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The power of something new – Maxcyte and TripAdvisor

March 15, 2021

Maxcyte MXCT. Buy @ 910p. MV: £663m Next figures: 28 April Times recommended: 2. First recommended: 665p. Last recommended: 1020p

Back in the day somebody came up with the efficient-market hypothesis. The idea was that share prices reflect all the available information so it is impossible to beat the market.

There is something in the idea, especially now, when companies are under an obligation to make an announcement if there is a bid in the offing or they are trading above or below market expectations. Nevertheless, I also believe in the crowd theory. Put another way if there is something new happening at a company it can often take a while for this to be fully reflected in prices as the word spreads to a growing crowd of investors.

If this is right then something new, especially a big something new, can have a large and sustained impact on a company and its shares. Partly because it takes a while for the news to get out there and partly because of the difference it should make to the performance of the business.

The ‘something new’ at Maxcyte is a change in the business model. The company is putting more emphasis on going into partnership with its customers, receiving pre-commercial milestone payments as a new product is developed and ultimately royalties if the product becomes commercially successful.

We know this is becoming important because Maxcyte’s pipeline of milestone payments is growing rapidly and has reached $950m, which compares with a market value for the business of $921m. These milestone payments will be received over a period of years so their present value is significantly less than $950m but still substantial.

Maxctye helps pharmaceutical companies develop new cell-based therapies. Oversimplifying heroically but hopefully not getting it completely wrong there are two ways of doing this. The first is to use viruses. The second is to use Maxcyte’s electroporation machines. There are many advantages of the latter including that any resultant drugs have fewer side effects so there is great interest. As a result 20 of the top 25 pharmaceutical companies and all 10 of the top 10 are clients.

As well as the partnerships companies pay for the machines, similar to what happens with Intuitive Surgical and its surgical robots, on a razors and razor blades model. This delivers 90pc margins and sales have grown at a 20-25pc rate for years and growth is expected to accelerate in 2021.

“[We] expect 2021 revenue growth to accelerate driven by customer progress into the clinic and new customer acquisition; strategic partnership pipeline coming into 2021 is the largest it has been.”

The chart shows what has been happening to the pipeline of milestone payments since 2017.

The shares have risen almost 10-fold since December 2019 so a pause for breath would be understandable but this looks like a business with great long term potential.


TripAdvisor. TRIP. Buy @ $59.50. MV: $8.1bn. Next figures: 11 May. New entry

TripAdvisor like other travel and hospitality related businesses saw its shares being hammered as investors realised the impact widespread lockdowns were going to have. The shares had been struggling for years anyhow as investors saw a company that seemed to have gone ex-growth and looked to be focused on cash generation from a mature business.

Three things now make the outlook seem more positive including a potentially very powerful ‘something new’.

The company has reacted to Covid-19 by taking an axe to costs.

“On the cost savings side, we more than achieved our target of $200m of fixed and discretionary savings in 2020 versus 2019. And we entered 2021 a more efficient and leaner company. Of course, the reduction in variable cost mostly performance-based marketing was actually significantly larger even than $200m, but most of that expense will return. But the $200m of savings we have achieved, we’re very proud to have achieved. And we think the majority of that we will be able to keep as savings going forward.”

Secondly, they see a big recovery coming.

“We successfully navigated the toughest year in our company’s history and quickly adapted to our new reality. Despite uneven travel recovery trends in Q4 and early 2021, we see encouraging signs and are optimistic that travel could come roaring back.”

Third is the something new, the launch of a subscription business called TripAdvisor Plus.

Here is how they describe their new offering.

“Over the past 20 years, Tripadvisor has become the world’s largest travel guidance platform, a unique travel nexus connecting consumers with travel businesses, at scale. We remain focused on growing and improving our offerings, unlocking unique value for travelers that we believe only Tripadvisor can, and deepening customer engagement to further monetize our influence.

As we look ahead to a world where our business opportunity and audience is bifurcated between users and members, we took an important step in building a premium offering for our most valued travelers. In the second half of 2020, we launched two direct‐to‐consumer products and brands: Tripadvisor Plus, a first‐of‐its‐kind travel membership offering subscriber benefits across multiple travel categories and Reco, a marketplace for trip designers.

