Analysis of Hypebeast (SEHK:8359)
Dear readers,
I am activating my blog again for a very selfish reason. I do believe clocking down my investment thinking process is helpful to gain clarity of my thoughts to move forward towards my goal of obtaining financial freedom earlier.
Hypebeast Limited provides advertising services to brand owners and advertising agencies on its digital media platforms. The company operates through Digital Media and E-commerce segments. It is also involved in the publication of Web magazines; and sale of third-party branded clothing, shoe, and accessories on the company’s e-commerce platform. It is based in Hong Kong.
Economic Moat
In the past, physical assets may deemed to be more attractive. However, due to the advancement of the internet, I tend to believe that the real assets are database and lucrative following of users. In short, to stay ahead, the strongest moat any company could have is… network effect.
I am going to do a quick comparson of HYPEBEAST versus their closest competitor HighSnobiety in terms of following. In the world of network effect, there can only be an eventual winner.
(screengrab of Instagram account)
In this instance, Hypebeast has 163% more ‘following’ than HighSnobiety.
Using Google Trends, I feel that HYPEBEAST is becoming stronger because they are able retain their Google interest over time. This is really important as HYPEBEAST rely on unique visits and page views as value proposition in the negotiation table with advertisers. I do feel that advertisers who work with HYPEBEAT get a good deal and influx of interests for their products.
What makes this business a lot easier to analyse is.. you are able to track the number of visitors into their ecommerce website (www.HBX.com) using https://www.similarweb.com/website/hbx.com.
I also tend to believe that visitors do not appear magically. The key risk for HYPEBEAST is their editoral staff, they play an integral role within the HYPEBEAST community to pull more readers. If their content is deemed as not ‘fresh’, this may put off readers and they may not come back again. This is detrimental to the company as they won’t be able to pull more advertising dollars or cross-transfer users to their HBX.com for potential sale conversion.
Management
The company is helmed by Kevin Ma (CEO, Chairman, Executive Director), together with his wife Janice Lee (Executive Director). Janice is in charge of Popbee. Both of them are 34 years old and the company was started by them in 2007. Colletively, they own around 74.5% of the company. They earned $2.576m HKD which is totally acceptable to ensure profitabilty of the company.
You can read more about Popbee using this link here.
I regard qualifications about management as insufficient. As investors, we are investing into the soul of the company, which is the people. We must be able to trust the leader in the company to grow the company. We have to the know the philosophy, the drive, and the vision from the management. We found interviews particularly useful to have a glimpse into Kevin Ma’s business blueprint and HYPEBEAST’s humble beginnings.
Generally, I see Kevin Ma as an entrepreneur who is very similar to Jack Ma or Jeff Bezos.
- They did not have a formal education in the industry that their business is operating in.
- They are clearly obssessed with how they can deliver the best content and delight their customres.
- Led by their passion, they stumbled upon their business today.
The most impressive thing about Kevin Ma is….. his company is profitable since day 1 and they did not take any VC money. They went straight for the IPO and it was such a brilliant move because he did not let VC dictate or force decisions upon the company’s management. He’s young and there is definitely a long roadmap ahead of his company.
**Republished Content below**
“I have no connection to print other than my love of magazines when I was growing up, and always wanting to do our my own one day”, Kevin says from his Hong Kong office. “It was a challenge because we really had no experience but it was well worth it because we’re pretty happy with the results.” The magazine works due to the readership and fan base Hypebeast has built up through the blog over the years.
Kevin lives the life he preaches. “For the past eight years, I have on a daily basis – Monday to Sunday – looked at my RSS feed and checked all the hundreds of sites in my bookmarks. This is very important for me, becoming almost like a daily ritual. I feel if I ever stopped doing this, I would be disconnected from what’s going on in the world. I assume it’s like training for a sport; if you ever stop, you’re going to be out of shape.”
What’s your definition of success?
I never really think about success itself. Rather, I think about the areas I’m not doing good enough. It’s all about trying your best, being persistent, being flexible and open minded to new ideas. So, as long as you’re able to do that, you’ll figure things out along the way.
