Amazon.com, Inc. (NASDAQ: AMZN) is one of the greatest business success stories of all-time. In just over 25 years, Amazon has gone from an online bookstore to a massive conglomerate who’s influence can be felt across nearly every industry.
However, Amazon’s influence and disruption across retail and consumerism will forever be its legacy. By creating one the largest and most valuable digital marketplaces on the internet, Amazon led a revolution that continues to up-end traditional brick-and-mortar retail.
Amazon’s track record and rise to become one of the world’s most valuable companies can be viewed as the “Amazon Disruptor Playbook.” One company that effectively appears to be following Amazon’s playbook of disruption is Mohawk Group Holdings, Inc. (NASDAQ: MWK).
Amazon Disruptor Play #1: Leverage Technology to Build Proprietary Assets
Mohawk Group has disruption infused within its corporate DNA. Founded on the idea of bringing consumer packaged goods (CPGs) into the future, Mohawk Group can be described as the offspring of tech and consumer goods companies. Think a combination of Google and Unilever, and you have Mohawk Group.
The company’s proprietary artificial intelligence platform, AIMEE, is one of the most key advantages that Mohawk Group has over others. AIMEE’s diverse capabilities include measuring, monitoring, and predicting consumer trends. Using various data points, AIMEE can help the management team find emerging trends to capitalize on. Once a promising emerging trend is identified and vetted, the company can work with its manufacturing partners to develop the product.
With relation to the Amazon Disruptor Playbook, Mohawk Group’s utilization of AIMEE is similar to Amazon’s development of its online marketplace. Both companies have leveraged technology to build out proprietary solutions that are producing strong results and disrupting the status quo.
Mohawk Group’s recent second quarter 2020 earnings fully supports this thesis, as the company saw net revenues soar 97% year-over-year and reported positive adjusted EBITDA for the first time.
Amazon Disruptor Play #2: Licensing Proprietary Technology
Mohawk Group’s AIMEE is a tried-and-true, battle-tested platform that has been the growth engine for the company. The Financial Times listed Mohawk Group as the 114th (out of 500) fastest growing companies across North and South America in 2020.
With AIMEE building buzz and a reputation for success, Mohawk Group is entering the second stage of the disruption playbook: licensing its proprietary technology.
As Amazon’s online marketplace grew, so did interest from third-party sellers to use the platform for their sales efforts. This continues to be a major opportunity for Amazon to expand cash flow without taking on any additional major liability or overhead. Instead, Amazon allows third party sellers to list their approved products on its marketplace and charge a commission from all sales generated through its platform.
In 2019, 60% of all sales on Amazon.com came from third parties. While Amazon’s other business units like AWS may get more attention from investors, third party sales commissions are a significant portion of Amazon’s top-line.
One could make the argument that as AIMEE’s success story spreads, so could the interest from third party sellers to utilize the AI platform to locate trends relevant to their businesses. This effectively means AIMEE can be licensed out to third parties as a Software-as-a-Service (SaaS) offering.
Mohawk Group does have a few SaaS clients, as they have previously disclosed, but this is a major growth opportunity for MWK that is largely not recognized by investors yet. The company is still in the early stages of leveraging AIMEE for SaaS services, but it could become a massive source of growth and cash flow for Mohawk Group.
Wall Street Analysts Maintain “Strong Buy” Rating, Average Price Target of $16.25
The analysts covering Mohawk Group have become increasingly bullish through 2020, as the company continues to achieve meaningful operational success. Currently, there are four Wall Street analysts covering the company, with a consensus rating of “strong buy” and an average price target of $16.25. From current levels, the average price target represents potential upside of 111.31%.
However, once you break down each individual analyst’s price target, an interesting bit of information is discovered. The only five-star analyst covering Mohawk Group, Tom Forte of DA Davidson, also has the Street high price target of $21, which represents even further upside of over 173%.
Forte’s bullishness reflects the “impact of the company’s acquisition of Truweo after Mohawk raised its revenue guidance by $5M at the midpoint while maintaining his positive EBITDA outlook for the upcoming quarter and FY20.”
Overall, Mohawk Group’s proprietary artificial intelligence platform is a dual-threat that can help the company expand its CPG business, as well as serve as a SaaS cash flow generator. Mohawk Group seems to be executing Amazon’s disruption playbook on a high-level, given the financial results the company has reports thus far into 2020. The AIMEE platform is a disruptor, a game-changer. As the strong results and recognition continue to roll in for AIMEE, Mohawk Group could see strong growth from third parties wanting to leverage its capabilities to expand their business. Simply put, Mohawk Group is the CPG company of the future.
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