A pure play company focuses solely on a particular product or activity. Investing in a pure play company can be considered as investing in a particular commodity or product of a company.
Pure play firms either specialize in a specific niche, or have little to no
vertical integration
In microeconomics, management and international political economy, vertical integration, also referred to as vertical consolidation, is an arrangement in which the supply chain of a company is integrated and owned by that company. Usually each ...
. For example, a coffee shop may call itself a "pure play" restaurant, and a factory that only produces goods (not designing or selling to consumers) may refer to itself as a pure play manufactory.
Companies that transact exclusively via
e-commerce
E-commerce (electronic commerce) refers to commercial activities including the electronic buying or selling products and services which are conducted on online platforms or over the Internet. E-commerce draws on technologies such as mobile co ...
and have no
brick and mortar
Brick and mortar (or B&M) is an organization or business with a physical presence in a building or other structure. The term ''brick-and-mortar business'' is often used to refer to a company that possesses or leases retail shops, factory produc ...
retail spaces may be referred to as pure play online retailers.
Pure play method
In
finance
Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...
, the "pure play method" is an approach used to estimate the
cost
Cost is the value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it i ...
of
equity capital
In finance, equity is an ownership interest in property that may be subject to debts or other liabilities. Equity is measured for accounting purposes by subtracting liabilities from the value of the assets owned. For example, if someone owns a ...
of
private companies
A privately held company (or simply a private company) is a company whose shares and related rights or obligations are not offered for public subscription or publicly negotiated in their respective listed markets. Instead, the company's stock is ...
, which involves examining the
beta coefficient of other public and single focused companies. See also
Hamada's equation In corporate finance, Hamada’s equation is an equation used as a way to separate the financial risk of a levered firm from its business risk. The equation combines the Modigliani–Miller theorem with the capital asset pricing model. It is used ...
.
Here, when estimating a private company A's equity beta coefficient, the equity beta coefficient of a public company B is needed; the latter can be calculated by
regressing the return on B's stock on the return on the relevant
stock index
In finance, a stock index, or stock market index, is an index that measures the performance of a stock market, or of a subset of a stock market. It helps investors compare current stock price levels with past prices to calculate market perform ...
. The following calculation is then applied to return the beta coefficient of company A.
:
Unlevered Beta of B = Equity Beta of B / (1 + DE
B × (1 − Tax Rate
B))
:Equity Beta A = Unlevered Beta of B × (1 + DE
A × (1 − Tax Rate
A))
::where ''DE
A'' and ''DE
B'' are the
debt to equity ratio
Debt is an obligation that requires one party, the debtor, to pay money borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual. Commer ...
s of company A and B respectively.
Pure play foundries
Pure play foundries, such as
TSMC
Taiwan Semiconductor Manufacturing Company Limited (TSMC or Taiwan Semiconductor) is a Taiwanese multinational semiconductor contract manufacturing and design company. It is one of the world's most valuable semiconductor companies, the world' ...
and
GlobalFoundries
GlobalFoundries Inc. is a multinational semiconductor contract manufacturing and design company located in the Cayman Islands and headquartered in Malta, New York. Created by the divestiture of the manufacturing arm of AMD in March 2009, the ...
, have no in-house design capabilities, and fabricate
integrated circuits
An integrated circuit (IC), also known as a microchip or simply chip, is a set of electronic circuits, consisting of various electronic components (such as transistors, resistors, and capacitors) and their interconnections. These components a ...
(ICs) for
fabless semiconductor companies
Fabless manufacturing is the design and sale of hardware devices and semiconductor chips while outsourcing their fabrication (or ''fab'') to a specialized manufacturer called a semiconductor foundry. These foundries are typically, but not excl ...
,
such as
Qualcomm
Qualcomm Incorporated () is an American multinational corporation headquartered in San Diego, California, and Delaware General Corporation Law, incorporated in Delaware. It creates semiconductors, software and services related to wireless techn ...
,
Broadcom
Broadcom Inc. is an American multinational corporation, multinational designer, developer, manufacturer, and global supplier of a wide range of semiconductor and infrastructure software products. Broadcom's product offerings serve the data cen ...
,
Xilinx
Xilinx, Inc. ( ) was an American technology and semiconductor company that primarily supplied programmable logic devices. The company is renowned for inventing the first commercially viable field-programmable gate array (FPGA). It also pioneered ...
,
Nvidia
Nvidia Corporation ( ) is an American multinational corporation and technology company headquartered in Santa Clara, California, and incorporated in Delaware. Founded in 1993 by Jensen Huang (president and CEO), Chris Malachowsky, and Curti ...
, among others.
Integrated device manufacturer
An integrated device manufacturer (IDM) is a semiconductor company which designs, manufactures, and sells integrated circuit (IC) products.
IDM is often used to refer to a company which handles semiconductor manufacturing in-house, compared to a ...
(IDM) foundries, such as
Intel
Intel Corporation is an American multinational corporation and technology company headquartered in Santa Clara, California, and Delaware General Corporation Law, incorporated in Delaware. Intel designs, manufactures, and sells computer compo ...
,
IBM
International Business Machines Corporation (using the trademark IBM), nicknamed Big Blue, is an American Multinational corporation, multinational technology company headquartered in Armonk, New York, and present in over 175 countries. It is ...
,
NEC
is a Japanese multinational information technology and electronics corporation, headquartered at the NEC Supertower in Minato, Tokyo, Japan. It provides IT and network solutions, including cloud computing, artificial intelligence (AI), Inte ...
,
Texas Instruments
Texas Instruments Incorporated (TI) is an American multinational semiconductor company headquartered in Dallas, Texas. It is one of the top 10 semiconductor companies worldwide based on sales volume. The company's focus is on developing analog ...
and
Samsung
Samsung Group (; stylised as SΛMSUNG) is a South Korean Multinational corporation, multinational manufacturing Conglomerate (company), conglomerate headquartered in the Samsung Town office complex in Seoul. The group consists of numerous a ...
, provide both foundry design services and IC fabrication.
Pure play e-retailers
Compared to traditional
retail
Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is the sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholes ...
stores, pure play
e-retailers can serve a wider audience without physical boundaries and distance, and may target specific customer groups without the high cost of maintaining physical stores.
Compared to companies that integrate both offline and online, pure online internet retails do not have company brand recognition and reputation at the
start-up
A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model. While entrepreneurship includes all new businesses including self-employment and businesses that do not intend ...
stage, and customers are unable to touch, examine and test real products before buying them. The online shopping experience foregoes human contact with consumers.
See also
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Diversification (strategy)
Diversification is a corporate strategy to enter into or start new products or product lines, new services or new markets, involving substantially different skills, technology and knowledge.
Diversification is one of the four main growth strategi ...
Further reading
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References
{{corporate finance and investment banking
Types of business entity