The birth of the consumer Internet was brought in the late 1980s and early 1990s. The Internet is still not a novel invention, secondary market, as many major companies consider. Since the mid-1990s, as more people have connected to the Internet, companies have come to realize the potential of direct contact with consumers in the home. Since then, the Internet has brought about tremendous changes in the way business is conducted. The company began to allocate resources for the Internet development plan. The World Wide Web brings companies and investors together into a fast-growing market.
The .com bubble that emerged between 1997 and 2000 was followed by a burst of bubbles, and many Internet startups at the time were underfunded. The pet products industry has brought us one of the most obvious failures of the .com bubble, Pets.com. Initially, the funds were abundant, and the advertising budget purchased Super Bowl ads, but the company failed due to poor distribution model.
Despite being overshadowed by Pets.com, another pet-related company has emerged through the Internet bubble and has influenced the distribution model of Pet Pharmaceuticals and the OTC industry over the past 15 years. This article explores the economic and financial impact of Pet Meds Express Inc on the veterinary and Pet Pharmaceuticals markets and analyzes the company's path to becoming the world's largest online Pet Pharmacy.
Evolving pet medicine industry
In January 2012, Dr. Doug Mader, former chairman of the North American Veterinary Conference, hosted a heated debate between PetMeds Express and the veterinary community. The debate was the result of PetMeds' way of generating revenue by changing the distribution chain of the veterinary pharmaceutical industry. Before PetMeds Express opened its online pet pharmacy, veterinarians maintained a monopoly on the distribution of pet drugs. But how do relatively small companies in the pharmaceutical industry have this impact? PetMeds Express understands the potential of the Internet early and creates a new market.
To better understand the impact of PetMeds Express on the pet pharmaceutical industry, it is important to first understand the industries in which it operates. Zoetis, Pfizer's animal health drug, estimates that the growing global demand for animal protein in emerging markets and improved living standards in emerging markets have helped the animal drug and vaccine market grow to an estimated 22 billion today. The dollar market. According to their estimates, in this global market, PetMeds Express is involved in the $4 billion US industry. Several drug manufacturers develop and sell pet medicines that are sold directly to veterinarians.
In a $4 billion market, the Internet allows a new company to enter and change its distribution system, even without the support of a manufacturing company. Although PetMeds Express accounts for only 6% of the US animal drug market, the company has found the potential to attract attention from competitors and bib retailers in this market segment, which could result in revenue if PetMeds Express fails to do so. And the profit is further shrunk in line with manufacturers in the near future.
US animal drug distribution
Since major pharmaceutical companies refuse to work directly with PetMeds Express, PetMeds Express needs to navigate the supply chain in an innovative way to date. PetMeds Express is not purchased directly from the manufacturer, but is forced to buy from the "grey market." The distributor, assuming a veterinarian, needs a large order to supply the company with the product, although the representative of PetMeds Express has not confirmed its source of supply.
The individual veterinary practices that dominate this market have caught the attention of the Internet and the retail industry. The method is eating away from one of their profit centers. Before the competition, veterinarians enjoyed a relatively uncompetitive market. The animal owner will go to the veterinarian and, due to convenience, will purchase the medicine directly from the veterinarian. The emergence of the PetMeds Express model began to threaten this practice, although according to PetMeds Express investor data, veterinarians still account for about 67% of the main market share. We must remember that this number represents individual veterinarians and collective practice. These practices do not have the same economies of scale as PetMeds Express, nor can they represent the main competitors alone.
Interestingly, Dr. Foster and Smith Inc., a major competitor of PetMeds Express Inc., was founded in 2003. The Foster&Smith brand is also an early entrant to the Internet market. Although the company's stock was estimated to be as high as $250 million in 20086, it is estimated to be approximately $170 million thereafter. Their market capitalization is similar to that of PetMeds Express and can be distributed over the Internet, but they share a 67% market share with veterinarians. Assuming that the other variables of the private company are the same, they can constitute a relatively similar +/- 6% veterinary market, leaving 60% of the current market to traditional veterinarians.
Currently, PetMeds Express represents small stocks with a market capitalization of $257,212,860 in 2012. The veterinary community is concerned about the relatively small market segment. In 2004, when the company went public, the industry's output was estimated at $3 billion, while PetMeds reported revenue of $93,994, when the company only had a 3% market share. Comparing with 6% of the current $4 billion market, we see an increase in the online retailer's market share. However, like any business, past performance does not guarantee future profits.
PetMeds is not the only threat to the veterinary retail pharmaceutical division. The company's growth has attracted competition, and current distributors include “veterinary, online and traditional retailers”. In fact, it is the retail sector that has begun to reduce the profitability of PetMeds Express and has created problems that companies must address and work to overcome.
