Software robots, pet e-commerce and bouncing stock prices

October 04, 2020

The last week of September saw a slight upward move in the markets. The month as a whole was down - the first since March. Politics in the US is becoming front and centre in investors mindset, with continued negotiations around a new stimulus packages as well as the news that president Trump has contracted COVID-19.

Blue Prism

Thesis - Blue Prism is a leader in Robotic Process Automation (RPA). RPA software allows companies to map their processes into a decision tree, such that it can be complete by software (or a software robot) more quickly, efficiently and accurately. This works best for repetitive back office tasks. For example, a company may have a team who are responsible for creating and managing the payment of invoices. The process might look like: open email, download excel template, open invoice software, copy across data, create and save invoice, email to specific person. This process could be mapped in RPA software, step by step, and then complete my a machine (i.e. a computer) which uses the same GUI (graphic interface) and tools to complete the task. RPA allows businesses to automate parts of their business. Importantly, they can do so on top of existing tools and workflow, rather than rebuilding whole processes with API solutions (which can be costly to initially setup or require changes to existing flows).

Opportunity - Automation is a key tailwind for large enterprises. It is estimated the market will be worth $10.2b in 2022, so at its current valuation, Blue Prism has room to grow. It is considered a leader in the space, with Gartner naming it so in its 2019 and 2020 RPA Magic Quadrant report.

Financials & Performance - In its 2019 report, Blue Prism reported £101m in revenues, almost double its 2018 £55.2m. 96% of revenue is recurring license revenues, with net retention rate at 143%. This means Blue Prism is able to grow from its existing customers. It reported up-sells of 1,139 from a customer set of 1,677. Customers include large enterprises such as Ernst & Young, Ebay and Walgreens.

Risks - This is a competitive space, with UI Path and Automation Everywhere also leaders alongside Blue Prism. Blue Prism is based in the UK, whilst both competitors are based in the US and remain private. Current growth has been impressive, but is still off a small revenue base.**


Thesis - Chewy is a leading e-commerce retailer for pets. This is a pure play on two key trends, e-commerce and the humanisation of pets. The number of pets is increasing globally and they are increasingly seen as part of the family, with more money spent on them. Chewy allows users to order food, treats, medicines and other dog products and have them delivered straight to your door.

Leadership - Chewy could be seen as the Amazon of pet care. In some ways, this is by design. The founder, Ryan Cohen, used Amazon as a template for the company, citing principles from Bezos’ original Amazon shareholder letter to drive the company vision. The current CEO, Sumit Singh, is a former exec of Dell and Amazon and drives its customer focused execution.

Financials & Performance - In Q2 2020, Chewy announced sales of $1.7b and customers of 16.6m up 47% and 37% YoY respectively. Whilst still loss making, the company is steadily reducing the losses. Gross margins are 25.5% and creeping up whilst spend per active customer is $356 and also on the rise. The company is known for its excellent customer service, with a large team of support members who are able to give advice on suitable pet products. The opportunity for growth in the industry continues to be large with only an estimated 14% of pet retail spend currently online. Importantly, around 70% of Chewy’s customers use their auto ship (subscription) program.

Risks - Chewy is showing great growth, buts its value is rich. With gross margins of 25%, the company needs to find further efficiencies as it scales. Built in its image, Amazon of course remains a threat, although Chewy seems to have carved itself a nice niche. Finally, Chewy has a slightly convoluted ownership structure having been bought by PetSmart in 2017 before going public in 2019. There is also some larger ownership in private equity, which means it could be subject to selling at some point.

chart showing Chewy increasing sales over time


Update - I first mentioned Nanox in edition 7. The medical imaging company has lived up to it’s billing as a pre-FDA approved, risky investment. In the last few weeks, it has been subject to short reports from both Citron Research and Muddy Waters. They have described Nanox as “a complete farce”, “Theranos 2.0” and “a much bigger piece of garbage than Nikola will ever be” referencing the electronic truck maker. This sent the stock tumbling over a few days, dropping from its high of $65 to lows of $23. Both shorts essentially claim the technology is fake and that Nanox has falsified images and scans to pretend the technology works.

Watch out for - In response to the short reports, the company has announced it will live demo its product at the Radiology Society conference in November/December, sending the stock price up 70% over two days. If this sounds like playground back and forth, it sort of is, but the result is a very volatile stock. As a reminder, the company is exciting because it claims to have dramatically reduced the cost of medical imaging and increase the accessibility of scans to broad parts of the developing world. The live demo may be an opportunity for it to back up its claims whilst FDA approval is still pending.

chart showing Nanox volatile stock price

Written by Stevan Popovic, growth investor, web developer and founder of this site.