Innovating On Everyday Tasks: Pet Medicine, Flights & Restaurant Bookings
Damian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Nothing is more rewarding than good, cheap-to-execute ideas. There are not many of them, but when they appear, someone will surely make a profit. PetMed Express (NASDAQ: PETS), Priceline (NASDAQ: PCLN), and OpenTable (NASDAQ: OPEN) have made successful businesses out of good ideas that didn't need hefty initial capital investments. Let's take a look at how these Internet-based firms accomplished their success and what their future prospects look like now.
My pet’s pharmacist is online
Last week a drone delivered its first pizza. The event got little press, but has left an important mark on the delivery business. PetMed has not gone as far, or at least not yet. Nevertheless, by breaking the monopoly held by veterinarians, the firm set a trend in the pet medicine business. So far it has dominated market competition while maintaining solid finances. Prospects are so good for the company that researchers are dismissive of negative analysis.
Although total revenues fell in 2013 year-over-year, this decline was the result of two external and temporal factors (unavailable Novartis brand and abnormal seasonal temperatures). If Novartis does not resume production, PetMed will only be saved by veterinarians changing preferred brands. Such a way out of this dilemma is possible, and is already on the works with ever more medicines losing its patents. Given the firm’s early entry at a low price and successful growth story, no significant competition is expected soon. Moreover, the company's last earnings report has proven its increasing value.
PetMed’s expected growth rates are mainly based on three factors: the real-state market recovery, the pet medicine industry (pushed by generic brands), and the expansion of electronic commerce. Now that the planets have aligned, the company needs to market the event. To do this, management will need to start spending some real bucks since elections in the U.S. have resulted in a strong upsurge on prime-time advertising price. The alternative to hefty marketing investments is letting the customer makes its own move, given that there is no serious market competition. Whatever decision management takes with marketing, the firm will continue to profit thanks to the four catalysts mentioned above.
Yes, PetMed will be around for a while and has proven itself to possess sound management that is preoccupied with making a profit for themselves and the company's shareholders. The company has never been in a better shape than now, and it is trading cheap carrying mid-to-high teens earnings year-to-year. For the aforementioned reasons, you should buy this stock as the company´s short and long-term prospects look promising.
Booking with Captain Kirk
Sometimes one wonders how partnerships are built. How did Priceline convince James Kirk to become "The Negotiator?" Only they know. Regardless, the company has found and sustained great success. Its achievements have allowed it to repurchase shares, keep reasonable debt levels, and find various roads to growth. That is an enjoyable combination.
Priceline is no stranger to innovation. It has offered customers great bargains for some time now, and its finances have remained balanced even with growing competition. A great deal of its success amid its competition is the direct result of managerial decisions. Domestic and foreign acquisitions and expansion have given the company an important edge over lagging competitors which mostly focus on the domestic arena.
Europe was Priceline’s first venture abroad and provided positive results. As Internet penetration deepened, disposable income increased, and online flight booking became popular in Asia and Latin America, the firm was able to expand into new markets and stay one step ahead of the competition. This advantage has been reflected in increasing revenues, cash flow, and free cash.
Priceline is a great buy, but its price is high. If you have the bucks to invest, go ahead. This is a company with happy management and shareholders, and it has plenty of remaining potential for expansion and profit.
Making reservations at Dorsia possible
Not having a reservation at a local restaurant for your long-awaited date will subtract brownie points. With OpenTable becoming widely available, making reservations should not be an issue any longer. Investing in the company, however, is a different and more complicated issue to address.
OpenTable’s performance on the stock market is ambivalent. Nevertheless, it remains a stock to keep in mind because first-entry competitors always hold an inherent advantage. The company's expansion seems far from reaching its limit, however. The issue is whether OpenTable will have the necessary money-in-pocket to go through with it as planned, since operational costs keep rising and its ventures abroad have yet to prove financially viable. No serious challenger has appeared so far, but competitors have already chipped the company’s revenues.
A good move for OpenTable would be for the reservation platform to continue expanding, regardless of the restaurant’s size. Such a catalyst would allow the company to set a high entrance price for competitors while allowing restaurants to switch platforms. This is where the mobile apps come into relevance, increasing potential customers and giving restaurants a reason to stick with the firm. Given these challenges, estimates remain conservative, even when the company has been reporting increasing revenues, earnings, cash flow, and free cash.
Opinions about OpenTable are not homogeneous, but management has proven itself by overturning 2010’s meager results. Through domestic expansion, international acquisition, and mobile phone incursion, the company has been able to recover its winning track. For the time being, it is recommended to hold. Nevertheless, it is important to keep an eye on the company since the firm will likely bring in greater profits once its ventures abroad stabilize.
The companies analyzed have one thing in common: all have suffered some disgrace. PetMed suffered from Novartis’ production halt, Priceline confronted great domestic competition, and OpenTable experienced a price dive. Nevertheless, all three were able to cope with difficulties and continue reporting earnings. That said, I believe that PetMed’s tag price and shareholder rewards make it the most recommended of the three.
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Damian Illia has no position in any stocks mentioned. The Motley Fool recommends OpenTable and Priceline.com. The Motley Fool owns shares of Priceline.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!