SES-imagotag Stock is a Pure Play on Retail IoT

One of many cool issues about an funding analysis agency like Nanalyze is our longevity. We’ve been round for practically 20 years now, and so we profit from having the ability to draw on greater than 2,200 analysis items. In impact, we’ve a novel dataset throughout a dozen rising know-how sectors. In that span of time, we’ve seen startups turn into multi-billion-dollar unicorns, finally itemizing as a public firm. We’ve watched corporations pivot so many instances that it makes you dizzy. And we’ve seen others evolve with attention-grabbing enterprise fashions and applied sciences to match that they finally create sufficient traction to benefit a re-evaluation. Such is the case for a French firm known as SES-imagotag (SESL.PA), which has emerged to turn into the worldwide chief in sensible and linked digital labels and IoT options for bodily retail areas.

About SES-imagotag Inventory

We first coated this 30-year-old firm manner, manner again in 2014 through which we referred to SES-imagotag as an e-ink pure play for retail shops. E-ink, extra generally known as e-paper, is the show know-how for e-readers and in addition electronic shelf labels (ESLs), amongst different functions. E Ink (8069.TWO) can also be the model title of a Taiwanese firm that’s truly headquartered within the Boston space, because it was initially based by some large brains from MIT. E Ink not solely supplies the ESL know-how behind SES-imagotag’s retail IoT platform, it is usually one among three principal shareholders within the firm. 

The second is SESIM, the French holding firm owned by the administration and workers of SES-imagotag. Rounding out the triumvirate is BOE Know-how Group (000725.SZ), a Chinese language semiconductor show and IoT options firm with practically $35 billion in 2021 income. You may need heard of a few of its prospects: Apple, Dell, HP, Samsung, and LG. Presently, the shares of BOE and SESIM are mingled in a joint holding firm primarily based in Hong Kong, break up 80-20. Bought all that? Oh, by the way in which, Qualcomm acquired a 2% stake within the firm in 2019 in reference to a deal to develop IoT connectivity options for retail. So, make that 4 important shareholders.

On the time of our earlier article, SES was simply Retailer Digital Techniques. It was nonetheless within the strategy of merging with one among its opponents in digitizing and automating shelf pricing tech for brick-and-mortar shops, iMAGOTAG. SES had a market cap of simply $182 million and the inventory had misplaced 1 / 4 of its worth over the 15 years it had been a publicly traded firm. Right now, SES-imagotag sports activities a $1.5 billion market cap and SES-imagotag inventory is dealing with down the bear that has additionally attacked European exchanges surprisingly nicely.

What are buyers so bullish on this pure-play retail IoT inventory?

SES-imagotag IoT Retail Platform

Let’s begin with the corporate’s know-how, which automates shelf pricing utilizing high-tech digital show tags, sensors, linked cameras, synthetic intelligence for object recognition, and so on. In 2018, SES-imagotag rolled out its magnum opus, the VUSION Retail IoT Cloud platform, which synchronizes costs, product data and advertising campaigns, and way more. The system displays the cabinets in actual time, offering availability and placement of merchandise, ostensibly lowering waste and out-of-stock points with stock intelligence. The cloud-based system sounds infinitely scalable. For instance, a retailer with 1,000 shops and 10 million ESLs may concurrently replace all costs in lower than two hours. About 4,000 of the 30,000-plus shops that use SES-imagotag ESL know-how at the moment are on the cloud-based administration system. 

The corporate claims its automated pricing system can add 1% to 2% to a retailer’s revenue margin. Which may not sound like a lot till you contemplate that the world’s largest brick-and-mortar retailer, Walmart, has a web margin of simply 2.4%. There’s additionally the gross sales pitch round liberating employees for different value-added duties like customer support or sucking Purple Monkey Balls spliffs within the storage closet.

Shifting to a SaaS mannequin

The VUSION Retail IoT Cloud platform represents the corporate’s sluggish shift to a software-as-a–service (SaaS) enterprise mannequin with dependable recurring income, together with what it calls value-added solutions (VAS). For instance, one thing known as V:Studio is a software program collaboration software that permits groups to create label templates that they will deploy throughout the operation in just some clicks. There’s additionally one thing known as V:Hyperlink for geolocating merchandise on retailer cabinets. V:Captana robotically detects stock-outs utilizing AI and miniature wi-fi cameras. And so forth.

SES-imagotag mentioned VAS revenues elevated 68% to account for 15% of its document $423 million in 2021 income. The corporate claims it’s on observe to achieve 20% of VAS revenues by subsequent 12 months. That’s admirable and all, however one of the best SaaS shares will get most or all of their income from subscription companies. SES-imagotag has a protracted option to go.

