On Your Mark
Carl Lewis ran slowly. Ok, he won some races too. But he'd start races slow. He came from behind in lots of the big races he won.
Did he just like the drama? Why'd he make it so hard for himself?
Carl knew he could win a race. He knew how much he'd need to give to get it done. He knew if he ran a bit relaxed, he wouldn’t sacrifice mechanics for power. He’d be more efficient. He'd be faster over the whole 100m, 200m or whatever distance he was running. Rather than giving 110% from the gun -- an idea that athletes and coaches and business execs love — he'd give maybe 85%.
The idea carries over to some companies too. Investor Nick Sleep described it as "shared value" — businesses do better when they don't squeeze every dollar of margin from their customers. They leave something on the field. Nick ran this idea to great success in Costco. Costco used its size to bargain for the lowest cost from distributors and shared this value with its customers. Jeff Bezos took it a step further at Amazon and made a sport of hunting high-margin businesses. He quipped "your margin is my opportunity." Nick also invested early in Amazon.
One of the businesses Amazon would eventually hunt is Media. Here's Stratechery chief, Ben Thompson, talking about content and media.
I have long thought that what happened to content was a harbinger for what would happen to industries of all types. Content was trivially digitized, which means the forces of digital — particularly zero marginal cost reproduction and distribution — manifested in content industries first, but were by no means limited to them. That meant that if you could understand how the Internet impacted publishing — newspapers, books, magazines, music, movies, etc. — you might have a template for what would happen to other industries as they themselves digitized.
If you want to know how other industries will be disrupted five years from now, look at what's happening to media companies today.
Playing the field
This is the race Powerfleet is running. It's an industrial technology company. It makes monitoring devices that go into forklifts, trucks, delivery vans etc. It sells software to manage those devices and others. It would rather be a software company than a gadget company. It's pivoting as much as it can from selling devices to streaming recommendations based on the data from those devices.
Savings peak customers' interest. Powerfleet's solutions reduce accidents in warehouses and on the road and improve fleet efficiency. It's beginning to do this in real time. It processes the deluge of data through AI to deliver the important stuff its customers want and tells them what to do with it. Like media moving from DVDs and linear TV to streaming, this is a big shift for how fleet operators manage their business and a huge opportunity for Powerfleet.
For companies moving goods from one place to another, Powerfleet’s guidance means more dollars in their pocket — lower repair costs, lower insurance costs, lower fuel costs, quicker shipping times, and lower labor costs. These businesses scrape notoriously low margins. Any savings deliver a big improvement in profit. This is the value Powerfleet shares with its customers. Some customers save millions, while paying Powerfleet much less.
On the Powerfleet side, it’s push into AI scales. It bears some additional computing costs, but those are relatively less than additional costs of wires and circuits and plastic that go into gadgets. It can serve 100 new trucks or 10,000 new trucks without much additional investment. Revenue expands quicker than costs.
Is it working?
Running away
Its benefitting from scale. It increased earnings margins from 5% to 20% last year. It won more new business with its largest customers — energy companies, mining companies, construction companies, others. Customers are sticking around longer. Its working on new and bigger partnerships. All the signposts its passing point to more wins.
Investors, though, aren't convinced. They don't expect much from the company. Powerfleet’s share price reflects a sleepier business with dimmer prospects. The gap between the company's plans and ambition, its performance on those plans and investors' expectations offers an enticing opportunity.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.