Hundreds of millions of consumers have chosen their preferred subscription services across categories like music, online shopping, and video content, and we believe Tripadvisor Plus can fill the notable void of an affordable, high value subscription offering in travel. Plus delivers travelers compelling value in an entirely new way. Today, Plus subscribers can access deals and perks across more than 100,000 hotels as well as exclusive savings on our hundreds of thousands of bookable experiences. Like these other consumer subscriptions, over time we envision adding many more services and benefits such as more VIP amenities, in‐destination travel benefits, airline related perks, people‐powered travel support, member‐only content, and exclusive availability to experiences and reservations at the world’s most iconic destinations and restaurants.”

The key question is will these new services appeal to subscribers and turn into the multibillion dollar opportunity, which TripAdvisor is looking for.

Taking a methodical approach. In beta, Plus remains limited in both scope and geographic reach by design. We expect to continue our U.S. rollout during the first half of 2021, with other English‐speaking markets later. We are promoting Plus primarily on our owned channels and particularly in “no brainer” moments such as hotel searches for $750 or more, instances when the hotel discount generates savings for the consumer in excess of the $99 subscription fee. Looking ahead, we see the potential to drive consumer adoption via partnerships and other marketing channels. We believe our deliberate, methodical approach is appropriate. Building strong subscription businesses take time, and we have measured expectations for 2021 in acknowledgment of the challenges inherent in launching any new product during a pandemic, much less in travel.

That said, we are excited and confident that Plus’s strong consumer proposition ‐ built on exclusive savings, perks and benefits that will make a trip more memorable ‐ will resonate globally and our large audience and influence uniquely positions us to capitalize on this opportunity. In 2019, we generated over 160m hotel metasearch clicks from hotel searches for stays of $750 or more. Converting even a small percentage of engaged Tripadvisor traffic, not to mention the hundreds of millions of visitors per month that are searching on Tripadvisor for hotels and experiences to book, implies a long‐term growth opportunity to achieve tens of millions of subscribers and a multi‐billion dollar recurring revenue.

If anyone can pull this off, TripAdvisor looks to have a great opportunity.

In answer to a question at the analysts’ meeting this is how CEO, Stephen Kaufer, summed up the TripAdvisor Plus proposal and opportunity.

So when we talk about Tripadvisor Plus it really comes to the proverbial win-win-win. For the travelers, they’re getting these amazing discounts, the perks. It’s something that’s turning their trip into fabulous. When it comes to Tripadvisor, we’re making some money on the actual subscription in building up what we hope to be a wonderful recurring revenue stream.

For your hotelier, and that’s really where your question started, we’ve changed — we are changing the model, whereby folks like Tripadvisor would ordinarily take a commission on the hotel sale and we’re going direct to the hotel and say, instead of paying us, let’s offer that discount directly to the consumer. So if you might have been paying X percentage to your other distribution channel, let’s instead offer that same percentage, but as a discount. Tripadvisor passes it directly along to the Plus subscriber where subscriber get the deal.

Now when you add the value of the perk and you add the value of the discount, it becomes something pretty compelling for the consumer, back to that original win, and something that’s well within the availability of the hotelier to offer that package at the same or better travel distribution cost as they go through for other channels. And so the win for the hoteliers, they get access to this club on Tripadvisor. They get preferred placement on the Tripadvisor site, so more visibility for their property. They get a guest that’s perhaps higher end, perhaps likely to stay longer at a distribution cost that’s the same or lower as many of their other channels.

The unit cost, if you will, for Plus, from Tripadvisor’s perspective, we have practically speaking no cost of goods on us delivering on the service. We have some level of customer support, that’s fine. But we make our revenue on the trends — on the subscription fee for Tripadvisor Plus. And then the next time somebody comes back to Tripadvisor because they are a member, they might be booking in the traction, will make a decent margin on there even after passing the discount back to the consumer. Travelers will also come back to Tripadvisor to plan other parts of their trip. And again, making us a preferred place for those subscribers to start their travel planning, all of which building into our repeat story.

