Jessica, great post. Similar to many other commenters, I’m most intrigued by Speedo’s entrance into the recreational swimwear market. The North Face example is an interesting analogue, but I think there are two key differences between the brands that cause me to be skeptical of Speedo’s ability to replicate North Face’s success.
1. In both its mountaineering and its mass market applications, North Face jackets are valued by customers for their ability to insulate the wearer from the harsh elements. As a result, it was probably fairly easy to market the product to mass market consumers – “If this jacket can keep climbers on Mt. Everest warm, it can certainly keep me warm.” On the other hand, Speedo’s value proposition to competitive swimmers is its performance attributes, which has zero relevance for the mass market consumer who cares much more about style and fit.
2. Before entering the mass market, North Face was fairly unknown outside of the mountaineering community. There were no strong brand associations. Everyone knows Speedo and associates it with competitive swimming and perhaps even more so, the triangle, underwear looking thing. These perceptions can be very difficult to overcome, and it is even more challenging to convince a consumer to switch from their preferred brands to a brand that they’ve never thought of as pertaining to them.
Etienne, great post. Enjoyed learning about Uber’s early on boots-on-the-ground expansion strategy – had no idea that’s what they did.
There are two aspects of its operating model that I find particularly interesting. First is the surge pricing that you mentioned. While theoretically, it makes perfect sense – allow the supply and demand dynamics of the market dictate pricing – I’ve found that in practice, it can sometimes be too extreme and even alienate some customers. For instance, I remember a couple of years ago when Chicago had a dreadful winter, the surge pricing got up to 5x on some snowy days. Not only would I never use the service for 5x, which from Uber’s perspective is fine since they have other customers who would, I developed a somewhat negative perception of Uber, and I know many of my friends felt the same way. In fact, it even pushed me to use Lyft more. This is perhaps irrational as it’s not Uber’s fault that supply and demand was so unbalanced, and most of the benefits of surge pricing accrues to the drivers, but Uber should still take into consideration the deleterious effects extreme surge pricing can have on its brand.
Pooling is another, relatively newer, aspect of its operating model that I find very interesting. Since its introduction, I almost exclusively use UberPool over UberX, which costs ~30% less with maybe a 20% chance of there being another passenger. I imagine the algorithm for this can be tricky, and it’s imperative that it’s right since Uber bears all the risk of mispricing this service, but if they do get it right, this represents a pretty compelling opportunity for them to serve a lot more customers with the same driver base.
Great post, L. And some very interesting comments too. I think the reasons for the plunge in SUNE since the summer can be broken down into two categories – market-driven and management-driven.
As we all know, oil prices keep falling and have brought down the entire energy sector. It is perhaps unfair that SUNE has been affected by this as rarely is oil used for electricity generation. However, one hypothesis is that YieldCos (see Adam’s post above) and MLPs (oil pipelines), given their common characteristics, share many of the same shareholders, who dumped their holdings indiscriminantly as they sought to exit the sector. This would support the idea that TERP is undervalued and now is a good time to invest.
The problem for SunEdison is that management has pursued a very aggressive, highly levered growth strategy without anticipating the impact of the market moving against them. In fact, Vivint represents its third multi-billion acquisition in the past year. Had YieldCo valuations not taken a nosedive, SUNE would have been fine, since it could always access cheap capital through the YieldCo by dropping down (selling) operating assets. However, with YieldCo yields now too high to support drop downs, SUNE is now stuck with no obvious buyer for its operating assets, meaning no easy source of capital, and is suddenly facing liquidity questions. The recently announced restructuring of the Vivint acquisition ($2 less cash per share) has brought some relief and consequently, SUNE and TERP stock has shown a slight recovery over the past week.
Finally, to address L’s point of Vivint being a poor fit, I would argue that not only is it a poor fit for SunEdison, the bigger issue might be that it’s a poor fit for Terraform. Like Adam eloquently explained, the whole idea of the YieldCo is that it holds operating assets that the parent has developed, providing a safe and steady stream of cash flows that can be paid out as dividends to investors. It works well with utility-scale projects as the counterparties are generally highly creditworthy utility companies. However, with Vivint, you are now dealing with individual homeowners, whose creditworthiness is highly variable and oftentimes suspect. By acquiring Vivint, SunEd is compromising the integrity of Terraform’s cash flow streams, which could have serious repercussions on how investors view the attractiveness of the vehicle.