AIM.TO - Aimia

[wabuffo]

On the conference call today, the United CEO said that he thinks it will be 2024 (!) before business travel comes back.

https://seekingalpha.com/article/4379281-united-airlines-holdings-inc-ual-ceo-scott-kirby-on-q3-2020-results-earnings-call-transcript

Scott Kirby:
And business demand getting back to normal, I would guess, 2024.[/size]

When asked directly what will United do if business travel doesn't come back to pre-pandemic levels, United CEO says we're not telling you.

Catherine O'Brien:
Maybe just one more on business travel. So, if business travel is going to take longer to recover than leisure or – depending who you're talking to – potentially not fully recovered to pre COVID levels, what changes to the cost structure or product offering would United consider making to offset that change to the revenue mix maybe over the short term or perhaps over the longer term if it really does end up that we've had a structural shift down in just the amount of business travelers traveling in the future? Any thoughts there would be helpful. Thank you.
Scott Kirby:
I guess I'll start. And what I'd say is, we don't think that's going to happen. So, we actually think the opposite. We have been thinking about it. But I think that's probably something that is best kept to ourselves at this point in time for an outcome that we don't think is the base case scenario in any event.

wabuffo

[Homestead31]

the board has done some great work here on Aeromexico and the bankruptcy, and while risks remain, i think we can all agree that the process is proceeding as smoothly as can be expected.

therefore, i think it might be time to start spending some time trying to figure out what the story with Kognitiv is.  Clearly at this point its mostly a black box, although they have said they expect cash flow positive in 2021.  who knows if that will come to pass as in some ways it is surely tied to global travel etc., which in a Covid world cannot be counted on.

that being said - i'm going to throw out some positive considerations.  i of course realize there are negative considerations as well, but i am sure wabuff and others will take great pleasure in pointing those out.

so in no particular order, here are some things to think about

1) as with all things Aimia, insiders are aligned, have bought a ton of stock personally, and have also put a buyback in place.  i think its safe to say they wouldn't have done those things if they thought Aimia was a one trick pony a la PLM.

2) if you read between the lines on the conference calls when they reference Cardyltics, it seems clear that the plan here is to IPO Kognitiv in the not too distant future

3) take a look at the recent Nuvei IPO, which was the largest canadian IPO in history.  its a different businees - Nuvei is focused on payments - but there are some parallels.  Nuvei is burning $100M a year, growing through acquisition, and trading at ~20x revenue because it is "sexy"

4) the excitement around Nuvei seems to be that they do payments for online gambling.  to my knowledge Kognitiv is not attached to online gambling at this point, but it seems like an absolute no brainer. 

as i understand it, the way kognitiv works is that someone like a retailer or whoever can go to the "loyalty capital network" in order to find rewards (unused hotel rooms, flights etc) and then use them as customer incentives.  so one example that we are familiar with would be a car dealer that offers $1,000 cash back when you buy a car.  instead of cash back, they could offer a trip somewhere or something like that to a consumer that has greater than $1,000 value, but maybe costs the dealer less than $1,000 because the hotel etc is happy to unload its unused inventory.

this model seems like it would be a perfect fit for online gambling - rather than cash you could take your winnings in the form of travel etc.  it seems like this model would also work with online gaming as in video games.

i don't know how the mechanics of that would work, but i do know that that is the sort of story that the market would put a huge multiple on, and investment banks would be lining up down the block to run that IPO

5) prior to the Aimia merger, kognitiv bought a blockchain company.  an IPO touted as "online gambling rewards secured by blockchain" would probably trade at 8 billion times revenue in this market.

anyway - this is all of course just speculation, and i realize it may sound ridiculous considering what we know about the corporate history of Aimia's loyalty business.  that being said, it seems like the narrative here could go in new directions, and narrative is what sells IPOs at high multiples.

thoughts appreciated

65% YoY revenue growth for kognitiv from 2019 to 2020 if i'm reading this latest filing right?

that kind of growth, combined with the word "block chain" and the potential for online gaming and gambling is probably worth a billion times sales in this market

[wabuffo]

65% YoY revenue growth for kognitiv from 2019 to 2020 if i'm reading this latest filing right?

https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/tsxaim-aimia/msg424868/#msg424868

That would mean its actual revenues are probably a single-digit percentage of that $1.3b.  Indeed, a quick check on Dun & Bradstreet says its annual revenue is $16.7m USD ($22.4m CAD).

Hey, I was pretty close!

Their actual revenues declined from $18.2m CAD for 2018 to $14.8m CAD for 2019.  That's why their losses increased from a loss of $34.4m in 2018 to $47.3m in 2019. They changed their year-end in 2018 (13 months) vs 2019 (12 months) so its a bit difficult to compare.  I also think they did a business strategy pivot in 2019 which further makes the two years' numbers not very comparable. 

With their year-end falling on Jan 31st - in 2020, unfortunately, they get the full impact of the pandemic.  Since most of what they sell is access to international hotels and destination resorts, 2020 is probably a big question mark with international travel down 80% or so.     

wabuffo

[Homestead31]

i don't think it is appropriate to say, "their actual revenues declined."  You could of course say, "Their IFRS revenues," but it would probably be most appropriate to say, "their NET revenues."

it seems pretty clear this (Kognitiv) is a tech company, and of course we have very limited details.

true to course, wabuffo of course gives the most pessimistic interpretation possible. but another interpretation is that like most fast growing tech companies, Kognitiv sacrificed some margin in order to grow fast.  Gross revenues did in fact grow 65% YoY.

We don't know enough to know if this is a good thing or not, but if we are looking at the public market tech sample set, we could say that the more money they lose in pursuit of growth, the higher multiple they deserve.  I will again reference Nuvei, which just went public as the largest ever Canadian IPO burning $100M, growing fast, and trading at 20x sales.

I am not saying this deserves to trade at 20x sales.

I am saying that if they IPO this, and the headline for the market is 65% gross revenue growth yada yada yada block chain blah blah blah online gambling, i think we will all be surprised at the valuation the public market gives it.

I am also saying you don't need to believe that because you're not paying for it in Aimia's stock price.  Its just a free lotto ticket that could be worth a whole bunch.

[Dr. Aybolit]

my two cents on Kognitiv:  I wouldn't get too hung up on the trend in valuation.  remember Cardlytics (CDLX)?  Aimia invested in that like 3 times, beginning in 2011 and with the last round in May 2017.  When it came public at $13 in early 2018 i think that was a major valuation cut versus the prior round.  this is all from memory since i am too lazy to look it up.  but i think i remember they ended up writing down the position massively, and then selling it all for a decent price after all (albeit painfully and seemingly needlessly prematurely).  I imagine one could have assumed the valuation cut meant it wasn't a good business to own, which clearly would have been the wrong inference.   So i wouldn't get too caught up in extrapolative analysis here, like CDLX, Kognitiv either works or it doesn't, and if it does Aimia probably makes some decent money, if not, a decent chunk of NAV will be lost but likely no more so than the cumulative cash burn from the status quo before that merger. so all-in-all, likely it was a good move. 

[samwise]

Aeromexico is targeting a 35% reduction in fleet size according to the VIC writeup for CONTROLADORA_VUELA_COMPANIA

[Homestead31]

https://www.yahoo.com/news/unwelcome-other-countries-americans-fleeing-110037262.html