Hi TJ, a few thoughts following a more careful review of your analysis. I agree with your conclusion that New Existing Customers (NECs) are trending upward, with a significant 294% increase from 48k in 2023 to 189k in 2024. The conversion rate of new and reactivated customers into existing customers has also improved, rising from 0% in 2022 to 1.2% in 2023, and reaching 4.9% in 2024 (189k NECs from a 2023 pool of 3,867k new + reactivated). This trend supports your prediction of near-flat existing customer counts by the end of 2025, as the YOY decline in existing customers has slowed from -12.0% in 2023 Q4 to -7.5% in 2024 Q4.
I also share your concern that the current NEC growth and conversion rates are not yet sufficient to fully offset the ongoing decline in existing customers. From 2023 Q4 to 2024 Q4, existing customers dropped by 315k (4,197k to 3,882k), while NECs added only 189k, resulting in a net loss of 126k. For a true business turnaround, I believe we need to see not only higher conversion rates but also a substantial increase in the pool of new and reactivated customers to fuel NEC growth and stabilize the existing customer base.
Historical Trends in New and Reactivated Customers
The pool of new and reactivated customers has been declining:
2021 Q4: 4,814k (2,568k new + 2,246k reactivated).
2022 Q4: 3,927k (1,982k new + 1,945k reactivated), a -18.4% YOY decline.
2023 Q4: 3,867k (1,965k new + 1,902k reactivated), a -1.5% YOY decline.
2024 Q4: 3,727k (1,920k new + 1,807k reactivated), a -3.6% YOY decline.
This downward trend in the new/reactivated pool limits the potential for NEC growth, despite improving conversion rates. For example, the 2023 pool (3,867k) converted 189k into NECs (4.9%), but a smaller 2024 pool (3,727k) would need a higher conversion rate (e.g., 8% to yield ~300k NECs) to offset the expected churn of 467k (12% of 3,882k). Achieving a large increase in new and reactivated customers—say, back to 2021 levels of 4,814k—would provide a larger base for conversion, potentially adding 235k NECs at the current 4.9% rate, which would nearly offset churn and stabilize counts.
Role of Streaming and Social Media
If QVC leverages streaming and social platforms to increase impressions and views, this could boost new and reactivated customer acquisition. The 2020–2021 period, with NECs at 829k and 628k respectively, coincided with heightened digital engagement during COVID-19, suggesting that similar strategies could work again. However, we don’t have specific metrics on viewership on streaming/social impact and its impact on customer counts and conversation rathes, other than the presentation on investor day 2024 that didn’t delve into the details.
Broader Turnaround Indicators
While NEC growth is a positive sign, I think a business turnaround also requires broader evidence beyond customer counts. Existing customers are increasing their spend (from $1.5k in 2022 to $1.65k in 2024, Q4 2024), and their purchase frequency rose to 32 items annually (up from 29 in 2022). This suggests that even with a declining base, revenue per customer is growing, which could mitigate top-line pressure. However, total revenue in Q4 2024 was $2.9B, down 6% YOY, indicating that customer count declines are still impacting overall performance.
Turnaround
To confirm a business turnaround, I’d propose the following:
Increase in New and Reactivated Customers: A return to 2021 levels (e.g., 4,800k total) to provide a larger pool for NEC conversion.
Sustained or Improved Conversion Rates: Maintaining or increasing the 4.9% rate to generate enough NECs (e.g., 300k+) to offset churn.
Stabilization of Existing Customers: Achieving flat or positive YOY growth in existing counts, as you predict for 2025.
Revenue Growth: Positive YOY revenue growth, leveraging the higher spend per existing customer.
In summary, your analysis of NECs and conversion rates is spot-on, and the 2025 prediction of near-flat counts is plausible if trends continue. However, I’d prioritize a significant increase in new and reactivated customers as the key driver for NEC growth, supported by digital initiatives like streaming and social media.
