's a lot of money too.. For example, the Thrasio aggregator is already so big, that can enter the stock exchange with a capitalization of about 10 billion.
Second moment: the dependence of these aggregators on Amazon is huge - and there is no reason to consider, that she will weaken. Seems to be, aggregators are set up and continue to feed from the Amazon site.
And all this can create problems for the company in the future.. Its core retail business is very low margin.. And even that profit, what is in the retail segment, the company gets, showing caricature cruelty towards their employees.
One way to increase margins for Amazon is to sell products under its own brand.. She does it, copying goods and mechanisms of sale of third-party sellers from its platform, discriminating against these third-party sellers along the way.
It's all very annoying to them., but individually they can't do anything with Amazon. This is how Amazon wins. But large aggregators of sellers can make her nasty - and, maybe, even beat the company.
The US political system is arranged this way, what to bring money to "who needs", to "solve the question", it's very difficult there, almost impossible, but there is a lobbying mechanism. Most often, lobbyists organize campaigns with invited experts and prove something to the legislators and authorities for the benefit of their clients..
How it works, can be seen in the movie "The Dangerous Game of Sloan", where lobbyists prove, that there is no link between liberal gun laws and gun violence. Or in the movie "Smoking Here", where tobacco company lobbyists prove, that smoking is not bad. In reality, it all works exactly the same.: Coca-Cola paid doctors for research, Prove, that sugar is not bad, Google Kicks out anti-trust supporters of tech companies from company-sponsored thought hubs.
Many aggregators are able to hire a good lobbying firm, that she invite experts, who will do research with models and graphs, Prove, that Amazon needs to repent and make concessions to third-party sellers. Aggregators also have the necessary amount for lawyers: in the event of a dispute with Amazon, it will be possible to bend a small store, but the average aggregator will drag Amazon to court. And maybe, even win: Amazon's position looks controversial, there is an obvious conflict of interest.
There is currently a debate going on in the US about, that Amazon needs to be taken apart, including due to discrimination against third-party sellers and conflicts of interest. The growth of aggregators plays against Amazon here, because it results in a new, powerful category of players, who is very interested in, to muzzle Amazon. And more importantly, the resources of these players are also very serious. They do not save on buying stores, means, and on the legal support of their work, too.
For Amazon and its long-term shareholders consolidation among aggregators in the future can lead to very sad consequences: these same aggregators may well unite for collective action against the monopoly manners of the company. So, for example, Epic Games defeated Apple's monopoly in court.
Get stuck and linger: vaccination problems for business
Southwest Airlines this week (NYSE: LUV) abandoned previously planned plans to send unvaccinated - but not reclaimed for medical or religious reasons - workers with 8 December on unpaid leave.
A business, certainly, obviously not in, what Southwest Airlines gave back: all 54 thousand of its employees need to be vaccinated, but not everyone wants to do it voluntarily - and many enjoy the challenge for medical or religious reasons. If you send those who refuse to be vaccinated on unpaid leave, then the company will not have enough employees during the holiday season, when she expects a lot of work. Actually, staff shortages have already led to massive flight cancellations, which caused the company $75 million in damage.
It cannot be said, that vaccination has seriously ruined the life of all airlines. У Delta Airlines, for example, 90% employees have already been vaccinated - and even without an order from the authorities. And at United Airlines, this figure is even higher - 97% - thanks to the order of the authorities. So far, Southwest Airlines looks like the only airline, severely affected by this, - what shareholders of the company should consider.
Looking at the situation on earth, that's very interesting, how much the current shortage of workers in the United States is caused by the unwillingness of some of the workers themselves to be vaccinated. Now in the United States, enterprises with 100 or more employees are required to 100% vaccinate all of its staff members. This has already led to the departure of some employees who disagree with this.. For example, among healthcare professionals, which are not enough in the USA, a considerable number of people refuse to be vaccinated. So that, maybe, the current shortage of personnel in various industries in the United States, but especially in the service sector, will last for a long time.
Understandably, that for unvaccinated employees, the chances of winning here are small: the mood of the judicial administration in the United States and other countries is, that vaccination is already, in fact, inevitable. But throughout the quarter, maybe, and two for almost all enterprises without exception, this will mean an increase in costs, associated with the cost of labor: finding adequate replacements for vaccinated workers will not be easy. I think, that this will stimulate further automation of the corporate sector: cars do not need to be vaccinated, and generally ask their opinions on each issue.
The Englishwoman sucks: is it bad?, that Parker-Hannifin don't let me buy Meggitt?
Parker-Hannifin Industrial Business (NYSE: PH), manufacturing components and systems for movement and control of equipment, tried to buy for $ 8.69 billion of the British aircraft manufacturer Meggitt. But the fate of this deal hung in the air.
The UK government decided to test this deal before, how to give her the green light, - on those grounds, that the sale of Meggit to the Americans could affect the national security interests of the island nation. It is worth noting, that Parker-Hannifin has promised to keep most of Meggit's jobs in the UK and keep production out of the UK. Will Parker get hurt badly without Meggitt? Well how to see.
According to the Meggitt report, 43% the company's revenue comes from the civil aviation sector. Acquisition of Meggitt strengthens Parker-Hannifin's exposure to the aviation industry, and this is very bad: there seems to be no reason to believe, that civil aviation activity will return to pre-pandemic levels in the coming years 10. And most likely, will not return to this level at all in our lifetime.
The defense sector gives 45,6% Meggitt revenue. It's good, because American customers give 74% revenue of this segment, and the UK is just 4%. As we have said in many of our Kratos-style war ideas, Americans will spend more and more on defense. Another question is how Meggitt's defense business will fit in with Parker-Hannifin's core industrial business..
The rest of Meggitt's revenue comes from solutions in the field of production and supply of energy resources. Meggitt's solutions in this segment, in principle, are not so far from, what Parker-Hannifin offers to its customers.
All in all, Meggitt is not a bad buy.: Parker-Hannifin is going to buy the company for the equivalent of about 6,3 its annual revenue. In normal times, Meggitt's total margin is approximately 9% from its revenue is a good indicator for an industrial enterprise. But the problem is, that these are abnormal times.
I see the Meggitt aviation segment as a big problem.: no matter how he hangs a weight on the legs of Parker-Hannifin, strengthening its dependence on the crisis industry. Meggitt will have to pay for most of the borrowed money - and after all, Parker-Hannifin has so much debt - $ 11.297 billion, of which 3.096 billion must be repaid within a year. Parker-Hannifin doesn't have much money: 733,1 million on accounts and 2.183 billion debts of counterparties.
Buying Meggitt may not justify itself, but the debts remain. So that, may be, if Parker-Hannifin is banned from buying Meggitt, it will be for the best. However, i could be wrong and, may be, Meggitt would be a great addition to Parker-Hannifin. well, given that, what companies will be allowed to unite, but it's not guaranteed.
