For Immediate Distribution
Monday, April 16, 2012
A New Service Focused on Below the Radar Stocks
(WALTHAM, MA) Battle Road Research (www.battleroad.com), an independent stock research firm focused on the technology, consumer, and renewable energy sectors, has officially launched Small Cap Snapshots, a new service designed to help fund managers, analysts, and wealth advisors seek out small cap stock ideas. The initial focus is on companies located in New England, with stock market valuations under $1 billion.
“A growing number of intriguing small cap companies in our backyard and beyond have been overlooked by Wall Street and regional investment banks,” according to Ben Z. Rose, President of Battle Road Research. “Many IPOs of the last two years have fallen below the radar, or may have little coverage beyond the research reports written by their underwriters. These companies represent fertile ground for a fresh, independent perspective. We believe that Small Cap SnapShots will be a timely addition to our clients’ research process,” said Rose.
Combining fundamental research with key financial metrics, Battle Road’s Small Cap Snapshots are designed to help fund managers, analysts, and wealth advisors screen for investment ideas in the technology, consumer, and renewable energy sectors. Small Cap Snapshots are now available to Battle Road Research clients through its website at www.battleroad.com.
Established in 2001, Battle Road is a research-only firm, not an investment bank, not a broker dealer, and not an asset manager. Unlike Wall Street and regional investment banks who are paid by the companies they research, Battle Road does not accept –nor has it ever accepted— a dime from any company that it researches.
“Our research has been adopted by some of the world’s leading portfolio managers and analysts. We are confident that Battle Road Small Cap Snapshots will help our clients seek out new investment ideas, and will further our reputation as a research firm free from the influence of investment banking,” Rose concluded.
About Battle Road Research
Battle Road Research, an equity research firm, provides an independent voice on technology, consumer, and renewable energy stocks. Our research process combines rigorous financial analysis with insights gleaned from industry sources. Since our inception in 2001 we have refrained from investment banking, company-paid reports, and personal investment in the stocks we research. Battle Road has been a member of the Investorside Research Association since its inception in 2002. Investorside monitors and certifies that its members do not perform investment banking or research for hire, thus avoiding the conflicts of interest elsewhere rampant within the equity and fixed income research business. For each of the last three years, Battle Road has received an award for its research coverage from Investorside, including the Thought Leadership in Technology award.
We welcome investors to visit our website at www.battleroad.com
Ben Z. Rose, President
Battle Road Research
781-894-0705, ext. 204
With a stroke of the pen, or more likely the click of a mouse, Amazon.com CEO Jeff Bezos approved the second largest acquisition in the company’s history, when it announced last week that it will buy privately-held Kiva Systems of North Reading Massachusetts for $775 million. Kiva’s orange-colored robots have become the rage among ecommerce companies that are looking to reduce labor costs and collapse the time between a website order and shipment.
Kiva Systems, which opened a new 160,000 square foot facility in May of 2011, had risen to about $100 million in annual revenue, and an unknown level of profitability. As a venture-backed start-up that had undergone a management shakeup two years ago, Kiva Systems, we surmise, had been positioning itself for an IPO, as evidenced by the hiring of a high profile CFO last year. That a bird in the hand may well be worth two in the bush certainly explains the motivation of Kiva’s owners to sell the company.
The same, however, cannot be said of Amazon.com, whose motivation to buy Kiva Systems is less obvious.
Amazon’s acquisitions of recent years, including Audible, Zappos, and Quidsi, the parent of Diapers.com, added new products to sell over its websites. Kiva Systems, on the other hand, makes robots that help retail and ecommerce companies manage their warehouse operations. To be sure, Amazon.com has invested heavily in website development and other technology infrastructure since its inception, and Kiva certainly fits into Amazon’s strategy to add millions of square feet of fulfillment center capacity each year around the world.
And yet, if Amazon.com was already a Kiva Systems customer—and presumably had the ability to purchase tens of millions of dollars of robots over the next several years—why would it pay eight times revenue when there is no evidence to suggest that Amazon has ever paid more than three times revenue—and often substantially less—for any company it has acquired in recent memory?