DATA:
2024 (Q4 2023 to Q4 2024):
Beginning EC (2023 Q4): 4,197k
Ending EC (2024 Q4): 3,882k
Retention: 88% (Churn: 12%)
Expected EC without NECs: 4,197k × 0.88 = 3,693k
Actual EC: 3,882k
NECs = 3,882k – 3,693k = 189k
2023 (Q4 2022 to Q4 2023):
Beginning EC (2022 Q4): 4,769k
Ending EC (2023 Q4): 4,197k
Retention: 87% (Churn: 13%)
Expected EC without NECs: 4,769k × 0.87 = 4,149k
Actual EC: 4,197k
NECs = 4,197k – 4,149k = 48k
2022 (Q4 2021 to Q4 2022):
Beginning EC (2021 Q4): 5,537k
Ending EC (2022 Q4): 4,769k
Retention: Assume 87% (Churn: 13%)
Expected EC without NECs: 5,537k × 0.87 = 4,817k
Actual EC: 4,769k
NECs = 4,769k – 4,817k = -48k
2021 (Q4 2020 to Q4 2021):
Beginning EC (2020 Q4): 5,642k
Ending EC (2021 Q4): 5,537k
Retention: Assume 87% (Churn: 13%)
Expected EC without NECs: 5,642k × 0.87 = 4,909k
Actual EC: 5,537k
NECs = 5,537k – 4,909k = 628k
2020 (Q4 2019 to Q4 2020):
Beginning EC (2019 Q4): 5,532k
Ending EC (2020 Q4): 5,642k
Retention: Assume 87% (Churn: 13%)
Expected EC without NECs: 5,532k × 0.87 = 4,813k
Actual EC: 5,642k
NECs = 5,642k – 4,813k = 829k
NEC Growth:
2023 to 2024: From 48k to 189k, a 294% increase.
2022 to 2023: From -48k (effectively 0k) to 48k, a significant jump but starting from a low base.
NECs were high in 2020 (829k) and 2021 (628k), reflecting strong conversion during the COVID-19 period, but dropped sharply in 2022.
Conversion Rates:
2023 Pool to 2024 NECs: 2023 new + reactivated = 1,965k + 1,902k = 3,867k. NECs in 2024 = 189k.
Conversion rate = 189k / 3,867k = 4.9%.
2022 Pool to 2023 NECs: 2022 new + reactivated = 1,982k + 1,945k = 3,927k. NECs in 2023 = 48k. Conversion rate = 48k / 3,927k = 1.2%.
2021 Pool to 2022 NECs: 2021 new + reactivated = 2,568k + 2,246k = 4,814k. NECs in 2022 = 0 (negative). Conversion rate = 0%.
something I find difficult for this investment is finding apples to apples comparison to get a rough industry value we should expect on this investment. what in your opinion should we use to help us: p/fcf of online retail companies? I think that would be a good start.
In the past, management has liked to use levered FCF yield and compare that to other companies in the industry. They do this in the 2019 investor presentation, for example. Malone has always been a levered FCF guy, and Maffei is basically his protégé and thinks the same way. But in general, I don't really think about industry value vs my investments.
To give an extreme example why I don't, the AI industry may be selling at a 50x multiple, and I found an investment in that industry selling at a 25x multiple. Should I be licking my chops? What if the industry multiple is overstated, and my company's multiple is correct?
Now let's take the flipside of this with a little thought experiment. What if an industry is selling at a 1x multiple and you found a company in that industry selling at a 2x multiple, and they are taking all of their earnings and doing dividends and share buybacks. So investors are getting a 50% yield. Do you really care that their multiple is double the industry? In a sense, this is what happened with banks in early 2023 (not as extreme as a 1x multiple though).
The key questions I ask, are "What is MY annual return on capital going to be? Is it attractive?" That return on capital doesn't contemplate stock-price appreciation but management rewarding shareholders. That way, I don't have rely on the market bailing me out. If the market was stupid enough to misprice this company, why should I be confident they will re-price it correctly?
On this basis, I evaluate each investment on its own merits, irrespective of industry multiples. I mean, let's be honest here: QVC is a unicorn. It's a media company that sells products instead of advertising. Name another company like that?
Now, to the extent that I want to point out how stupid the market is being, I may use multiple comparisons as an argument, but it's not something I think about when evaluating whether to buy or sell.
7.5% drop in existing customers. 12% is from churn. They acquired the rest from their new/re-activated pool. That's still a negative customer count. With increased spend, YOY revenue is 6%. That's all there is too it. As NEC grows, revenue declines less and then turns positive.
Hi TJ, a few thoughts following a more careful review of your analysis. I agree with your conclusion that New Existing Customers (NECs) are trending upward, with a significant 294% increase from 48k in 2023 to 189k in 2024. The conversion rate of new and reactivated customers into existing customers has also improved, rising from 0% in 2022 to 1.2% in 2023, and reaching 4.9% in 2024 (189k NECs from a 2023 pool of 3,867k new + reactivated). This trend supports your prediction of near-flat existing customer counts by the end of 2025, as the YOY decline in existing customers has slowed from -12.0% in 2023 Q4 to -7.5% in 2024 Q4.
