CMPR - Cimpress

[KCLarkin]

That's exactly right. The growth of the industry overall isn't all that important to a "disruptor" who is growing by gaining share. The assumption is that business cards, etc. won't go completely extinct, and I don't think they will. Keane the CEO I think related it to Starbucks, which grew amazingly despite per capita coffee consumption declining. Might be a pretty generous metaphor but an appropriate one nonetheless

 

Yes, that is a great answer to the question asked. I especially like the Starbucks metaphor.

 

Another interesting wrinkle: when a low cost disruptor enters a market they actually create demand (in the early days Vistaprint's biggest competitor was a desktop printer or a non-purchase).

--

 

A better question would be "how big can Cimpress grow?" When you broaden the question you can ask questions like:

- how fast is the online print segment growing?

- will Cimpress gain or lose market share?

- can Cimpress sell other products besides business cards?

- how big is the "upload to print" opportunity?

- can Cimpress move up-market to higher LTV customers?

- can Cimpress expand internationally?

 

That might be why so many people missed Starbucks. They defined the market opportunity too narrowly.

 

--

 

Now the business card question does bring up an interesting comment about mature markets. Very rapid growth encourages competitive entry. Stagnant markets encourage competitive exit. So the economics for a consolidator can be more attractive in a mature market than in a growing market.

[frommi]

Starbucks sells coffee that lasts for five minutes, CMPR creates business utilities that lasts for years, how can you compare that?

The cash flows at CMPR are not predictable, so in theory if large enough they will flucuate with the business cycle. At least thats what my brain feared here, i don`t know if thats really true.

[Picasso]

That might be why so many people missed Starbucks. They defined the market opportunity too narrowly.

 

People missed Starbucks by underestimating how good Howard Schultz was and still is.  There are other similar coffee chains but all fall far short of the numbers SBUX consistently put up over time. 

 

I have not spent a massive amount of time on this security as the bears/bulls have (this is a big battleground stock) but I view it like a better version of OUTR.  You don't have a lot of value destruction going on so it's easier to figure out what should be yours over time.

[KCLarkin]

This is why I didn't want to answer the question about business cards. If you haven't done enough work to ask good questions, it is very hard to have an intelligent conversation.

 

Take 10 minutes to flip through the investor day slides and you will quickly see why this is a bad question. Slide 33, in particular.

 

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NTkwNjMyfENoaWxkSUQ9Mjk4MzQ2fFR5cGU9MQ==&t=1

[Guest Schwab711]

Some facts:

* Vistaprint is 75-80% of CMPR's business. It is also a cash cow with ~30% operating margins as opposed to the still unprofitable "other businesses" (which will probably be profitable in 2016).

* Other businesses have operating margins of 10%. Looks like there is some expectations that these will increase over time, but they will never come close to the Vistaprint business.

* 66% of revenue for Vistaprint comes from businesses with <10 employees (I should have said <10 instead of one-man shop)

* ~30% of Vistaprint revenue comes from business cards, specifically (highly skewed towards <10 employee businesses, signage for larger businesses)

 

* 50% of all revenue comes from advertisements for <10 employee businesses

* ~20-25% of all revenue comes from business cards

(These are decreasing, as %, because of acquisitions and "other" growth, which is probably why you think my question is unimportant)

 

My original post was trying to answer the question of whether small business formation will continue to grow or if the major global recession has anything to do with the recent growth. You may not care, but I think it's important to have some idea of the answer. This is why we each do our own research.

 

I'd imagine that the last two bullet points have the highest margins and are the real "moat" of CMPR (along with a few other similar niches). I really like the Vistaprint business. I don't know what to think about the "other" businesses just yet. This isn't my first time looking at CMPR but you seem to be better educated on the company so I wanted your opinion. I don't know why asking about business cards is an "unintelligent question", just because CMPR management wants to focus on high-growth divisions (with lower margins and increased competition). Business cards and <10 advertisements are the bread-and-butter, the meal-ticket, the cash-cow! I'm all for getting to the operating sweet-spot through acquisitions (since management seems competent), but lets not forget what is funding all this growth.

