R&D Spending In the Niche Pet Market and How It Affects Profit Sustainability
With consumer spending in the pet industry reaching over $72 billion in 2018, opportunity for niche markets and services within the pet industry grows daily. A private animal genomics company (The Private Company) seeks strategies to hold its market share as competitors threaten to enter their niche market. Should they invest more resources toward innovation and/or expansion to discourage competitors from market entry? I compare the audited financial statements of The Private Company to the published annual reports of three publicly traded innovators in other niche markets within the pet industry: (1) Trupanion, provides pet insurance, (2) Heska, provides in-house veterinary diagnostic equipment, and (3) Phibro Animal Health Corporation, produces healthy and sustainable feed for farm animals including cattle and swine. I measure investment in innovation (research and development costs) and expansion (capital assets), financial leverage, and changes in profitability, liquidity, and net working capital. I explore the impact of the rate of investment in innovation and expansion on the sustainability of profit and market share. In addition, I compare the market caps of these public companies to find the potential market cap of The Private Company. The data suggests The Private Company's performance metrics closely follow metrics from other niche pet companies and therefore we expect The Company to see a growing ROI (net income/R&D investment), provided the R&D budget remain conservative in order to curtail potential decreased profit margins.