5# XPEL: Bike Protection Film...wait what?
And a quick look into the biking industry
Bike Protection Film….seriously? Wasn’t this company protecting cars or windows with their architectural segment? I read comments online, had and heard discussions about investors doubting the TAM of bike protection film, and questioned why would a cyclist even add weight to their high-performance bikes. Does this remind you of investors doubting the Paint Protection Film(PPF) TAM for cars since day one? You might have had this concern when you were following the company or happened to look at XPEL in 2013-2014 during its first discovery phase. (Luckily for me, I did look at XPEL in 2014 and bought it in 2015.)
Acquisitions:
On Nov 1st, 2021 XPEL Acquires U.K. Based invisiFRAME Ltd. a leading provider of custom-tailored bicycle frame protection kits based in the United Kingdom.
“invisiFRAME is expected to add over $2.7 million USD in incremental annual revenue and is anticipated to be immediately accretive to the Company’s 2021 results of operations.”
One of the most valuable assets of the invisiFRAME acquisition, in my opinion, is the library of 40,000 individual “cut patterns” that invisiFRAME developed over the years and that I think will be included in XPEL DAP software.1 Does this remind you about car “cut patterns”? This should broaden their offering and I think allow them to expand geographically via their DAP software. I often like to joke about XPEL being a “FaaS” business (“Film as a service”).
What are the benefits of using invisiframe?
Non yellowing
Self-healing
Stain resistant
Protects your bike from unsightly damage and maximises resale
The bikers choice for a DIY protection solution but with a custom cut kit
Millimetre perfect kits replace the old heli-tape and scissors
Over 40,000 individual options available in custom fit
More on the old heli-tape and scissors later.
The problem…the “Why”?
Here is a cool video from the company and you will understand why this appeals to mountain bikers.
I think you get it…rocks, branches, and dust is flying all around when you ride and don’t forget when you drive your car with your bike on your bike rack. This is the same thing as PPF for cars. This makes a lot of sense to protect your bike that nowadays cost easily +$3000 CAD for an intermediate-level to the +$10 000 CAD range and more. According to Pinkbike “$3000 is a good benchmark for intermediate-level mountain bikes.”2 It also helps to clean your bike and make sure to keep your resell value. Yes, mountain bikers have a problem with upgrading and changing bikes all the time. Ever heard of N + 1?
A little bit about myself:
I have been riding mountain bikes since I was a kid for the last 30 years. I have so many fond memories of our local mountain biking course and trails around home and biking trips with friends. I even traveled to one of the meccas of mountain biking Whistler, BC, Canada, and rode around some local spots in British Columbia a few years ago. I even now live in a mountain town as we wanted to have an active lifestyle during all seasons with my family. I know and met a few people in the industry over the years. I ride for fun, I did a few races but not that great, and made a lot of friendships with biking over the years.
I even ride a FatBike during the winter season in the snowy trails:
My current mountain bike is a Specialized Enduro wrapped with PPF with a shameless plug for LEAT.
Just to say that I have seen the trend of wrapping mountain bikes emerging right in front of my eyes over the years as a cyclist. This is also one of the reasons I invested in XPEL back in 2015 as I could easily make the parallel with cars and could see the potential for market penetration and growth in the automotive industry with car enthusiasts.
This fits perfectly in the investment philosophy of one of the investors that influenced me over the years Peter Lynch with his famous quote "Invest in what you know."
The product:
This is not XPEL first rodeo in the realm of bike protection film and dates back to 2013.3
In addition, a product for bicyclists was introduced.
Xpel Technologies’ paint-protection film shields vulnerable parts of bike frames from rocks and trail debris, as well as chips and scratches from pedals and chains, said business development rep Eric Keller.
There has never been any traction at the time from what I recall and wasn’t a big deal in investors presentations, conference calls, or in SEDAR MD&A, etc… If you have more information on this actually you can reach out to me if you have more insights. (P.S. SEDAR….I still remember when XPEL was trading under the DAP-U.V symbol on the TSX Venture before their NASDAQ listing if you didn’t know.)
How does bike protection even start?
Film protection on bikes really started as a niche product and application for racers back in the day (10 years+). The old so-called heli-tape. A roll of tape and scissors was all you need.
However, from what I noticed in the general mountain biking community it started to become more mainstream about 6-7 years ago with a roll of 3M.
