An ear to the ground
Cochlear’s (ASX: COH) strong focus on innovation has resulted in 440,000 people wearing its products. Management is now considering how to leverage this large and enduring customer base while attracting new ones.
One path we think is possible for Cochlear is a subscription model, similar to Apple’s iPhone Upgrade program.
A Cochlear Implant sends sound as a signal to the brain, and sophisticated technology is required for the vast array of sounds that people with full hearing take for granted. In much the same way that Apple users demand faster processing and better features, so too do Cochlear users demand upgrades that process higher quality sound in wider environments.
Users may start paying a subscription to receive incremental benefits on a more regular basis, rather than paying a lump sum every few years for a substantial upgrade. For Cochlear, a steady subscription stream from lifelong users is highly appealing as it provides more stable revenues and brings forward capital to reinvest in the business.
At Montgomery, we think Cochlear is a high quality company with bright prospects but consider the current share price is too expensive. We remain on the sidelines with an ear to the ground.
Ben MacNevin is an Analyst with Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Mark Egan
:
Does upgrading require an operation? If so it is not as easy as an apple upgrade. Upgraded models go to new receipients and to those whose units fail.
Roger Montgomery
:
Hi mark, True but there’s also a large ‘uninstalled base’ who will receive new units that can be upgraded without operations and keep in mind that failure rates are fast heading towards zero.
Tristan Harrison
:
Hi Ben,
Do you wish you’d grabbed some a week ago in the low $90s?
Going back to an article April 2013 by Tim Kelley here: http://rogermontgomery.com/threats-to-cochlears-market-position/ (when the price was in the $60s) it was mentioned that there were several ‘competitors’ that could challenge in the future.
Seen as we’re now almost 3 years later, has anything happened in India/China or does Cochlear have clear skies? Are there no other competitors?
Tristan