15 Apr Is the E-Commerce – Bubble or reality?
Miguel Ángel Temprano is Investment Director of Orfeo Capital SGIIC.
nvesting in e-commerce companies has become an exercise in faith. Your valuations do not support a standard valuation system. As an example, Amazon has a PER of 97, that is, we pay in advance the benefits of more years than the average life of a Spaniard.
In a normalized scenario, this assessment would be the clear example of a bubble. 90/5000 But then, should we say that Amazon is a bubble and that sooner or later it will explode? Is electronic commerce swelling the market?
Experts say that the strongest drug in the world is not heroin or any other opiate derivative, but rather adrenaline, and after that, dopamine. Neither of them are drugs, both are hormones that our body naturally produces in certain situations or stimuli.
The dopamine and happiness hormone segregates our body between other times when we buy. To humans buy us generates well-being.
The large surfaces, some time ago, knew how to interpret this effect and adapted their establishments to satisfy the need for well-being, but Amazon has been able to eliminate the superfluous from the purchasing process and concentrate the effort on the very fact of the purchase.
They have been able to have a person who has insomnia access Amazon at four in the morning from bed and buy, and thanks to that sleep a little longer. They have been able to become the anxiolytic that is ingested at any time or place, without causing any damage to the organism.
But the funny thing is that Amazon is not only giving money, we are giving something much more important in the long term, which really is what those 97 of PER is worth. We are giving you detailed personal information about our habits and customs. And we really do not know how much information we are giving you.
Amazon has been collecting a huge amount of data for years, the so-called Big Data.
Nobody in the consumer sector has as much information, or as much quality as they have.
WalMart has been for more than 20 years, until the end of 2010, the fifth most valuable company in the world. Years in which Amazon did not approach the top of the ranking. Only eight years later, Amazon ranks first and third in the world ranking and WalMart, the largest chain of commercial areas on the planet, is no longer among the 15 most valuable companies in the world. And its value does not amount to 40% of Amazon’s.
And the bad news for traditional commerce is that this is only going to get worse. Amazon’s Big Data is not bought, it is only achieved with time. What has been achieved by Amazon WalMart can not be achieved now. Other companies such as Inditex have done, and in what way, their duties.
They have created a system of design, manufacture, sale and distribution that does not collide with e-commerce, also getting that Big Data that others have not been able to obtain.
Nowadays, it has the most advanced distribution and logistics system in the world, in which it has fully incorporated to its internal control the radiofrequency identification of its garments. Before they needed a whole morning of work to know the inventories of a store, now only 5 seconds. Now they are able to know the consumption habits of a client when entering this in the store, for the mere fact of having this app installed on their mobile.
The optimization of the stock allows generating in the consumer the psychological effect of last garment, stimulating the impulsive purchase with the consequent well-being by the segregation of dopamine.
Inditex encargó hace unos años al MIT un algoritmo de reparto sobre las unidades escasas en función del modelo y talla para cada tienda. Thus, the distribution priorities do not depend on the moment of the internal order but on the probabilities of sale. Big Data provides Inditex with accurate information on consumption habits by store, day, time … And this is not available to anyone, no matter how much money you invest.
The consultant Barin & Company has predicted that in 2025 still 75% of purchases will be made with physical presence, but 70% of them will be promoted by something happened online.
In the 70s, Spain had a subsistence economy. Dedicated to basic food, more than 40% of disposable income. Thanks to globalization, today average Spanish only spends 11% for this concept, which leaves you free, and not only in your pocket but also in your brain, 27% more of your disposable income to spend it on other things. The one who arrives first at the brain of the consumer will be the one who takes the cat to the water.
And who is able to reach someone at four in the morning, during an insomnia? Well who is well positioned in the device that has been used more time on a daily basis in the history of mankind, the mobile. But that will not be enough, it will come sooner who knows what it is that he has to offer, but at that time and place.
Let’s think that physical money tends to disappear. Cash is a problem for everyone, for consumers and establishments, because they lose it or it is stolen; for governments, because it generates illicit operations; and for the banks because they spend a lot of time and money collecting it, telling it and cleaning it. Let’s not forget that countries spend 1% of their PIB on maintaining cash.
Japan is the first world country with the highest percentage of physical commercial transactions paid in cash. Increase the number of transactions is the first of the premises to heat an economy, and especially one like the Japanese, very difficult if most of these transactions are done in cash. And the Japanese authorities can not change that trend. Well, a simple app does it, because the apps do not allow you to pay with cash.
And who will have development with the e-commerce companies? Well, the logistics companies. After all, I will be able to buy a tennis racket in an establishment or online, but to play tennis, or at least to play Rafa Nadal, we need the physical racket in our hands. UPS, FedEx, Japan Railways or DHL will have an equal development.
Amazon has broken out, and in what way, in the daily purchase of food and basic products. Once again Amazon not only raises money, it also collects data.
Amazon is incorporating a first-level novelty, the unassisted purchase. That is, the supermarket without boxes. And a curious thing, they have detected that the increase in theft is compensated by the increase in sales due to greater agility in the purchase.
And now I go back to the first question, is there a bubble in a PER of 97 or does the valuation model have to change?