Then we saw more and more products in the bike protection: some frame protectors, mudguards emerging, and DIY pre-cut kits emerging.
Since 2020, I have been noticing that it is now“de facto mandatory” for mountain biker enthusiasts to get a custom-tailored PPF when they get a new bike or even to protect their old trusted “weapon of choice” with a custom-tailored for your frame. Riders will buy the kit themself or pay a bike shop to do the installation for you. There are two major companies that I know of which is RideWrap, based in Whistler, BC, Canada which is widely available in Canada, and invisiFRAME from the UK which is harder to get except on special order.
The custom-tailored kit where I live from RideWrap costs around ~$50 CAD to $150+ CAD depending on the amount of coverage. invisiFRAME which has to be imported for now in Canada costs around ~$175 CAD. A bike shop would typically charge 2 hours of labor for installation ~100$. A rider would generally pay around ~$250-300 CAD to protect their bike with a custom-tailored PPF in Canada.
Pinkbike really does a great job at explaining the options to protect your bike and price. 7 Protective Frame Tapes Ridden & Rated
When they did the announcement, I thought they would acquire RideWrap but turns out invisiFRAME has a more compelling library of cut patterns. 4
If InvisiFRAME is a ten for frame protection, then Whistler based RideWrap turns it up to eleven. RideWrap’s TPU film is 8.2 mils thick outdoor grade that’s guaranteed to resist discoloration or cracking for 10 years—a pretty bold claim! And they, too, utilize an extensive library of different makes and models of bikes (although not as extensive as InvisiFRAME’s), also mapped out to be size specific, and with either a matte or a glossy finish.
Industry overview and tailwinds:
Here is the stock performance of public stocks in the bicycle industry that I know of over the last 2 years.
You can look at the last 5 years too as the chart was too crowded otherwise. To give you an idea including pre-covid since 2016, Fox Factory Holding Corp. (FOXF) the largest company in market cap is up 722%, LEAT is up 1221% and MIPS is up a whopping 2240% since going public in 2017. The S&P500 was up 135% since 2016 for comparison.
Covid did create a huge demand in the cycling world with people confined to home and biking being an easy distancing activity which led to a bike boom. People might just want to exercise too and get in shape.5 I had my biggest biking season ever in 2020.
Cycling has seen a massive increase in participation in 2020 with the UCI quoting an increase of 253% in late April in the Western USA, the UK Government claiming cycling had grown by 200% on weekends this year and similar spikes around the world. Cycling's position as a form of recreational exercise that doesn't require close contact with others has been a big draw for new or returning riders and this is boosted by less traffic on roads during lockdowns, a desire to avoid public transport and increasing government spending in cycling infrastructure.
2020 Q3 summary6
Financial reports have been released for Q3 (July-September) 2020 and the COVID bike boom still seems to be positively affecting the industry. Demand for products remains high due to customers still living in a socially distanced world and governments investing in cycling infrastructure.
Fox Notches Record Quarter with Bike Division Revenue Growing 32%
Shimano Bicycle Sales Down 3.8% with Increased Income
Demand for Hope Products Doubles
Bike Imports at Highest Levels for 5 Years in USA
Two reports have shown bike imports to the United States were up in both July and August. US Department of Commerce figures picked up by Bicycle Retailer and Industry News, show that 1.9 million bikes worth $151 million were imported in July and 1.7 million bikes worth $142 million were imported in August. This represents the highest level of bike imports since April 2015, when the industry brought in bikes worth $180 million.
Dorel Sports Records Sixth Consecutive Quarter of Revenue Growth.
MIPS Continues Strong 2020
Leatt Revenue Grows 18% Year on Year
2021 Q1 summary7
There have been positive financial reports across the board in the first three months of 2021. The bike boom seems to be continuing its momentum from the end of 2020 and, despite widespread reports of product shortages, brands are reporting year-on year growth with some even posting record quarters.
