You have heard of Uber, Lyft and Airbnb but what about Updater? Probably not, but one Australian hedge fund thinks that will change very soon.
The Australia-based Newgate Real Estate and Infrastructure Fund produced a return of 3.7% for its investors during the second quarter against a challenging backdrop. The Aussie real estate securities market declined by 3.4% over the same period. For the full fiscal year of 2017, the fund returned 7.2% compared to the real estate market which fell 6.3%.
In the fund’s June letter to investors, a copy of which has been reviewed by ValueWalk, Newgate’s managers take a look at a new position initiated during the quarter, an exciting company that is trying to revolutionize the moving market in the US.
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Updater: The Next Uber?
Moving to a new house is well known as being a stressful and demanding, as well as complicated process no matter where in the world you live. And because moving is a unique process in every occasion, with multiple moving parts, trying to streamline or simplify the ordeal is not easy.
One company that is trying to solve this problem is Updater Inc. Listed in Australia, the company is a platform that helps Americans simplify the effort involved in moving from one house to another.
Updater helps to streamline the process by centralizing all tasks associated with the move. At the time of the company’s IPO last year, the firm was handling around 2% of all the home moves in the United States. This share has now grown to 11% of all moves. It is estimated there are 17 million annual household relocations in the US every year with the average American moving home 10 to 15 times in their lifetime. This is an enormous, growing market and Updater is rapidly grabbing market share and increasing its dominance of the market.
The initial app is free, and the company makes money by selling goods and services to movers from its platform. “Central to the Updater investment case is the fact that people tend to make large spending decisions around the time of moving” Newgate notes in its update. “The largest providers of these services spend hundreds of millions trying to limit customers leaving them when they move,” the report continues noting that Liberty Mutual has a marketing budget of $500 million per annum. Typically, these companies have no way of contacting customers until after they have moved, which limits the ability for them to roll over contracts. However, Updater removes this barrier. The company is now trailing pilot programs with some of the largest US finance and telecommunication firms to show how useful its services can be. According to Newgate, initial trials have been “extremely positive.”
Ultimately, Newgate believes Updater could become the next Uber, Airbnb or Google as it dominates the moving space. At the company’s present rate of growth, it is on track to capture 30% of the US annual moving market every year within two years, which could unlock hundreds of millions in commission revenue.
Assuming the company can capture 40% of the market within three years, this means it could introduce nearly 2.4 million customers to insurance companies, generating an average of $9000 per customer, for additional revenue of $3 billion for insurers – according to Newgate’s assumptions. Based on current profit margins this revenue translates into an additional profit of $373 million of which Update could claim 30% in commission. Newgate assumes a 50% profit margin on this income for a profit of $70 million. Compared to the company’s current market capitalization of A$277 million, Newgate believes Updater is severely undervalued.