In order to continue to maximize shareholder value, retailers such as Wal-Mart and Target also want to take a bigger share of the pet drug industry. Their sheer purchasing power poses a huge threat to both the veterinarian and the new online retail division where PetMeds operates. In 2011 and 2012, PetMeds Express began to see the impact of a highly competitive market slowing growth, increasing the cost of new customers and reducing profit margins.
Ethics and risks in the pet medicine industry
When PetMeds Express enters the market, they rely on convenient consumers who can buy over-the-counter drugs on the Internet and consumers who don't carry a variety of prescription drugs. However, veterinarians receive about 25% of their income from the sale of prescription drugs they write and fill out. As the company evolved, PetMeds Express's business model evolved, eventually leading to some ethical issues facing the company. Like all listed companies, PetMeds Express must figure out how to increase profits, but how can they increase the sales of prescription drugs and increase profits?
This issue sparked an innovative idea that allowed consumers to call, consult a veterinarian by phone, and immediately receive a prescription that was converted into an order and sent to the customer. This is a great way to develop the online prescription drug retail business. If customers can skip veterinary visits together, PetMeds Express can take advantage of more convenience pet owners and generate another source of income through their veterinary consultation. However, this method of selling prescriptions without actually seeing the animals does not match the other veterinary circles. PetMeds Express has been concerned that growing online companies may devour veterinary income from drug sales, and have therefore crossed the ethical standards that have caught the attention of the veterinary community and regulators.
PetMeds Express was in operation for only three years in 1999 and was disciplined by the Florida Pharmacy Board over the phone. The company received a fine of $30,000.00, but not only that, but they also made the veterinary community feel uneasy. Despite the company's immediate request, this previous practice continued even at the 2012 North American Veterinary Conference [NAVC].
At the 2012 NAVC conference, AL veterinarian Birmingham's Dr. Doralee Donaldson presented 149 signatures, and finally PetMeds Express withdrew the sponsorship of the event. Instead, a representative of PetMeds Express appeared in front of NAVC and conducted a panel discussion to try to improve the discomfort of the veterinary community. Moving forward, PetMeds Express intends to work with the veterinarian community to encourage regular visits to veterinarians and to show veterinarians that the market has room for both benefits.
PetMeds is the first non-veterinary-owned commercial online pet pharmaceutical company in the field and the first publicly traded company in the field. When new competition in the online space and competition in the retail space began, profits began to slump. By looking at the data in the company's annual report, we can see that PetMeds Express has seen a decline in total revenue since 2010. From 2008 to 2010, the profit margin remained close to 10.5%, but in 2011 and 2012, the profit margin in 2012 was less than 7%.
By analyzing online companies in different ways, we can see how companies can maximize the potential of their employees. Lowell L. Bryan of the McKinsey Quarterly believes that an excellent indicator of a company in the Internet age is the profit of every employee. In addition to measuring the return on investment capital, this also shows the contribution of team members. Brian said: "From 1995 to 2005, the top 30 global companies [by market capitalization] have increased their employee profit from $35,000 to $83,000."
Using this method to analyze the annual profit from the PetMeds Express annual report compared to the number of employees, we saw that they performed best in 2010, with a profit of $114,546 per employee. In the past few years, stocks have suffered losses and each employee’s profits have suffered losses. In 2012, the profit per employee fell to $80,478. Not bad for a small company.
There are many reasons for the decline in profits, including the economic downturn, which makes pet owners pay more attention to costs; other online retailers [such as Amazon.com] have increased access to the market; competition from large retail chains [such as retail stores] has intensified. Wal-Mart, Target, Walgreens. This means that PetMeds Express must deliver more ads and lower prices to stay competitive, thereby reducing profit margins in the short term until other strategies [including additional advertising] help the company grow.
By looking at the chart on the right, we can see how PetMeds Express performs in the market. The chart shows how it would cost $100 in 2007 if investing in PetMeds Express and Standard & Poor's 500, Russell 2000 and Nasdaq Composite Index. From 2008 to 2010, their stocks experienced rapid growth and invested $100 at $187.09. However, this situation changed in 2011 when the company experienced more competition and reduced profit margins and pricing. If we look at the trends in 2009, PETS grew by 48.5% and then increased by 35% in 2010. In 2011, the stock fell by 28.5%, and in 2012 it fell by 21.9%, which made the stock equal to other indexes, but still showing a downward trend.
