Otis: “Lindy” business, but not without concerns

In 236 B.C., Archimedes, the Greek Mathematician, invented a primitive form of elevator which was operated by hoisting ropes, and rotated by manpower. In mid-eighteenth century, Louis XV, the French King, had a “flying table” that let him, and guests dine privately. All they had to do was ring a bell and voila, the flying table would appear from the kitchen below with all sorts of delicacies. Good times! (for the Kings)

But for peasants like me, I am grateful to Elisha Otis, an American who invented a safety break in 1852 that truly transformed the vertical transport industry. Five years later, Otis’ first commercial passenger elevator was installed in a five-story department store in NYC.

Today, we take ~18 billion trips on elevator per year, and Otis remains the leader in the global elevator business. If you are looking for an example of Lindy effect, elevator business is a good place to start.

Here is the outline for this month’s deep dive.

Section 1 Otis business model: I discussed the basics of elevator business, drivers for the business, and how Otis makes money.

Section 2 Elevator business by region: A brief discussion of the business by region, especially in China and the differences between the regions is highlighted in this section.

Section 3 Bull/Bear debate: I identified three key bull theses: a) lindy effect, b) beneficiary of long-term secular tailwinds and stable stream of revenues, and c) scale and technological advantages of Otis. I touched upon competitive dynamics and which side I lean on when it comes to bull/bear debate.

Section 4 Valuation and model assumptions: I explored the embedded expectations in the current stock price.

Section 5 Management and capital allocation: Capital allocation and management incentives are discussed here.

Section 6 Final words: Concluding remarks on Otis, and a brief discussion on why I added to my existing positions on Facebook and Etsy.

This post is for paying subscribers only

Already have an account? Sign in.

Subscribe to MBI Deep Dives

Don’t miss out on the latest issues. Sign up now to get access to the library of members-only issues.