Shimano Bike Sales up 76%
A Record Quarter for Fox Factory as Sales Nearly Double Year on Year in Bike Segment
Dorel Sports Records Eighth Consecutive Growth Quarter and Announces Price Rises
Bicycle Helmets not Snow Helmets Boosted Mips' Q1 Sales
Leatt Records 71% Increase in Revenue
EV is a big trend in cars, electric is also taking the bicycle industry with e-Bikes. They are on a tear if you didn’t know and a fast-growing segmentsegment8
E-Bikes Become More Than a Quarter of Giant's Growing Revenue
Giant's third-quarter revenue increased 14.6% to NT$19.47 billion with 27% of that total now coming from e-bikes. Giant said in a press release that countries where consumers are still sticking to social distancing guidelines, "are turning to bicycles and e-bikes to commute or as an alternative form of exercise to keep themselves fit and healthy." This has gone hand-in-hand with greater investment in cycling infrastructure that has helped to boost demand.
Giant also noted that "E-bikes sales price and margins are much higher than traditional bikes" and have contributed to not only an increase in revenue but an increase in gross margin too. The Taiwanese company said it would continue to grow its range and production of e-bikes to grow its market share.
The demand for bikes and components has been very strong if you look at Shimano, which controls an estimated 65 percent of the market for high-end gears and brakes9European and US producers said lead times from order to delivery have hit 400 days for a range of high-end components made by Shimano, underlining the strains for an industry trying to meet a surge in demand for bicycles caused by the pandemic.
Some suppliers reported even longer lead times for certain parts such as hydraulic brakes or wheels.
Shimano’s CAPEX could sustain up to 5% organic growth just lately and they were at….20% 10
They came to the conclusion that to support the demand and future one they had no choice to invest. Shimano Invests $300m in Japan & Singapore Facilities to Increase Capacity
Demographics:
Who are the mountain bikers?
To put things into perspective here is some interesting data on mountain biking from a study from Vélo Québec from 2020.
The population of the province of Quebec, Canada where I live is around ~8.5mil and Canada is ~38mil per Google.
There are 1.1 million people mountain biking. This is ~13% of the population of the provide of Quebec, Canada which is now mountain biking.
The 5 busiest trail network centers have seen their number of visitors quintuple (5X) in 5 years from 2015 to 2020.
You can see in the below graph the numbers of centers, km of trails, and the spread of bikers per age group.
You can do more research and extrapolate data from the major meccas of mountain biking around the United States as well (i.e. Arizona, California, Colorado, Idaho, Nevada, Oregon, Vermont, etc….).
Pinkbike, which is the resource for mountain biking based in British, Columbia, Canada, really explains well why a mountain biker would wrap their bike 11
Soooooo… you just bought a new bike. It wasn’t cheap. And it looks sweet as! But a month of shuttles and aggressive trail riding will make any bike look as if it’d been flogged with a chain. Applying some protection to that new ride will help keep it looking shiny and new a lot longer than just plain old paint. Maybe it’s a vanity thing, but when some people are forking out anywhere from $7k to $10k for a complete bike these days, investing in some kind of protective tape or film to keep it looking fresh just seems like common sense.
Did you know that Pinkbike has more than 700 million annual page views and was acquired by Outside in the US in July 2021?
There are more and more bikers with a combination of more networks, accessible trails for all ages, and all levels of riders combined with bike technology that allows for a comfortable ride. More and more families with young kids are getting into the sport. The demographics and demand look compelling in my opinion to increase market penetration and adoption for paint protection film
What is next for XPEL?
I am very excited about XPEL and this acquisition, adding this product to their portfolio, the “cut patterns” that I think will be added to their DAP software, and expanding their TAM into the biking business segment as a biking enthusiastic myself. I just can’t help but think about what could happen next and how they can continue to grow this business segment in other geographic regions.
But most importantly, I think this is also a strategy to increase brand and protection film awareness in general which might translate into more PPF sales for cars eventually. Customers that are spending a lot of dollars on mountain biking usually like to take good care of their bikes or their “toys” and have nicer cars too (or they have cheap cars because they spend all their money on bikes LOL).
These are just some thoughts about bike protection film and the bike industry for entertainment purposes. Hope you enjoyed it and that this article made you want to ride your bike regardless of the type of riding you do. Go out and ride now!
P.S. LEAT has been one of my biggest errors of emissions in 2016-2017 as I couldn’t add an OTC stock in a registered account in Canada for tax purposes. It won’t be my last error in my investing journey and this is a topic for another post.
Disclosure: I am long XPEL shares and “biking”
I have been following XPEL since 2014 and been a shareholder since 2015.
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Fellow buyside analyst here. I would love to chat about XPEL if you have time. Contact me at johnthomasgraass@gmail.com