As technology improves, it continues to be used across an increasing number of use-cases. Everyday tasks can often be helped with a technology solution that wasn’t available before. Great businesses have been built around solving these everyday tasks for a specific niche.
Thesis - Resmed is a leading provider of medical devices that help you breathe (and sleep) better. They treat conditions such as sleep apnea through continuous positive airway (CPAP) machines. Essentially these are small electronic devices that sit on your bedside table and connect to your mouth via a hose and mask, pumping air through the airways. They estimate 40-60m Americans suffer from these respiratory conditions, with less than 10% currently being treated. For their core business, they can expend continued growth. In addition, management are changing the story of this company by adding a software component. Through their devices, the companies can collect breathing and sleeping data which they analyse and expose via a suite of connected apps (think a sleep score via your phone). This software business has grown in the last few years and now represents 12% of revenues. Overall, this company is a play on the positive health impacts of better sleep and with an increased body of research supporting sleep in health, this could be a long term winner.
Financials & Performance - Over the last 5 years, this stock has quadrupled. Revenue growth and been very consistent, at around 10% on average over many quarters. That isn’t blockbuster growth, but the consistency compounds over time. Gross margins are just under 60%, but have grown slightly in recent years and we may expect further margin growth as the software business continues to grow. The company has been profitable for many years and is continuing to grow its earnings over time.
Opportunity - As mentioned, Resmed serves an under-treated market.Importantly, their devices can be used at home, which means patients are often moved out of hospitals to home or other care settings, reducing the cost to the healthcare system. This is a company operating at scale, in over 140 countries. Through acquisitions, they are increasingly growing into larger Asian markets such as China and South Korea.
Risks - Competition is growing in the market, with Philips, the dutch electronic conglomerate, growing their product suite in the area.
Thesis - Match Group own and operate a collection of the most popular internet dating services. Whether you’re looking for casual dates or a serious partner, Match has a you covered with brands such as Tinder, Hinge, Plenty of Fish and Pairs. Think of Match as the Coca-Cola of internet dating, a holding company covering all niches and tastes. They have over 40 products in 40 languages serving users in 190 countries. Acquisitions are a core part of the company strategy, finding apps which cover a niche or angle they don’t yet serve and adding them to the blend of services. Since their IPO in 2015, the company has been continuing to grow its brands and double down on monetisation. Tinder, the companies flagship product, is the highest grossing lifestyle app across most countries. Match Group is a pure play on the mega tailwind of internet dating.
Financials & Performance - Match went public in 2015 with a market cap of around $3b. At over $30b today, it’s 10x in just under 6 years. Revenue growth can occasionally be inconsistent, with negative growth numbers in some quarters to 40% growth in others. But the long term trend is growing users and monetisation. With 75% gross margins, this is a company with high profitability potential.
Risks - One risk with dating services is that the ultimate success of using them, means you’d never use them again. However, Match’s strategy of providing a range of services from casual (Tinder) to more serious (Hinge) protects them against this. In the dating segment, apps can rise to popularity very quickly, with strong network effects, so their M&A strategy is key to keeping and eye and potentially buying new interesting properties.
Thesis - Fiverr helps freelancers get work. Fiverr is an online marketplace that connects freelancers to businesses who require digital services such as copy writing, SEO marketing, graphic design, illustration and software development. The company’s mission is to make it as easy to hire freelancers as an e-commerce shopping experience, with all the same benefits: value for money, good selection and transparency of prices. Fiverr taps into an increasingly global, online, flexible and on-demand work force. The business model is simple - they make a 5% service fee from the buyer for any job booked plus as 20% transaction fee from the seller. So as the overall value of jobs booked on the platform increases, so does Fiverr’s revenues. The offline freelancing market is huge, so with a valuation of $6b currently, this business has room to grow.
Financials & Performance - Since it’s IPO in 2019, Fiverr has had strong revenue growth of around 40%, accelerating during cover-19 to almost 90%. Revenue was $52.3m so still fairly modest in absolute terms. The margin profile of the business is excellent, with gross margins of 80%. The company has a direct to consumer approach, meaning they don’t have a large and costly sales team. Although not yet profitable, they are getting close, with last quarter reporting just $0.5m loss.
Opportunity - Fiverr is still early in its business. As people get used to booking work online, you can expect that both the volume of bookings and value of bookings will increase. This is already showing in Fiverr’s numbers, with spend per buyer increasing consistently over time. There is also opportunity for further internationalisation. Whilst available in many countries, the majority of revenues come form English speaking markets.