Theories abound. Could it have been that Kiva gave Amazon a glimpse into its future product plans, which in turn led it to believe that such technology in the hands of its competition would reduce its competitive advantage? Or could it have been a logistics automation vendor that lured Amazon into a bidding war for Kiva?
After reflecting on these questions, we conclude that Amazon.com bought Kiva for four reasons:
Against all odds, Kiva Systems founder Mick Mountz built a substantial enterprise, selling orange colored robots capable of performing incredible feats of industrial strength and cunning. As a replacement for conveyor belts, and human beings wandering miles of warehouse space, Kiva’s robots are able to locate and lift loads of several thousand pounds, moving palettes over a warehouse floor, even in conditions of poor lighting, and ventilation. The labor cost reduction stemming from the elimination of workers who walk several miles each day to retrieve goods from remote parts of the warehouse is a key benefit cited by Kiva’s customers. As the fulfillment center becomes the physical store, and the website a cash register for the retailer, Kiva has become an integral part of many ecommerce vendors’ fulfillment efforts.
Another benefit is making the most obscure and infrequently ordered products as accessible as the most popular items, a key differentiator for an ecommerce site versus a physical store, and one of the many reasons that Amazon.com has been so successful against its brick and mortar competitors.
Just as brick and mortar retailers were keen to stock up on inventory management and replenishment systems in the 80s and 90s for fear of getting pushed out of business by Wal-Mart, so have the country’s leading retailers and ecommerce sites been stocking up on Kiva Robots for fear of being upended or obliterated by Amazon.
Kiva’s Many eCommerce Customers
Known Kiva customers—all of whom compete with Amazon.com in some way, shape, or form—include Staples, the Gap, and Drugstore.com (now owned by Walgreens) which chose Kiva for help in fulfilling orders drawing from a catalog of 50,000 unique non-prescription drugs and health oriented consumer items. Kiva evidently also assists in things like inventory control, forward replenishment, as well as classic pick, pack and ship. Accumen Brands, the Fayetteville Arkansas ecommerce leader that runs trailsedge.com, toughweld.com, scrubshopper.com, and babyhabit.com, was able to install and get Kiva up and running in its 400,000 square foot warehouse in 14 weeks.
Dillards, the multi-channel US retailing giant with annual sales exceeding $6 billion, and 294 sore locations and 13 clearance centers across 29 states also utilizes Kiva, as does Timberland, Dickies, Fisher Price, Under Armour, Crate & Barrel, Toys R Us, Office Depot, SaksFifth Avenue, and Dansko, the footwear maker that ships its shoes to over 2,500 US and international locations. The Gilt Groupe found that it could process orders from website customer click to fulfillment in as little as 15 minutes. Even Follett Corp. the venerable 150 year-old, privately held purveyor of, among other things “pre-owned” textbooks for college students, has been using Kiva for order fulfillment through its stores and website.
To make things easier for retailers, Kiva announced a robot rental program in June of 2011, designed to help ecommerce fulfillment centers handle peak demand during the holiday season, thus easing the burden to purchase a basic system, which is estimated to be in the vicinity of $5 million or so.
Amazon’s Rising Fulfillment Costs
In each of the last two years fulfillment expense—excluding stock-based compensation—has outstripped revenue growth at Amazon.com. Though each of Amazon.com’s operating expense line items, which include marketing, technology and content, and general and admin, have all risen in excess of sales growth, fulfillment expense may be the most labor intensive of Amazon’s operations, and likely susceptible to further automation.
Fulfillment costs in 2011 were $4.4 billion. Assuming that Amazon can shave as much as 10 percent from its fulfillment expenses annually, the acquisition may pay for itself in as little as two years—not to mention the incremental revenue Amazon can generate from selling robots to its competitors, as well as other industries. The ability to avoid additional labor costs during peak shopping seasons, by deploying more or smarter robots, is a benefit that Amazon will reap as well.