PetMeds Express has grown rapidly and has opened an Internet-based niche distribution system for pet OTC and prescription drugs. By looking at the company's solvency, liquidity and profitability, through ratio analysis, we can see if there are some financial reasons to pay attention to in addition to the falling profits. We can better understand this by looking at the company’s financial ratio for the last four quarters as of March 31, 2013.
The company's current ratio is 8.03, which is very high. If they need to acquire relevant competitors, this will put the company in a good position. This figure is also due to the company's large inventory, which can be seen by deleting inventory at a quick ratio of 5.81. The net working capital is $59,162, so the company has no direct risk of running out of funds.
The 12-month inventory turnover rate was 5.83. If you compare it to the largest Pet retail store, PetsMart, its 2012 inventory turnover rate is 7. If compared to an artificial pharmacy, the industry standard is 12. Even if PetMeds Express is below this level, their overhead costs are higher. Larger inventory holding costs. The lower ratio may also be due to the inefficiency of PetMeds Express through the purchase of the grey market system.
The return on assets is 19, and the return on equity is 21, so even if the company's 2012 profit margin is .07, their performance against shareholders is still very good. Most importantly, the profit margin for the first quarter of 2013 increased from 07 to 09. This may indicate that the company is looking for ways to reduce costs, or to start increasing marketing activities to work in response to more competition. By continuing to watch this number, we will understand the potential of PetMeds Express to remain competitive.
The total debt ratio is 11.11 and the debt-to-equity ratio is .12, indicating that PetMeds Express may not fully utilize its leverage. Because they have experienced difficult times of falling profits for several years, they should consider investing in other companies that can consolidate their position.
PetMeds Express also experienced a year-on-year decline in EPS in 2011 and 2012. The EPS in 2009 was 1.14, which fell to 92 in 2011 and dropped to 78 in 2012. The PE ratio in 2012 was 14, which is currently at 15.14. The price investors are willing to pay for this is about 18 in 2012.
Using the 2012 PE ratio and analyzing some of PetMeds' current competitors in the pet and pharmaceutical business, we have an average P/E ratio of 19.5. Using this number, we can multiply the industry average by PetMeds' EPS to 82. Therefore, our intrinsic value is about $16 per share. It seems that Pet Meds' stock is currently undervalued.
PetMeds Express must take some steps to narrow the gap between current and previous performance. Other ads that the company has launched in the past two years have begun to help them rebound. What other options might the company have?
Because PetMeds Express relies on the gray market for distribution, large box stores are at high risk if they use their purchasing power and connections to gain an edge. PetMeds Express can manage to negotiate wholesale agreements directly with the drug manufacturer, reducing administrative costs. However, if this type of distribution is opened, its competitors may also get it.
The company's financial position is relatively good and faces a highly competitive market. Maybe they can consider working with competitors. One obvious partner is one of the big retailers like PetsMart. Both Pet retailers face competition from Wal-Mart and other large retailers. Partnerships can open new shared revenue streams for each company and potentially share their purchasing power. While the similarity of certain other products has played a role in the potential benefits of providing PetMeds drugs to popular and growing storefront retailers. Matt has its own online retail and does not carry drugs. The established brand of PetMeds Express may be able to handle the drugs that these companies do not currently carry.
Perhaps one of the global pharmaceutical industry leaders like Pfizer can give us an idea of the future potential of the market. Pfizer recently renamed its animal health division Zoetis, indicating that Pfizer's potential in this area is sufficient to brand it. Through some good business decisions focused on building partnerships, especially with pharmaceutical companies, PetMeds Express can continue to define itself as an online force that cannot be ignored in the animal medicine industry.
The company has experienced some difficult beginnings, including several legal battles. They overcame the internet.com bubble and grew into the largest animal pharmacy, accounting for 6% of the market. After checking the company's financial ratio, it seems that the company is in good shape. This is probably one of the reasons why Zack’s average broker rating for the stock is held.
After reviewing the company's history and current stock performance, we got a picture of an innovative company that evolved with technology, but now we must continue to be agile and adapt to the competition. Since its inception in 1996, PetMeds Express has achieved a 6% market share in the US Pet Pharmaceuticals industry. This growth has attracted competition in the distribution chain. These competitors include other online retailers and large national discount retailers that are pushing prices down and reducing profit margins. Overall, PetMeds Express is a pioneer in the nationalized pet pharmacy model in the rapidly evolving Internet era, and has played a significant role in the veterinarians losing 33% of this market and changing the industry's distribution model for 17 years.
In the future, as countries become more developed, eat more protein and have more pets, the demand for animal drugs will also grow. If PetMeds Express can find a way to develop a growing global pharmaceutical market, they will open up a new world for revenue and profit.