How important is market share when evaluating companies ?

[dreamybear]

Speaking abt market share, wanted to seek VB's views - how important is market share and the company's position in the industry ? Generally, for the companies invested in, do VBs make it a point during AGM to ask these questions ? For those who have, how does mgmt react ?

Personally, it's important for me to evaluate the company and monitor its progress. I will feel very demoralized if the mgmt say things along the lines - rather than focus on mkt share, we focus on <blah blah blah> coz I wld think such information is also important for the mgmt, so getting such answers mean either they know but not saying or they don't find the info impt to grow the business ?

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UOBKH research - Co visit
https://research.uobkayhian.com/content_...c15acd613e
"We visited FEH’s office and manufacturing facility in Vietnam ... With the influence of macro factors, increased promotional activities and new product launches, FEH has room for growth in the Vietnam market, despite being a top 3 player with a 14% market share..."

[Wildreamz]

Case by case basis. For context, Apple only has 28% global market share of active devices: https://www.bankmycell.com/blog/android-...ket-share/
And even less (~16%) in terms of global shipments: https://www.statista.com/statistics/2164...le-iphone/

Similarly LVMH share of global bags etc, is probably miniscule. But it's clear that market share isn't the main focus when analyzing these companies.

[donmihaihai]

Case by case. Or industry by industry. Segment by segment. For a single brand company like Apple.Cheap phone is not the market share apple want to capture.

LMVH multi brands. Doesn't complete in mass market. Its focus on the highest spenders

It would be crazy to think that they or any brand company doesn't care about market shares. I would care but not the whole market. If we switch out to say property development or investment property companies. I don't think about market share

[EnSabahNur]

I think you need to look at the context of where the company operates. Also makes sense to separate by type (e.g. high end luxury vs mass market) and geography. That's what asset management companies do. Breakdown by asset class, type (institutional vs retail), geography (where their client comes from).

Like Domnihaihai said, I think most companies care about market share but it may not make sense to make this a key focus. It does affect the company in other ways. For example, an asset management company may be a big player in a segment, and it becomes harder and harder to win more AUM in that segment. So they are forced to branch out into other segments.

[Wildreamz]

Add another context where market share is important. Social media, for the same form factor (say short form video). I would argue that market share is important as there are network effect involved. Even better that a company can grow market share organically and profitably, faster than their competitors, without much marketing spend. Then you would know that it's in a positive flywheel, instead of a death spiral (increasing marketing spend, diminishing returns etc).

[weijian]

Speaking abt market share, wanted to seek VB's views - how important is market share and the company's position in the industry ? Generally, for the companies invested in, do VBs make it a point during AGM to ask these questions ? For those who have, how does mgmt react ?

Personally, it's important for me to evaluate the company and monitor its progress. I will feel very demoralized if the mgmt say things along the lines - rather than focus on mkt share, we focus on <blah blah blah> coz I wld think such information is also important for the mgmt, so getting such answers mean either they know but not saying or they don't find the info impt to grow the business ?

-------------------

UOBKH research - Co visit
https://research.uobkayhian.com/content_...c15acd613e
"We visited FEH’s office and manufacturing facility in Vietnam ... With the influence of macro factors, increased promotional activities and new product launches, FEH has room for growth in the Vietnam market, despite being a top 3 player with a 14% market share..."

My thoughts:

(1) Market share is the end result, rather than the means to the end result. To get to the end, one has to focus on the "means" first. So it is politically and logically correct when Mgt says "rather than focus on mkt share, we focus on <blah blah blah>". But it is also unhealthy to focus on market share as the success metric (ie. end result), compared to lets say profitability, customer satisfaction or technological breakthroughs. A lot of unhealthy things like price cutting or expensive M&As can happen if the focus is overly on market share.

(2) So is market share important? Of course it is! As Wildreamz mentioned, especially for platform/network effect types of businesses. Once you have a big share of the customer's mind, good things happen to you (while bad things happen to your competitor/s).

(3) Rather than market share, I believe a better word would be "scale". Scale means something because profitability only appears after things reach a certain scale. All businesses inherently have operating leverage, just different degrees of it. So the higher the fixed costs, the more the operating leverage and the more profitable it will be once it scales up. The more scale one has, the more it can spread its fixed costs, therefore reducing operating costs (as a % of revenue) --> higher profit. With higher profit, one ploughs it back into R&D. The R&D breakthroughs may improve production/attract more customers and spread the new bigger revenue over its costs --> flywheel effect. This was effectively what happened at Intel VS AMD (in the 2000s) and Intel VS TSMC (in the 2010s and beyond).

So IMHO, rather than asking about market share, maybe better questions for OPMI to ponder over:
- Is the company increasing its stickiness or mindshare of the customer?
- Is the company still providing good value for its service/product?
- Does the company have enough scale to enjoy economies of scale?
- Does the company have enough utilization to make a profit?
- Does the company have a crazy competitor focused on market share?
- Can the company replicate its business model and scale it across geographies?