To answer your other question on roadmap for new benefits for subscribers, we expect to be launching — when we’ll launch more fully throughout the U.S., we’ll be adding some additional benefits that we’ll announce at that time. And we can see a very straightforward plan over the course of this year and next to add additional benefits that helps make people, that helps make traveler, term travelers into savvy travelers.

So again, you start with hotels and experiences because those are the things you book on our site today are quite valuable, the amount of savings, you can differentiate on the perks, but we’re also going well beyond that in the travel category. Our goal is nothing less than building an affordable travel subscription product that pretty much everyone would love to be a part of travelers because it turns them into better travelers no matter where they’re going. And I don’t want to repeat myself, but we think it’s going to be a great offering.”

CFO, Ernst Teunissen, elaborated further.

“We have a very solid booking flow, we will store your credit cards, we’ll make it easy. And we’re building that repeat behavior where you come in what we call that no-brainer moment where this hotel for your five nights stay, it has a $250 discount, which is close to our average at this point. You then take a $99 subscription fee, you’re still — travelers still saving meaningful dollars right now and they book through the Tripadvisor booking flow.

Traveler comes back, they get a similar discount the next trip they’re going to take perhaps, and of course they have already paid that fee. So it’s all drop into savings whether that traveler then chooses to spend that savings on amazing new experiences that they found on our site or anything else that they’re looking for, that’s up to them.

Then he discussed the opportunity.

“We are very excited about the opportunity that Trip represents. I talked about having a 160m times when we looked at our 2019 numbers where travelers were expressing enough interest in looking at a specific property such that they were using our meta auctioning clicking off to an OTA or supplier direct. That’s a 160m times we think of it as shots on goal. 160 million opportunities for Tripadvisor with Tripadvisor Plus to say, hey, on a lot of these properties, we have an amazing discount and a perk that’s going to make you, the customer, a savvy traveler. It’s part of the Tripadvisor Plus subscription, please come subscribe, make your money back or close to it in the very first purchase and get the benefits for an entire year. That savings can go into making a better trip, that savings can go into your bank. And the audiences, folks who are not only taking this one trip, but are likely to come back to Tripadvisor over and over again over the course of the year. So it doesn’t take a high conversion percentage for when your denominator is 160m opportunities to be able to find the set of audience that’s quite excited about this product.”

They don’t even incur any marketing spend to promote the new product.

“We have so much traffic on our site today that we don’t feel a need to reach out to market space on not known or paid channels. Of course, our paid marketing, our regular performance marketing will grow as traffic returns. It’s really just a function of our kind of standard operating procedure. When it relates to Plus specifically, again, I talked about that 100 plus million number of people who are already potentially Plus clients, and we don’t need to reach outside of Tripadvisor to talk to those folks.

He added further details.

“Tripadvisor Plus may not have the frequency of something like an Amazon Prime, but we do have that immediate logical benefit of we’re going to help you have a better trip right now. You’ll save $200, you can take the private tour instead of the group tour, fairly straightforward. We’re adding, as I mentioned before, more of the non-transactional components to turn you into a smarter traveler when you’re actually in destination, to help you when things go wrong. And again, we’ll be adding more of that over the year.”

In answer to the question, why subscribe to TripAdvisor rather than go to any online travel agent Kaufer said.

We have a ton of travelers on our site taking all types of trips. So if we start with that consumer value proposition, how could we provide real discounts, amazing perks in a way that the customer isn’t able to find that value proposition through their other channels, through the traditional places that they book or through other meta sites.

And we came up with this notion of well, if we put it behind a subscription wall, there is an established model of being able to offer discounts and perks to folks that are behind industry problems, behind this pay gate and could that be a model that works? So we asked first, hey, would the customer be interested in this and with our service and with discounts and perks? The answer was clearly yes. Then how could we market this product to an audience? Would we be able to find — would people on Tripadvisor be interested in this product? And as I shared, a 160 million times in 2019 that people were building or interested in expensive trip, interesting enough to be clicking off of our site in our meta option, and we picked $750 because you take a 15% discount on us, $750 purchase, you’re equating it to that membership price of $99.