 

It does make me nervous when companies stray from their cash-cow. I hated it when FICO was doing it in 2012/2013 and I don't really like CMPR de-emphasizing it in their presentations. They sell business cards for $10 that cost local printers $50-$100! They are keeping business cards viable in a digital world and I love it! Vistaprint has a similar niche with other small business advertising (like signage).

 

Since the <10 printing business is so fragmented, I imagine Vistaprint is continuing to take share each year. Growth probably would be ~10% without the currency chaos. I want to know, is that 5% from market share gains and 5% from underlying <10 advertisement growth or is it 12% and -2%? I'm having a hard time determining that and I thought you might have insight.

 

With all that said (written?), there's no doubt CMPR is a great business. I'm trying to figure out "how great"? I like the growth strategy and management's thought process. You alluded to the <10 being "mature" so maybe that answers my original question.

 

As to your questions:

1. I don't think CMPR wants to compete in every segment of this industry. I'd prefer they stick with their niche and grow when it will improve margins. Who cares what the overall online print industry does. How will their niches do moving forward?

2. I think it seems highly probable they will continue to gain share in their niches. I also hope they have 0% market share in bulk online printing.

3. Absolutely. I'd prefer they stick to situations where they have tremendous price/value advantages (like business cards for <10 or signage for <100)

4. Will capturing higher market share of this segment improve overall margins or protect their niches?

5. Again, absolutely. There is also more competition and lower margins. Will capturing this segment protect their niches?

6. I don't see why this would be a problem either

 

Slide 33 is the classic "market opportunity" slide. Are any of those opportunities as profitable as business cards even at 5x the total size? I sincerely doubt any of those provide the same returns. I'm not sure the "promotional products, apparel, and gifts" segment is all that great of a market to enter.

 

The thing about comps is they create an image in your head that may not be useful. If CMPR really is SBUX in 2000 then all of us should be all-in without hesitation. I don't see anyone with 50%-100% allocation so the comp must not be a sure-thing. I think I could make an equally valid argument that CMPR looks a little like the cemetery business in 1999/2000. At the time is was ~75/25 for burials/cremations. Now it is ~50/50. Large cemetery companies maintained their moats and were quite profitable throughout this time, but returns were average at best. Similarly, if the recession forced small business formation then you may have some headwinds as the global economy recovers. It doesn't change how wonderful the business is but it will affect returns.

 

I know I like the business so I'm just trying to convince myself it's not as great as I think. If I fail then I'll probably invest.

[intothebreach]

Thanks for pointing again to their investor deck.

 

Having dealt with Vistaprint as a customer years ago, I was left with a bad impression and did not have much interest in digging in their story. The business cards we bought at a very competitive price were not only so extremely cheaply made that we did not feel comfortable handing them to potential customers, but they also had a smaller footprint than regular business cards, even though that was what we had been sold. This was about 5 years ago, and I guess would fall into what they consider today their "PP" segment, where pricing is everything. In all fairness, they would have done the job in many other fields of work (ours was professional services).

 

After going through the deck, I believe their strategy make sense but the valuation is a bit rich for my taste. There is indeed a huge consolidation opportunity before they run into the huge commercial printers with extremely low cost structures that would be extremely difficult to displace (think CPG packaging for giant consumer brands with very sticky customer relationships, sometimes  spanning decades, and integration into upstream/downstream activities).

 

The few things I would still want to understand better if valuation was to get more compelling would be (all of these would be mere details if valuation was to get extremely more compelling):

- we can understand from their financials that they are doing good, but I did not see anything on what they are doing to improve their cost basis and strengthen their moat other than acquisitions to gain scale and new product lines (especially for new product lines, what's the plan there?)

- they mention late deliveries have declined 20%, with no other data. Is is still a problem, or has it been fully resolved?

- their customer satisfaction scores are good, but not yet excellent, with a few recent declines in some geographies (as an aside, NPS scores are interesting in that they give a single number, but less so in understanding what that number is made out)

 

Lastly, they mention that they have now become true believers with regards to sensible capital allocation, which is great news, but I would want to follow up closely to make sure they do not relapse into old habits here (for instance, will they keep buying back shares at multiples to book?).