(4) Personally, I think the best form of moat is "efficient scale" resulting in some oligopoly situation - Existing competitors are "comfortable" with each other and the TAM is not big enough to attract new competitors.

[dreamybear]

Speaking abt market share, wanted to seek VB's views - how important is market share and the company's position in the industry ? Generally, for the companies invested in, do VBs make it a point during AGM to ask these questions ? For those who have, how does mgmt react ?

Personally, it's important for me to evaluate the company and monitor its progress. I will feel very demoralized if the mgmt say things along the lines - rather than focus on mkt share, we focus on <blah blah blah> coz I wld think such information is also important for the mgmt, so getting such answers mean either they know but not saying or they don't find the info impt to grow the business ?

-------------------

UOBKH research - Co visit
https://research.uobkayhian.com/content_...c15acd613e
"We visited FEH’s office and manufacturing facility in Vietnam ... With the influence of macro factors, increased promotional activities and new product launches, FEH has room for growth in the Vietnam market, despite being a top 3 player with a 14% market share..."

My thoughts:

(1) Market share is the end result, rather than the means to the end result. To get to the end, one has to focus on the "means" first. So it is politically and logically correct when Mgt says "rather than focus on mkt share, we focus on <blah blah blah>". But it is also unhealthy to focus on market share as the success metric (ie. end result), compared to lets say profitability, customer satisfaction or technological breakthroughs. A lot of unhealthy things like price cutting or expensive M&As can happen if the focus is overly on market share.

(2) So is market share important? Of course it is! As Wildreamz mentioned, especially for platform/network effect types of businesses. Once you have a big share of the customer's mind, good things happen to you (while bad things happen to your competitor/s).

(3) Rather than market share, I believe a better word would be "scale". Scale means something because profitability only appears after things reach a certain scale. All businesses inherently have operating leverage, just different degrees of it. So the higher the fixed costs, the more the operating leverage and the more profitable it will be once it scales up. The more scale one has, the more it can spread its fixed costs, therefore reducing operating costs (as a % of revenue) --> higher profit. With higher profit, one ploughs it back into R&D. The R&D breakthroughs may improve production/attract more customers and spread the new bigger revenue over its costs --> flywheel effect. This was effectively what happened at Intel VS AMD (in the 2000s) and Intel VS TSMC (in the 2010s and beyond).

So IMHO, rather than asking about market share, maybe better questions for OPMI to ponder over:
- Is the company increasing its stickiness or mindshare of the customer?
- Is the company still providing good value for its service/product?
- Does the company have enough scale to enjoy economies of scale?
- Does the company have enough utilization to make a profit?
- Does the company have a crazy competitor focused on market share?
- Can the company replicate its business model and scale it across geographies?

(4) Personally, I think the best form of moat is "efficient scale" resulting in some oligopoly situation - Existing competitors are "comfortable" with each other and the TAM is not big enough to attract new competitors.

(1) & (2) The mgmt doesn't have to overly focus on it. But if the mgmt doesn't even bother at least monitoring, then I do think something is not quite right. 

Perhaps let me ask in another way :
- does it concern OPMI IF a company has been gradually losing market share especially for its core pdts/business ? If one doesn't monitor, one wouldn't know. 
- Is it possible for a company to continue increasing its revenue but at the same time losing market share e.g. because the addressable market is getting bigger ? If so, is this a cause for concern e.g. one day it might become less competitive ?

(3) Thanks for coming out with the questions.   

>> Is the company increasing its stickiness or mindshare of the customer? <<
>> Is the company still providing good value for its service/product? <<

Companies nowadays are more complicated than the past, with multiple business / pdt lines. How can we tell if the company financials do not break down into the details we want to study ? Let's take some VB's fav companies e.g. TheHourGlass, Penguin, Micro-mechanics, YZJFH. I think THG check the boxes but can't really tell for the others ? I think repeat orders from the same customers might give a hint but may not be conclusive of the complete picture ?

>> Does the company have enough scale to enjoy economies of scale? <<
>>  Can the company replicate its business model and scale it across geographies? <<

While the answers are probably obvious for outliners companies like Apple, Tesla, McDonalds, I think it's much tricker for other companies, especially the relatively much smaller scale ones like the SGX small caps stocks. For e.g. expanding into other countries involve a whole gamut of challenges e.g. regulations, right partners etc, and positive results may not be seen for a few years. And given how rapidly things are now changing, perhaps the environment in the next few years may not be as conducive e.g. new players, new regulations.

My other point is actually what can we do if the mgmt chooses not to answer our questions ? Do we as "part owners" have a right to get answers(referring to real answers not those "answers" which do not answer the question) from mgmt ? Is there any regulation in this area ? note : no pun intended, genuinely don't know.

[specuvestor]

Actually I think the end result is not market share. It is scale, including network effects. Scale to determine prices for customers, for suppliers, for R&D, for marketing, etc so as to command better margins and "moat". The other end of spectrum is high mix high margin low volume model that need unique capabilities.

