Printing.com moves into yellow quadrant of uncertainty

Printing.com's recent profit warning is a reminder that its business model seems to be continuously shifting. It's a sign of the times, which are also uncertain.

Despite a deterioration in profit due to the weak economy here and in Europe, and the cost of marketing its new online printing capability, Printing.com is relatively upbeat. The updated software platform it developed a few years ago gives it myriad licensing opportunities, the first of which have now been granted in the UK, and an online storefront. With a debt-free balance sheet, its confident enough to maintain the dividend it cut in 2012.

W3P, the template driven software platform, has set Printing.com up as a hybrid printing franchisor serving customers online and through an established network of franchisees in the high street, sometimes at the same time by channelling an order to a local franchisee if design input is required.

Last year's results (to March 2012) we're reassuring. The company made a reasonable profit despite three-way pressure on its business model from recession, competition from online print sites like Vistaprint that are eating into Printing.com's traditional small business market, and competition from internet marketing, which in some circumstances provides businesses with an alternative to flyers, leaflets, brochures, stationery and business cards.

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What matters though, is whether Printing.com can improve profitability in the long-run, as even after the profit warning the shares aren't cheap if last year's performance is typical.

I really don't know. By licensing the W3P software to printers and design agencies who may, I imagine, be in competition with its own franchisees, Printing.com may be shifting to another model where it is a software and printing service provider. According to Printweek, its first 10 licensees were franchisees wanting to drop the printing.com branding but still use the company's system and print capability.

The BrandDemand service, which is aimed at bigger businesses with more than one corporate identity, looks like a reaction to the commoditisation of small business printing on the Internet, and it's almost insignificant franchise and online ventures in France, Ireland, New Zealand and the USA make me wonder whether the company is being too entrepreneurial in attempting to be all things to all print customers.

Entrepreneurialism is one of Printing.com's strengths, it's still run by founder Tony Rafferty. Others are its modern print hub in Manchester, and perhaps its software capability. But the business model has been evolving for some time now, BrandDemand was launched in 2010, Flyerzone, a site aimed at small businesses in 2011, and its had foreign franchisees for as long as I can remember.

These initiatives seem to be taking a long time to deliver profitability increases, which is making me wonder if they ever will, significantly.

Printing.com is profitable, and financially strong, and has been for a decade, so despite my concerns about strategy I still think the franchise operation is a good business. It may be a declining one though, because it looks like Printing.com is searching for a way out, or at least to diversify. 

Share Sleuth Portfolio Matrix (7)

On an earnings yield of 7%, the shares aren't cheap, though I continue to hold them in the Share Sleuth portfolio.

Comments

Some questions:

1) how much value does their software add to the InDesign server its based on? If the white label services is just hosted Indesign with a wrapper around it, that will be low margin in the long run.
2) What does their branded printing.com services have to offer from a customers point of view that competitors (you mentioned Vistaprint) do not have?
3) Franchisees using the printing.com brand seem to be in the position of adding value added services (i.e. design) while competing with the more DIY service offered on the printing.com website. By using the brand, they are promoting a low cost competitor. Is this sustainable?

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