I want to begin by saying that I personally believe the death of physical retail thing is overblown in some aspects. I think that there's a certain experience from going to a store that you can't replicate online which benefits certain retailers (Looking at you Williams-Sonoma/Nordstrom). However, it's clear that in a lot of areas, retail is shifting online. This benefits consumers who can easily place an order from their couch and limits physical locations, which can lower costs while also increasing margins.

Enter Mohawk ( $MWK ), a technology company bringing technology to consumer retail. Mohawk doesn't operate any physical stores, rather, they use their proprietary AI, called AIMEE, to research consumer trends extremely in-depth to create new products that they sell through platforms like Amazon. I don't think I need to elaborate on the shift toward e-commerce, but I'm happy to discuss trends that I find particularly insightful.

This engine uses ML and NLP to optimize consumer product launches in four main ways. The first is research. AIMEE analyzes data from a variety of different platforms to automate emerging consumer trend discovery and launch new products before widespread adoption. Second, AIMEE automates a lot of the financial data, including projections, inventory, etc and organizes it in one place for easy access. This ensures inventory is better managed and projections become more accurate over time. The third is sales. AIMEE uses ML to constantly learn about what marketing strategies tend to work best in real-time to best scale sales of new products. Last is supply chain management. The platform automates to supply chain in order to get products to customers faster and continually manage existing inventory better. Obviously, this is super simplified, but I think it provides a good overview.

Because of how widespread consumer needs are, the product mix is well-diversified across various sectors, including electronics, wellness, and home appliances. This diversification hasn't led to inferior products, however, as the company has strong sales and great customer satisfaction across many of its products (looking at Amazon reviews). This has driven a huge increase in sales, from $36.5 million in 2017 to $114.5 million in 2019, and this strong growth should continue as more people continue to work from home.

To determine a potential valuation for Mohawk, I examined recent 10K/Q's and projected out financial statements to 2030. I expect the strong sales growth to continue at recent levels (50+%) for a few years as the company continues to grow, slowing down around 2025 before beginning to level off around 10% near the end of the projection period. However, over time, as AIMEE continues to improve, costs should definitely decrease as AIMEE becomes increasingly efficient, and I believe that profit margins between 15-20% are definitely possible a decade or more in the future. By 2030 I think revenues of around 2 billion dollars are possible, with an implied market cap between 2-3 billion based on that intrinsic valuation.

One other potential revenue stream that currently isn't in play is potentially licensing out AIMEE to other companies that Mohawk doesn't plan on competing with. I haven't incorporated this into my financial projections since I don't think it's a focus of the company, but it would definitely be a way to increase profits further without hurting their business much, if at all.

I've opened up a small position in the company, and plan on holding long-term and DCA'ing, but I won't be adding significantly more until the company matures a little. AIMEE is definitely unique, and I don't think there's another competing company that is using this technology to the same extent/effect as Mohawk. Nonetheless, in an age of disruption, the disruptor becoming the disrupted is a real risk, especially since the company is so new and doesn't have any particular brand loyalty. Specifically, I'll be interested to look at earnings for 2020 and 2021 to see how they compare with my own projections before really deciding whether to pursue a large stake in the company.