Whole Addressable Marketplace for Retail IoT

One other hallmark of SaaS shares is that they usually solely declare a small sliver of a quickly rising total addressable market (TAM), providing a lot of room to develop. Within the case of SES-imagotag, we’re left with the corporate’s declare that the demand for digital labels may hit 10 billion items earlier than the tip of the last decade. It estimates a present penetration charge of about 500 million digital labels or about 5%. SES-imagotag says it has about 300 million ESLs deployed, giving it a 60% market share by that metric. 

In {dollars}, the corporate thinks the TAM will likely be value about $3 billion within the subsequent 5 years. A associated marketplace for digital options akin to shelf monitoring or stock-out detection that the corporate is chasing with its cloud-based platform could possibly be value as much as $2 billion. So, we’re speaking a few market with a ceiling of about $5 billion by about 2027 – not terribly large. SES-imagotag reported income of $285 million within the first half of 2022, a 41% enhance in comparison with the identical half-year interval in 2021. Assuming an analogous trajectory for the rest of this 12 months, the corporate will simply surpass $500 million in income, claiming at the least greater than 10% of the entire addressable market, relying on the way you need to slice and cube it.

Clients and Competitors

Not surprisingly, SES-imagotag is driving that progress by going after the large fish first. The corporate says it has greater than 300 main distribution teams amongst its prospects, half of that are within the prime 50 worldwide and round 30% within the prime 250. Greater than a dozen of its largest manufacturers have deployed SES-imagotag know-how to at the least 1,000 shops every. Our largely American viewers received’t acknowledge the vast majority of names, as a result of two-thirds of the corporate’s revenues come from Europe with the remainder of the world accounting for the opposite third. Nevertheless, North America is now the corporate’s quickest rising area, together with a not too long ago signed contract with Mattress Agency with 2,300 shops throughout the US. That ought to assist buyers sleep nicely at night time.

We don’t know a lot about opponents, besides that SES-imagotag concedes that it faces “intense competitors from worldwide gamers, primarily from Asia.” In that regard, the enjoying area is fairly degree, as the corporate outsources all of its manufacturing to China and Vietnam. In fact, repeated lockdowns throughout the Rona have brought on loads of provide chain disruptions, and China is now not the most affordable place to make low-cost stuff. 

Along with potential competitors from Asia, we wrote a few Swedish firm known as Pricer (0H38.L), additionally again in 2014. A fast take a look at Pricer reveals that it engages in an analogous enterprise – digital shelf labels, AI-powered cameras to detect stock-outs, for instance – however with a market cap of simply $168 million and about $155 million in 2021 income. Income has been static and Pricer launched its personal cloud-based platform to handle IoT retail operations about two years after SES-imagotag. The French (and U.S., Taiwanese, and Chinese language) firm is clearly the highest canine amongst these two.

Ought to You Purchase SES-imagotag Inventory?

SES-imagotag inventory is definitely an intriguing pure play on retail IoT, combining many alternative options in a single complete platform. The corporate has a transparent imaginative and prescient that it’s paying off with some great income progress. Extra importantly, that progress will not be being fertilized in a pool of pink e-ink: Web earnings are comparatively flat, with very modest losses, and even about $2 million in web revenue final 12 months. 

Our largest pink flag is the corporate’s heavy reliance on China. On one hand, the alliance with BOE supplies a robust know-how associate with entry to the world’s second largest financial system. However China’s latest freefall from open market insurance policies doesn’t produce heat and fuzzy emotions. One other difficulty is the connection between China and the US, which is clamping down on know-how entry, particularly round pc chips. An IoT system monitoring U.S. shops with chips and cameras from China would possibly increase just a few eyebrows. 

Nevertheless, the actually bizarre factor that SES-imagotag introduced this summer time did increase our eyebrows: The corporate’s board of administrators permitted the switch of the 51% share that SES-imagotag holds in its three way partnership in China in trade for 9.5% of BOE-YiYun, a Chinese language tech sector firm not too long ago spun off from BOE that “focuses on digital options for the tradition, schooling and retail sectors.” It’s an apparent push to speed up progress in China, the place the know-how may be extra readily embraced. Politics and enterprise make unusual bedfellows.

Conclusion

We’re not fairly able to get in mattress with SES-imagotag, because it already looks like an orgy and we’re not likely into it. The corporate is unquestionably value maintaining a tally of (and one eyebrow raised), because it concurrently pushes into each the U.S. and China retail retailer markets. Sooner or later, we wish to see extra granularity within the income, particularly because the SaaS mannequin turns into extra related to the underside line. Whereas the entire addressable market is comparatively small, we may see that increase sooner or later if the corporate finally evolves its platform to assist different autonomous retailer applied sciences. 

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