I waited to post this until I had a chance to top up today.
The following is all my own opinion. I have worked in logistics for 6 years (currently I am an Implementation Manager at a global logistics firm). GSW represents 40% of my portfolio. The below are the reasons why I am so heavily exposed in this share.
EXECUTIVE SUMMARY
What is mind blowing about the Amazon MSA is not the direct revenue/ transactions from this deal, it is the credence Amazon signing with GSW gives to the GSW platform.
CONTEXT OF THIS ANN
The initial consensus among early holders was GSW allowed SMEs to compete with Amazon as Amazon marches to global dominance. I do not believe anyone who held GSW last week saw the Amazon ann coming Friday. It was truly jaw-dropping and in my opinion changes the potential of this company for all holders.
THE LANDSCAPE - First hand experience in the industry this technology is disrupting
Courier companies are notoriously unreliable, unaccountable and unable to commit to delivery times (… ye anytime between 7 and 12 mate). That includes from mum and pop operations right up to UPS. Their technology is straight from the 80s (most manage their fleet/ contracted drivers using 2 way radios and spreadsheets). Data quality issues are rampant (inaccurate or no reporting). There has been no innovation in this space for >30 years.
AMAZON
A quick Google of Amazon shows that Amazon has been working on a number of tech platforms to revolutionise their supply chain operations (Dragon Boat, FLEX etc) since 2013. A google search of FLEX shows a user rating of 2.4 stars. One of the pillars underpinning Amazon’s business model (and key to its global dominance) is speed and efficiency of delivery (last mile).
The MSA GSW signed with Amazon shows that GSW has developed a solution to a global problem Amazon faced (and one that Amazon figures they are unable to adequately resolve). I make this assumption based on the following. GSW gives Amazon a way to enter new markets:
- Minimizing Amazon’s capital outlay (fleet management, drivers) and therefore reducing their financial risk
- Reducing Amazon’s reliance on key large supplier’s (namely - UPS) with outdated technology and no ability to integrate into Amazon’s Operating System (see Landscape above). The failing Amazon/UPS relationship has been well documented in the media
-Providing Amazon more control in emerging markets as they have the direct relationship with drivers and no longer need the middle man (UPS) to manage their fleet
- GSWs subscription platform means Amazon only pays a small fee to GSW per transaction, providing much better cost management and on-time invoicing ensuring receipt/ dispatch from Distribution Centre is instantaneous both physically and in Amazons Operating System. This is of particular importance when using a Just-In-Time Inventory Management System
- All the efficiency gains in delivery routes, speed of delivery etc GSW talks about in their Investor presentations. This year’s AGM Case Study (published last Thursday) is a must read for anyone to fully understand this technologies potential <
http://m.asx.com.au/m/announcements.xhtml?issuerCode=GSW,
2017 Annual General Meeting Presentation (1.8MB), 30 Nov 2017, 09:38>
With GSW, Amazon can also further streamline its operations in markets it dominates (eg, USA and Canada) as the routing information, live interfacing, accurate reporting etc changes the Amazon experience for management and customers alike.
GSW turns Amazon’s last mile deliveries from a slog (using UPS and FLEX) to a true key competitive advantage and market differentiator they have complete control over. There is no supply chain management by a third party - just an app and a series of independent drivers (think Uber).
What GSW gives Amazon is global CONTROL of its last mile, turning this non-value added headache into a genuine competitive advantage.
This part is speculation, but I believe the delay in Amazon’s launch in AUS was to finalise the integration with GSW. Missing Black Friday and rapidly approaching Christmas with no word of a launch to me means they are on the final leg of integration and implementation of GSW into Amazon pre Australia launch. (Read
https://hotcopper.com.au/threads/ann-update-on-amazon.3883118/page-31?post_id=29305883 where I review potential strategy for implementation of GSW into Amazon). Keep in mind Amazon has been looking to launch in Aus for over a year... this deal would have started months ago allowing ample time for trial operations in a test environment.
GSW
In terms of the information contained in the MSA, for me this is standard for Bane and Joel. These two do not announce MOUs and they have been overly coy in all of their communications to shareholders. Any other company would spell out ALL the details of an MSA with a company like Amazon. Not these two. I think some context by way of a summary of the last 3 months comms from these boys can better explain the wording of the Ann:
- At their AGM, the two said the largest risk GSW faces is being taken over before their deals come to fruition (indicating a number of other large MNCs in the pipeline)
- A noted strategy of expansion through market saturation (leading to global dominance in last mile tech) more important than revenue. Due to the subscription based platform - revenue will come (and when it does, it will be exponential)
- They have said there is going to be a “Quantum Spike” in customers, revenue and transactions in 2018
Quarterly Update and Appendix 4C (1.3 MB) posted: 31 October 2017 08:57 – Page 2>
- Constant references to Fortune 1000 companies approaching them as GSW has no sales team. All deals have been word of mouth
- Reported “we’re going to make you all filthy rich” and “this is first gear of six” at their AGM
Signing Amazon re-frames these references entirely.
For GSW, an MSA with Amazon makes them instant market leaders in last mile technology as it gives them credence as the real deal. Amazon would have performed their due diligence (rigorously testing the technology, integration etc) before signing an MSA with a 2 dollar tech start up from Australia. Amazon are not mugs, they a hugely disruptive technology that has dominated every market they’ve entered. And for them, I believe GSW will be as revolutionary as they have been.
Financially, GSW has 15 million AUD on hand with <100K debt and only a few million expenses last year (mostly consultancy – presumably to assist with integrations).
NA Williams and Yum! alone represents a SP of over $10 by my calcs (albeit at implementation in 2019)… let alone the true potential of this Amazon deal reframing the usefulness, scalability and applicability of the GSW platform.
The true disruptive nature of this technology in my industry is staggering. The Amazon deal makes this technology go beyond key signings to give them the potential to do to the entire logistics industry (even beyond last mile, think DC-DC and B2B transactions) what Uber/Lyft has done to taxis…
Long term, I believe the GSW platform will touch each transaction through the entire supply chain, from Raw Material handling right through to their bread-and-butter Last Mile. After all – it’s all just freight moving from point A to point B. The potential is unparalleled. This company can genuinely make history.
TODAYS SP
For me, today’s SP showed that people do not understand the technology and the industry. Weak handed retail investors were bought out way too cheaply by instos IMO. Congrats to anyone who made good money selling today, but I believe you were too short sighted. Whoever sold me their shares at 4.50 should take that profit and buy back in at 4.20.
CONCLUSION
What I believe based on the knowledge I have about the industry, research performed and drawing some conclusions, is that this deal is a genuine partnership between Amazon and GSW. It represents the biggest opportunity for any Australian company ever listed… And this is a technology platform with 0 debts and 0 expenses. I believe 90% + revenue will be returned to shareholders by way of dividends in the coming years... and man how big that revenue could be
What this technology does is it makes courier companies like UPS, DHL and my current employer obsolete (thank god I bought GSW).
Amazon is a global leader that will revolutionise the way our consumption addicted culture consumes. GSW, a tech start up with no debt and no expenses, will be there receiving a piece of the pie every time we buy more stuff we don’t need off Amazon... plus a piece of the pie from whatever other companies are loaded in the GSW pipeline.
Good luck to all
Get Schwifty