But executives often forget that and go for market share which resulted in bloated bureaucracy to achieve that end. In general if a market share leader has lower margins than competitors something is wrong ie the scalability model is broken in the corporation

If Intel, Samsung, TSMC, Apple, Netflix, BHP has lower margins than their competitors somewhere something would be wrong

[weijian]

(1) & (2) The mgmt doesn't have to overly focus on it. But if the mgmt doesn't even bother at least monitoring, then I do think something is not quite right. 

Perhaps let me ask in another way :
- does it concern OPMI IF a company has been gradually losing market share especially for its core pdts/business ? If one doesn't monitor, one wouldn't know. 
- Is it possible for a company to continue increasing its revenue but at the same time losing market share e.g. because the addressable market is getting bigger ? If so, is this a cause for concern e.g. one day it might become less competitive ?

(3) Thanks for coming out with the questions.   

>> Is the company increasing its stickiness or mindshare of the customer? <<
>> Is the company still providing good value for its service/product? <<

Companies nowadays are more complicated than the past, with multiple business / pdt lines. How can we tell if the company financials do not break down into the details we want to study ? Let's take some VB's fav companies e.g. TheHourGlass, Penguin, Micro-mechanics, YZJFH. I think THG check the boxes but can't really tell for the others ? I think repeat orders from the same customers might give a hint but may not be conclusive of the complete picture ?

>> Does the company have enough scale to enjoy economies of scale? <<
>>  Can the company replicate its business model and scale it across geographies? <<

While the answers are probably obvious for outliners companies like Apple, Tesla, McDonalds, I think it's much tricker for other companies, especially the relatively much smaller scale ones like the SGX small caps stocks. For e.g. expanding into other countries involve a whole gamut of challenges e.g. regulations, right partners etc, and positive results may not be seen for a few years. And given how rapidly things are now changing, perhaps the environment in the next few years may not be as conducive e.g. new players, new regulations.

My other point is actually what can we do if the mgmt chooses not to answer our questions ? Do we as "part owners" have a right to get answers(referring to real answers not those "answers" which do not answer the question) from mgmt ? Is there any regulation in this area ? note : no pun intended, genuinely don't know.

hi dreamybear,
let me try to answer with my humble opinions below.

- does it concern OPMI IF a company has been gradually losing market share especially for its core pdts/business ? If one doesn't monitor, one wouldn't know. 
- Is it possible for a company to continue increasing its revenue but at the same time losing market share e.g. because the addressable market is getting bigger ? If so, is this a cause for concern e.g. one day it might become less competitive ?
Specuvestor put it aptly. Rather than market share, it might be better to monitor whether it can scale - ie. thru margins, mgt's track record and also whether its product has stickness, provide value proposition etc. That said, I do not have much experience looking at market share because I just haven't focused on it all this time.

Companies nowadays are more complicated than the past, with multiple business / pdt lines. How can we tell if the company financials do not break down into the details we want to study ?
I think it is easier to study companies compared to the past. There were no google reviews, maps, electronic versions of ARs, forums to discuss views etc. We have to decide to focus to play with the cards we are dealt with, and not the ones we wish we got. I hope you know where I m getting at.

Let's take some VB's fav companies e.g. TheHourGlass, Penguin, Micro-mechanics, YZJFH. I think THG check the boxes but can't really tell for the others ? I think repeat orders from the same customers might give a hint but may not be conclusive of the complete picture ?
In my opinion, all the above 4 "fav" VB companies are very different:
THG - How brand principals continue to play the luxury game is the key. Can you think as long term as the Tay family?
Penguin - BTO/BFS ship-building company with "project based" kind of revenue. How can OPMI extract the max gain from the majority owners?
MM - Sticky products, great margins. In a cyclical industry. Can you call the cycle?
YZJFH - Bet on China's recovery. How much can be realistically recovered from NPL?

We can't have a nail with a hammer syndrome.

I think it's much tricker for other companies, especially the relatively much smaller scale ones like the SGX small caps stocks. For e.g. expanding into other countries involve a whole gamut of challenges e.g. regulations, right partners etc, and positive results may not be seen for a few years. And given how rapidly things are now changing, perhaps the environment in the next few years may not be as conducive e.g. new players, new regulations.
An investor needs to be comfortable with uncertainty - whether is it in stock prices or business performance. The track record doesn't lie. So spend some time looking at their motivations, past behavior (and then past performance) helps alot. After that, the OPMI has to decide whether it is worth to participate based on the uncertainty premium offered by Mr Market.

My other point is actually what can we do if the mgmt chooses not to answer our questions ? Do we as "part owners" have a right to get answers(referring to real answers not those "answers" which do not answer the question) from mgmt ? Is there any regulation in this area ? note : no pun intended, genuinely don't know.
Our rights are enshrined in the Companies Act and Listing Act. But if we have to take the extra effort to enforce them, then good luck. We can choose to walk away any time if we don't think we are getting the appropriate uncertainty premium.