What has been the most effective strategy you’ve implemented since the genesis of Hypebeast?
There isn’t a single strategy, but it should be an open-minded attitude. This mindset pushes you to keep improving yourself with more exposure, to build opportunities and to innovate concepts.
THOM BETTRIDGE: You share the news cycle with many other sites on the Internet. How do you go about creating something that generates loyalty when you have competitors dropping the same news as you?
KEVIN MA: We focus on ourselves first and foremost, and what kind of unique content we can come up with that we and our audience appreciate. As long as we can do that, we’re satisfied with the results. But if one day we were creating content because the competitor is creating content, then we would lose the original focus of what we’re about. At the same time, for news coverage, time is obviously an important factor. The sooner you share big, breaking news, the better it is not only for your site, but also your readers. Our readers expect to be fully informed and entertained by the content we create. We don’t really think about other folks as competitors. The Internet is so big that everyone can survive.
So there hasn’t been venture capital money involved in Hypebeast, even earlier on?
No VCs, no investors. From day one, we would make money and put it back into the company. We obviously contemplated it, but with a VC you know the road, and it’s quite straightforward.
You aim for a big exit.
Yes, because they need to get the money back. But we don’t want to sell the company. It’s still super interesting to us, and we’re still very passionate about it. So I thought: “If the end goal is that exit for the VCs anyway, then why not just do a type of exit now? Why not just do an IPO now?” And through this, we were able to raise the money we needed to grow our business and we were able to do it on our own terms.
sources:
http://www.port-magazine.com/fashion/kevin-ma-the-hypebeast-machine/,
https://fashionista.com/2015/12/kevin-ma-hypebeast,
https://hk.asiatatler.com/generation-t/generation-t-kevin-ma-of-hypebeast,
http://www.scmp.com/magazines/style/people-events/article/2108329/hypebeasts-kevin-ma-revamps-e-commerce-site-launch-hbx,
https://www.forbes.com/sites/bishopjordan/2016/06/28/hypebeast-founder-kevin-ma-on-innovation-learning-and-hong-kong/#6eb235eda608
https://032c.com/hypebeast-vs-highsnobiety
Financials
According to their annual report, they do not have customer concentration risk as the largest customer provides 4.9% while the total of top 5 customers provides 12.7%. As for the suppliers, top supplier is 7.7% and top 5 largest supplier is 30.7% of Cost of Revenue.
If you are interested in looking at their latest Q1, take a look at this link. I am thinking growth could accelerate due to ramp-up in advertising dollars and HBX.com ecommerce success. They are looking for a number of talents over their recruitment site to manage their demand.
Below are some of the figures that I’ve gotten using their reports.
A few short remarks:
- 4.5 Year CAGR Revenue – 33%
- 4.5 Year CAGR Net Profit – 28%
- ROE is 33%
- Net Debt over Equity is -58%. This company is cash rich!
- From the capex chart, one can see that their capex for FY2017 was merely 450k USD or 3.5k SGD.
- Revenue contribution >50% from USA which is a big market. I generally like companies which are able to scale beyond their home markets. This demonstrates strength and global appeal. USA is a good market to test and grow.
HYPEBEAST is growing well in most of their geographies.
4 Year CAGR:
United States 51%
Hong Kong 81%
United Kingdom 53% (stagnant for the last year)
Others 47%
Negatives about Financials
Generally, I would like it better for HYPEBEAST to be able to collect their money earlier. I wonder if there is receivable risks since 23% of their trade receivables is past due beyond their agreed commercial terms. In 31 March 2017 and 31 March 2016, they have written off $1.14mil HKD and $1.96mil HKD respectively.
maths: (5.974+4.648+1.712+0.088)/53.581
As for their business segments’ operating profit margins from FY2014 to FY2017, Digital Media has dropped from 36% to 26% whlie Ecommerce has dropped from 13% to 4%.
Let’s continue tomorrow.