In the mean time, Amazon shows now sign of letting up on fulfillment center expansion as it opened 17 new fulfillment centers in 2011, bringing the total to 69 world-wide. This year, it plans to open another 17.
Amazon.com as eCommerce Sphinx
Amazon has stated that it intends to continue to conduct business with Kiva’s customers, most of whom are dyed in the wool competitors. At first glance this might appear to be preposterous. However, when one considers that Amazon licenses elastic cloud computing resources to Netflix even as it competes head to head against it in online movie rentals, and that Amazon sells books that it publishes under its own imprint— alongside books from Random House and virtually every other book publisher—as well as new and used books from their party merchants, one begins to get a sense of how large and intertwined with its competitors are Amazon’s operations.
The extent to which Amazon’s ecommerce competitors will continue to buy robots from a wholly owned subsidiary of Amazon is unclear. The acquisition may provide the opportunity for other robot companies to fill the void. These include privately-held Seegrid, a robotic technology company based in Pittsburgh, whose solution is working at Cabela’s.
Fear of Kiva Falling into the Wrong Hands
An unanswered question that lingers in our mind is why Amazon.com paid eight times revenue for Kiva, when a Kiva IPO certainly would have valued the company at a much lower EV-to-sales multiple. While Wal-Mart has publicly claimed that it was not interested in buying Kiva, we find it hard to believe that there were not other companies who may have been approached by Kiva’s private equity owners, and who may have placed a bid for the company, given the success of its customers, its unique technology, and the large opportunity for robot sales into ecommerce and other industries.
The desire to achieve cost reduction and faster order fulfillment times only partially explains Amazon’s desire to buy Kiva. More likely, there are four other reasons: the desire to secure access to a future flow of robots ahead of its competitors; the ability to drive Kiva’s software development efforts in Amazon’s direction; the preference to customize Kiva’s robots for its proprietary warehouse operations, and finally the necessity to keep Kiva out of the hands of another suitor that may have wanted to point the company’s orange robots in a new direction.
For Immediate Distribution
Monday, April 2, 2012
(WALTHAM, MA) Battle Road Research (www.battleroad.com), an independent stock research firm focused on the technology, health science, consumer, and renewable energy sectors, has announced that company President Ben Z. Rose will participate in the Bloomberg Technology Roundtable, a featured event at the annual Investorside Research Conference in New York City on Tuesday, April 3rd. The conference showcases thought leadership from the industry’s leading independent research companies, all of whom refrain from investment banking, and research for hire.
This year’s conference will feature a Technology Sector Roundtable hosted by Anand Srinivasan, semiconductor and hardware analyst at Bloomberg Industries. The panel theme is entitled The Emergence of the Technology Sector from the Prolonged Recession: What has Changed and What Hasn’t? Topics to be discussed include consumer electronics and social media, corporate Capex and ROI Measurements in hardware and software, unstructured “Big Data,” and the implications for various companies throughout the technology landscape.
Battle Road’s technology research is focused on internet, software, and hardware companies that are poised to capture growth opportunities in ecommerce, online advertising, cloud computing, social media, and digital manufacturing. Through its impending launch of Small Cap Snapshots, Battle Road is also on the lookout for stocks that have been overlooked by Wall Street and regional investment banks, as well as IPOs from the last two years that have fallen off the radar, or may have little coverage beyond the research reports written by their underwriters.
About Battle Road Research
Battle Road Research, an equity research firm, provides an independent voice on technology, health science, consumer, and renewable energy stocks. Our research process combines rigorous financial analysis with insights gleaned from industry sources. Since our inception in 2001 we have refrained from investment banking, company-paid reports, and personal investment in the stocks we research. Battle Road has been a member of the Investorside Research Association since its inception in 2002. Investorside monitors and certifies that its members do not perform investment banking or research for hire, thus avoiding the conflicts of interest elsewhere rampant within the equity and fixed income research business. For each of the last three years, Battle Road has received an award for its research coverage from Investorside, including the Thought Leadership in Technology award.
Ben Z. Rose, President
Battle Road Research
781-894-0705, ext. 204