Thanks for the write-up. I have a question about your steady-state operating margins. Despite your inelastic demand argument, the assumption of 14% seems a bit too high. From my research on the industry, I see that during downturns margins significantly contract. The only remaining public comp with a date spanning back to 2002 e.g. before the first industry cycle peak this decade in 2006 is MPX. And if you look at their EBIT margin progression you will see that margins go to negative territory and stay at low single digits until the 2011-12 trough in the industry. The average margin for MPX was 9% from 2002-2009 and then again 9% from 2009 till now. I understand both MSFT and MBUU are better positioned but in my mind, they don't seem that far away. Again, I am no expert on the space just wondering what are your thoughts on this and how confident you feel about margin assumption.
Also, there are way too many brands in the space, and even though both MBUU and MCFT have significant shares, those brands do still compete between themselves and cannibalize the sales to some degree. Can we call that really a duopoly?
I like the writeup and the outlook, although I am concerned on the customer spending. Given the current state of the company, would you agree that a potential investment in MCFT is a bet the customer spending will stay as is in the mid-term?
While personally I'm quite convinced this will be the case (especially given MCFT's market positioning) I'm rather sitting out on cyclical opportunities like these. Would love to hear your thoughts on this as I might be not educated enough on the industry and/or how it differs from others.
Thanks for the write-up. I have a question about your steady-state operating margins. Despite your inelastic demand argument, the assumption of 14% seems a bit too high. From my research on the industry, I see that during downturns margins significantly contract. The only remaining public comp with a date spanning back to 2002 e.g. before the first industry cycle peak this decade in 2006 is MPX. And if you look at their EBIT margin progression you will see that margins go to negative territory and stay at low single digits until the 2011-12 trough in the industry. The average margin for MPX was 9% from 2002-2009 and then again 9% from 2009 till now. I understand both MSFT and MBUU are better positioned but in my mind, they don't seem that far away. Again, I am no expert on the space just wondering what are your thoughts on this and how confident you feel about margin assumption.
Also, there are way too many brands in the space, and even though both MBUU and MCFT have significant shares, those brands do still compete between themselves and cannibalize the sales to some degree. Can we call that really a duopoly?
Thanks for another good read Benji!
I like the writeup and the outlook, although I am concerned on the customer spending. Given the current state of the company, would you agree that a potential investment in MCFT is a bet the customer spending will stay as is in the mid-term?
While personally I'm quite convinced this will be the case (especially given MCFT's market positioning) I'm rather sitting out on cyclical opportunities like these. Would love to hear your thoughts on this as I might be not educated enough on the industry and/or how it differs from others.