Thursday, September 27, 2012

Amway: It's easy

Let me ask a question when comes to analysis is concerned. Is MLM a" low barrier of entry" business or a "high barrier of entry" type of business? Is it easy for anyone to start a business as similar as Amway? Seems easy ya. Plenty of competitions. Then let me show you Amway Malaysia's trend over the last 5 years. Why not start one?

Not convinced? Then look at the dividend payment etc. There is a huge consistencies.

The business itself is not easy. Until now, I can't understand the MLM business. I could not value the value it provides to its members and consumers.

I asked some people - what makes Amway successful? Is it the channel that it has built? Is it the quality of the products? If its the quality of the product - then I am trying to understand - is Mercedes a quality product? If then Mercedes is of quality and synonym to class, then what about Amway. Quality = class? No. Then what? If Mercedes is about high quality, would you buy if the value range is off the chart? I am a person who looks at value - that's why I could not comprehend. (Value is not about low quality though, or I hope so!) Is Amway a status symbol thing? Do you go around and tell people you use Amway - the same way you carry an LV, Iphone or drive a Mercedes around?

For the last 10 years or more, seriously I have not encountered any person selling me an Amway product. (Err...not asking for one now :)) But what makes a company like this earn more than RM100 million a year? Stickiness? Usefulness? Members themselves buy? The believes?

Not convinced of how successful the company is? Look at the Balance Sheet.

Look at how clean and easy the balance sheet is. To tell the truth, I have yet to encounter a balance sheet for a post RM1 billion company that is that easy to the eyes. (perhaps Berjaya Toto is almost as easy) The business itself seems to be straight forward. Inventories are stocked for the members or stockists. Cash and cash equivalents are what they have. No debt - they don't need one. If I am allowed to advice - go get some debts and pay more dividends and debts are cheap nowadays especially for Amway. PPE - perhaps the building and equipment it owns. Trade payables are to be paid to suppliers, distributor's bonuses, seminars costs etc.

Now, if you noticed, Amway paid more dividends per share than its earnings over the last 2 years. No problem. It can afford to do so. In fact, some of the larger successful companies have borrowings and they still pay almost full dividends from profits. (My friend complained about this - hello, not an issue) He should not complain as as he gets as a shareholder and this is how able the company to pay its dividends. Of course, in its near future years, Amway may not pay RM0.66 per share, but if it continues to do as well or more, the dividends will be almost as good or even better.

Its cashflow is just as straight forward. Amway has been paying off all the income it generated over the last few years. If you look at it, the business does not even look at keeping some of the profits for future expansions. The business is a self-rolling business.

Seems easy? I hope so, as I am not yet convinced of the business moving forward as I do not know how to make of the model that it has. But how to fault its past track record moving forward?

I wish I had bought this company years ago. But I lacked the BELIEVE.


For A Better Malaysia said...

Hi Felicity.I too share your thoughts on Amway : how does it do it year after year for the past few years?!? Both my sisters are members and did try to sell its products for a while. My family and I used its products for a while too but their prices kept going up every few months or a year until we kind of stopped using most of them.

So it does beggar belief that it has done so well. But just like you, I am still not too convinced; esp. at its current price.

P/S : Pls keep up the good work here! Thanks for sharing!

Justin said...

Felicity,may I suggest an alternative, try to find out Zhulian, an equally well managed MLM company, clean Balance Sheet and decent dividend payout over years.

Justin said...

Felicity,may I suggest an alternative, try to find out Zhulian, an equally well managed MLM company, clean Balance Sheet and decent dividend payout over years.

felicity said...

Hi Justin

Seriously I am amazed that Zhulian is doing so well. The factory is just behind my house in Penang. Have no idea they are doing so good nowadays. It is a good MLM story. Will find time to write something if I am able to.

felicity said...

Hi For a better Malaysia

I know Amway well when was small where my Aunt would come to our house and give us stuffs from Anway or we would be buying some of their products.

Those days have passed. I am no Amway user. The last MLM product I bought from a friend, actually I let the supplement expired. Costs me more than RM1k. Until now, I have no idea how a MLM company can continue to do well besides the member get member scheme.

I always have the thought that if the goods that they are selling are so good, who not put them on the shelf?

Definitely not against MLM but I think the distribution can do with lesser middle channel.

Unknown said...

i bought amway early this year. cap appreciation 10% + dividend 29 sen.

felicity said...

hi Zayed
That is a good return.

Bananaboy said...

Hi felicity, actually Amway's delivery channel is exactly the opposite of what you think off. It cuts off the middleman compared to conventional methods.

If you compare the exact ingredient content of its supplements, the price is extremely competitive.

It's a good company. Just that MLM industry is tainted with huge mark up products, pyramid schemes and money games.

I bought some Amway stocks 4 years ago after a Financial Controller of a certain bank advice me to. It was Rm 7.30. ;)