 

Since the same can be said of customer satisfaction, as opposed to just focusing on being the cheapest. These are two significant shifts in business philosophy that would bear close monitoring.

[Guest Schwab711]

That's exactly right. The growth of the industry overall isn't all that important to a "disruptor" who is growing by gaining share. The assumption is that business cards, etc. won't go completely extinct, and I don't think they will. Keane the CEO I think related it to Starbucks, which grew amazingly despite per capita coffee consumption declining. Might be a pretty generous metaphor but an appropriate one nonetheless

 

SBUX wasn't correlated to coffee consumption though. A Starbucks coffee replaced the pot of Folgers, right (more or less)? I'll take your word that consumption is down but the total disposable income spent on coffee has increased (while SBUX was gaining share). So the average $ spent per serving outpaced overall market size during SBUX's growth period. Not too bad of tailwinds.

 

I don't know how the "growth of the industry overall isn't all that important" is ever true. It may not be the only driver (or even the most important) but you can be damn sure I want to know what the industry's prospects are.

[KCLarkin]

Schwab. Sorry, but I'm going to punt the business card growth question (although I think you know my opinion). I could kill my three remaining brain cells explaining why this is a flawed question but I won't. Let's just say that you need to use multivariate analysis to really answer your question (see update below).

 

I'm not sure the "promotional products, apparel, and gifts" segment is all that great of a market to enter.

 

 

This is their largest current growth investment. So it should be pretty central to your investment thesis.

 

---

Update: If you really want to understand why business card market growth + share gains don't adequately explain revenue growth, you need to really understand slide 20-23 in this presentation:

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NTg4Njc4fENoaWxkSUQ9Mjk3MDA1fFR5cGU9MQ==&t=1

 

There are many moving parts and they aren't all going in the same direction.

 

 

 

 

[Guest Schwab711]

Fair enough. I think I'm more intrigued now that I know we are both interested in CMPR for wildly different reasons (nearly polar opposite). Says a lot about the company.

 

I'll come back when I know more.

[cmlber]

I just started looking into this company and am trying to figure out how wide the moat really is.  It's obvious that Vistaprint has a massive scale advantage over mom and pop print ships, but would it really be that hard for someone with $1 billion in capital to recreate this business?  If Jeff Bezos decided to ditch the partnership and just recreate the back end and go after the same mass customization market that CMPR is going after, what would stop him?

[KCLarkin]

I just started looking into this company and am trying to figure out how wide the moat really is.

 

It is economies of scale in a niche market. Read "Big Fishes in Small Ponds Make Big Money" in Dorsey's "Little Book that Builds Wealth".

 

There are also intangible assets (patents, customer relationships, partnerships). The moat is not insurmountable but they are spending hundreds of millions each year to reinforce the moat.

 

 

[AccentricInv]

Does anyone have a copy of the Barcap report that's causing the 7% move today?  Is there any other news that I'm missing?

[fareastwarriors]

Does anyone have a copy of the Barcap report that's causing the 7% move today?  Is there any other news that I'm missing?

 

 

Here you go

CMPR_-_Barclays.pdf

[AccentricInv]

Does anyone have a copy of the Barcap report that's causing the 7% move today?  Is there any other news that I'm missing?

 

 

Here you go

 

Thanks!  Surprised the move was this drastic today.  It's not like they're saying anything the market didn't already know (and they even kept the same PT).  We all know increased investment in the coming year is going to depress FCF, and yet they're keeping the same FCF multiple they use to value the company at, thus the downgrade (personally I'd back out the investment capex, and value it at a multiple of the "normalized" figure).

 

If you have any other thoughts on this report, or I'm missing some new nugget of information Barcap has uncovered, please let me know!  Would love to hear other's thoughts.

[Guest notorious546]

re barcap note. what does execution have to do with street estimates?

Limited Guidance Could Make Execution More Challenging

Starting in F1Q, Cimpress changed its disclosure and guidance policies. Historically,

Cimpress has provided annual revenue and non-GAAP EPS guidance, but going forward

guidance will be limited to long-term growth rates and quantifying investments. Also, the

company’s disclosure will change; management will no longer provide operating metrics

like the number of orders or average order value, and instead will report the drivers of

segment performance – in other words, less disclosure.

