(18-09-2023, 05:52 PM)weijian Wrote: [ -> ] (16-09-2023, 04:39 PM)dreamybear Wrote: [ -> ]Speaking abt market share, wanted to seek VB's views - how important is market share and the company's position in the industry ? Generally, for the companies invested in, do VBs make it a point during AGM to ask these questions ? For those who have, how does mgmt react ?
Personally, it's important for me to evaluate the company and monitor its progress. I will feel very demoralized if the mgmt say things along the lines - rather than focus on mkt share, we focus on <blah blah blah> coz I wld think such information is also important for the mgmt, so getting such answers mean either they know but not saying or they don't find the info impt to grow the business ?
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My thoughts:
(1) Market share is the end result, rather than the means to the end result. To get to the end, one has to focus on the "means" first. So it is politically and logically correct when Mgt says "rather than focus on mkt share, we focus on <blah blah blah>". But it is also unhealthy to focus on market share as the success metric (ie. end result), compared to lets say profitability, customer satisfaction or technological breakthroughs. A lot of unhealthy things like price cutting or expensive M&As can happen if the focus is overly on market share.
(2) So is market share important? Of course it is! As Wildreamz mentioned, especially for platform/network effect types of businesses. Once you have a big share of the customer's mind, good things happen to you (while bad things happen to your competitor/s).
(3) Rather than market share, I believe a better word would be "scale". Scale means something because profitability only appears after things reach a certain scale. All businesses inherently have operating leverage, just different degrees of it. So the higher the fixed costs, the more the operating leverage and the more profitable it will be once it scales up. The more scale one has, the more it can spread its fixed costs, therefore reducing operating costs (as a % of revenue) --> higher profit. With higher profit, one ploughs it back into R&D. The R&D breakthroughs may improve production/attract more customers and spread the new bigger revenue over its costs --> flywheel effect. This was effectively what happened at Intel VS AMD (in the 2000s) and Intel VS TSMC (in the 2010s and beyond).
So IMHO, rather than asking about market share, maybe better questions for OPMI to ponder over:
- Is the company increasing its stickiness or mindshare of the customer?
- Is the company still providing good value for its service/product?
- Does the company have enough scale to enjoy economies of scale?
- Does the company have enough utilization to make a profit?
- Does the company have a crazy competitor focused on market share?
- Can the company replicate its business model and scale it across geographies?
(4) Personally, I think the best form of moat is "efficient scale" resulting in some oligopoly situation - Existing competitors are "comfortable" with each other and the TAM is not big enough to attract new competitors.
(1) & (2) The mgmt doesn't have to overly focus on it. But if the mgmt doesn't even bother at least monitoring, then I do think something is not quite right.
Perhaps let me ask in another way :
- does it concern OPMI IF a company has been gradually losing market share especially for its core pdts/business ? If one doesn't monitor, one wouldn't know.
- Is it possible for a company to continue increasing its revenue but at the same time losing market share e.g. because the addressable market is getting bigger ? If so, is this a cause for concern e.g. one day it might become less competitive ?
(3) Thanks for coming out with the questions.
>> Is the company increasing its stickiness or mindshare of the customer? <<
>> Is the company still providing good value for its service/product? <<
Companies nowadays are more complicated than the past, with multiple business / pdt lines. How can we tell if the company financials do not break down into the details we want to study ? Let's take some VB's fav companies e.g. TheHourGlass, Penguin, Micro-mechanics, YZJFH. I think THG check the boxes but can't really tell for the others ? I think repeat orders from the same customers might give a hint but may not be conclusive of the complete picture ?
>> Does the company have enough scale to enjoy economies of scale? <<
>> Can the company replicate its business model and scale it across geographies? <<
While the answers are probably obvious for outliners companies like Apple, Tesla, McDonalds, I think it's much tricker for other companies, especially the relatively much smaller scale ones like the SGX small caps stocks. For e.g. expanding into other countries involve a whole gamut of challenges e.g. regulations, right partners etc, and positive results may not be seen for a few years. And given how rapidly things are now changing, perhaps the environment in the next few years may not be as conducive e.g. new players, new regulations.
My other point is actually what can we do if the mgmt chooses not to answer our questions ? Do we as "part owners" have a right to get answers(referring to real answers not those "answers" which do not answer the question) from mgmt ? Is there any regulation in this area ? note : no pun intended, genuinely don't know.