So can we find the audience to be able to educate about this product? The answer is clearly yes, because they are already on our site. And then we asked, will hoteliers give us these discounts and perks? And as I explained in the earlier question, like, yes, because it still has the opportunity to be a lower cost of distribution for the hotelier than the other channels that they use. So again, by getting the extra visibility on Tripadvisor at a distribution cost equal or better than what they’re otherwise paying, that seems very straightforward from a hotelier perspective. And we’ve been finding up hotels in addition to our aggregators, been signing up direct hotels that say, it sounds great. Let me give it whirl. And we continue to do that with our direct sales force.

And then, will travelers be willing to transact on Tripadvisor? As I shared in the earlier question with Instant Book, clearly people were willing to do so when we said we have ton of experiences on Tripadvisor. So that’s really not a — do we need permission from our travelers? Tripadvisor is already a trusted site and they’ve already proven that they will go down that transaction flow.

And again, it’s — we have this as an additional product on top of our auction. The auction is not going away. And if you don’t find the ideal property in our set of Plus opportunities, there is a beautiful meta option. You’re already on our site and you click off and you get the exact properties that you’re looking for. So Tripadvisor, we serve for — in pre-COVID days, we were north of 400m you use a month, you could think of it as we serve a billion travelers a year. And if — I have to say this carefully, but if it’s only 10m that sign up for Tripadvisor Plus, that’s still less than 1pc of our annual traffic, but 10m sign ups times $100, then obviously the math looks pretty nicely in a recurring subscription revenue.

So I don’t want to get ahead of ourselves. This is not going to happen overnight. We have a lot of suppliers we want to go sign up. But it is a huge market. We have our own Tripadvisor channel to reach users when they are shopping. We’re trusted as a brand. And post-COVID, we think the regular traveler is ready to embrace a subscription product. Subscription products in general have — they’ve been doing quite well. And it’s not us, but others, many others have been educating consumers on the notion of signing up for something on an annual basis.

So versus the OTAs [online travel agents] or supplier directs, they’re going to win, we’re going to win. It’s not a one or the other by any stretch. As I said, your auction will continue to be quite healthy. But our ability to hand the commission that the hotel is ready to pay their distribution channel back to the customer I think enables us to offer discounts in a way that is very hard to match from other more traditional channels.

Of course, at any point I can click off to a traditional OTA and pay that rate, but the Tripadvisor Plus rate is better. The discount we’re offering, that’s the reason the hotel got to be at the top of our shortlist.

So it’s a compelling inflow opportunity for us to market Tripadvisor Plus. And then assuming the customer buys, they are good for a whole year. And so they come back and they see a lot more opportunities to save money with any hotel purchase that they’re making based upon the discounts and the perks that we have, they get their 10pc off tractions and the rest of the benefits.

Even though I keep talking about how most Plus subscriptions are paying for themselves in the very first purchase, we fully expect the people that are buying Plus to take multiple trips over the course of the year. And every time they are taking that additional trip, it’s a pure savings moment for them. Perhaps at the end of the year, we remind them, hey, it looks like you booked 6 hotels with us, here’s the grand total. You saved $872. Time for the $99 renewal, trying to make that very much a no-brainer moment when it comes to renewing Tripadvisor Plus for next year.”

Note in relation to the above , what Kaufer said when he mentioned 10m sign-ups paying $100 a year; that’s $1bn of revenue with no marketing costs because they are already interacting with over 100m customers every year and. no transactional costs because the hotels offer the discounts. We are looking at an extra $1bn of gross profit every year. It is easy to see how that could have an explosive impact on the value of TripAdvisor’s business.

There is something of a parallel, even including the name, with Disney’s launch of its subscription business, Disney Plus but the impact of TripAdvisor Plus on TripAdviser could be even more dramatic. It could totally transform how investors perceive and value the company, which is why the shares are already racing higher.

Remember that if you are planning to follow the new Quentinvest Programmatic Investing (QPI) strategy, you don’t have to immediately bet your shirt on either of these companies. Just make an initial commitment and then add to your position on future buy alerts.

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