As it relates to guidance, we can understand how management doesn’t want to be on the

hook for annual targets, and instead wants the freedom to invest opportunistically for the

long-term. But we think the reality is that Cimpress will still be held to quarterly Street

consensus and to the extent that execution gets worse, due to more limited guidance, we

believe the stock may suffer as a result.

[AccentricInv]

I think you forget the mantra on the street... the street doesn't miss company results, the company misses the streets estimates.

 

In sum, it has absolutely no relation.

[KCLarkin]

Page 14 is my favourite. IIRC, Barclay's was underweight from June 2012 ($30) until April 2015 ($87).

[AzCactus]

Anyone interested at these prices.  Management seems top notch---which in and of itself is tough to find.  Although obviously not the only aspect to consider. 

[KCLarkin]

The price is good, but obviously there are many "bargains" today. And there may be many more very soon.

 

Specifically, I think Barclay's downgrade is off-base:

- he assumes a very sharp drop in vistaprint growth rate this year. I don't see any justification for this assumption.

- he assumes that the M&A fueled growth is over because they won't add more leverage. But he assumes the $100M in annual FCF just piles up in the bank. They will spend this cash on M&A or buybacks. So his FCF/share estimates are wrong.

- he needs to use 2017E FCF to justify his price target, relative to comps. In other words, he assumes FCF drops significantly for CMPR and rises rapidly for comps. He might be right but Barclay's record on CMPR is horrible.

 

If the downgrade hadn't happened in the middle of a correction, I would be buying here.

[flesh]

^^^^agree

 

He seemed to miss the fact that more fcf/owners earnings will fall to eps if they do stop acquiring, which in cmpr case as it's misunderstood would cause the share price to appreciate. I understand this doesn't effect the intrinsic value but over the last two years in cmpr's case its been pretty clear what the market wants to see.

 

I am happy to see that more of mgmt's compensation will be performance based form fy 17' forward. I suppose you could read into that and it seems reasonable to assume that they expect that year to appear better optically.

[AccentricInv]

Did Barcap publish an update?  I see on Bloomberg they reiterated their PT today, but don't have access to their research.

 

Is this the reason for the +6% move today?

[WneverLOSE]

I don't quite know how to think about future growth rates,

Sales growth

2002 - 2015 ~ 38% CAGR (14 years)

2006 - 2015 ~ 26% CAGR (10 years)

2009 - 2015 ~  17% CAGR (5 years)

 

in their investor presentation they acknowledge they didn't invest enough in 2009 till 2011 and that the large growth till 2006 or so was due to large investments from 1995 till 2005.

 

I am just starting to look into this company, but it is easy to see that if they can achieve more than 20% growth for the next 10 years it is going to be a big winner.

 

I would love to hear your thoughts about the future growth and if you have any links to management comments about future growth it would be great.

[big_triece]

I've been digging into it for a couple weeks now. Like the business a lot. Take a look at the most recent investor day materials. They talk a lot about the investments they have going on. One recurring theme is management's intense focus on ROIC for these projects.

 

Cimpress_Investor_Day_2015_for_Nasdaq_upload.pdf

2015_Analyst_Day_Transcript.pdf

[KCLarkin]

if they can achieve more than 20% growth for the next 10 years it is going to be a big winner.

 

20% for 10 years is unlikely (for any company):

http://investorfieldguide.com/the-persistence-of-growth/

 

I'd guess 6-10% organic growth. Then estimate normalized FCF. Then make assumptions about how that FCF will be used (likely acquisitions and buybacks).

[Snorky]

VENLO, Netherlands (AP) _ Cimpress NV (CMPR) on Wednesday reported a fiscal third-quarter loss of $33.4 million, after reporting a profit in the same period a year earlier.

 

The Venlo, Netherlands-based company said it had a loss of $1.06 per share. Earnings, adjusted for asset impairment costs and costs related to mergers and acquisitions, were 77 cents per share.