I also share your concern that the current NEC growth and conversion rates are not yet sufficient to fully offset the ongoing decline in existing customers. From 2023 Q4 to 2024 Q4, existing customers dropped by 315k (4,197k to 3,882k), while NECs added only 189k, resulting in a net loss of 126k. For a true business turnaround, I believe we need to see not only higher conversion rates but also a substantial increase in the pool of new and reactivated customers to fuel NEC growth and stabilize the existing customer base.
Historical Trends in New and Reactivated Customers
The pool of new and reactivated customers has been declining:
2021 Q4: 4,814k (2,568k new + 2,246k reactivated).
2022 Q4: 3,927k (1,982k new + 1,945k reactivated), a -18.4% YOY decline.
2023 Q4: 3,867k (1,965k new + 1,902k reactivated), a -1.5% YOY decline.
2024 Q4: 3,727k (1,920k new + 1,807k reactivated), a -3.6% YOY decline.
This downward trend in the new/reactivated pool limits the potential for NEC growth, despite improving conversion rates. For example, the 2023 pool (3,867k) converted 189k into NECs (4.9%), but a smaller 2024 pool (3,727k) would need a higher conversion rate (e.g., 8% to yield ~300k NECs) to offset the expected churn of 467k (12% of 3,882k). Achieving a large increase in new and reactivated customers—say, back to 2021 levels of 4,814k—would provide a larger base for conversion, potentially adding 235k NECs at the current 4.9% rate, which would nearly offset churn and stabilize counts.
Role of Streaming and Social Media
If QVC leverages streaming and social platforms to increase impressions and views, this could boost new and reactivated customer acquisition. The 2020–2021 period, with NECs at 829k and 628k respectively, coincided with heightened digital engagement during COVID-19, suggesting that similar strategies could work again. However, we don’t have specific metrics on viewership on streaming/social impact and its impact on customer counts and conversation rathes, other than the presentation on investor day 2024 that didn’t delve into the details.
Broader Turnaround Indicators
While NEC growth is a positive sign, I think a business turnaround also requires broader evidence beyond customer counts. Existing customers are increasing their spend (from $1.5k in 2022 to $1.65k in 2024, Q4 2024), and their purchase frequency rose to 32 items annually (up from 29 in 2022). This suggests that even with a declining base, revenue per customer is growing, which could mitigate top-line pressure. However, total revenue in Q4 2024 was $2.9B, down 6% YOY, indicating that customer count declines are still impacting overall performance.
Turnaround
To confirm a business turnaround, I’d propose the following:
Increase in New and Reactivated Customers: A return to 2021 levels (e.g., 4,800k total) to provide a larger pool for NEC conversion.
Sustained or Improved Conversion Rates: Maintaining or increasing the 4.9% rate to generate enough NECs (e.g., 300k+) to offset churn.
Stabilization of Existing Customers: Achieving flat or positive YOY growth in existing counts, as you predict for 2025.
Revenue Growth: Positive YOY revenue growth, leveraging the higher spend per existing customer.
In summary, your analysis of NECs and conversion rates is spot-on, and the 2025 prediction of near-flat counts is plausible if trends continue. However, I’d prioritize a significant increase in new and reactivated customers as the key driver for NEC growth, supported by digital initiatives like streaming and social media.
DATA:
2024 (Q4 2023 to Q4 2024):
Beginning EC (2023 Q4): 4,197k
Ending EC (2024 Q4): 3,882k
Retention: 88% (Churn: 12%)
Expected EC without NECs: 4,197k × 0.88 = 3,693k
Actual EC: 3,882k
NECs = 3,882k – 3,693k = 189k
2023 (Q4 2022 to Q4 2023):
Beginning EC (2022 Q4): 4,769k
Ending EC (2023 Q4): 4,197k
Retention: 87% (Churn: 13%)
Expected EC without NECs: 4,769k × 0.87 = 4,149k
Actual EC: 4,197k
NECs = 4,197k – 4,149k = 48k
2022 (Q4 2021 to Q4 2022):
Beginning EC (2021 Q4): 5,537k
Ending EC (2022 Q4): 4,769k
Retention: Assume 87% (Churn: 13%)
Expected EC without NECs: 5,537k × 0.87 = 4,817k
Actual EC: 4,769k
NECs = 4,769k – 4,817k = -48k
2021 (Q4 2020 to Q4 2021):
Beginning EC (2020 Q4): 5,642k
Ending EC (2021 Q4): 5,537k
Retention: Assume 87% (Churn: 13%)
Expected EC without NECs: 5,642k × 0.87 = 4,909k
Actual EC: 5,537k
NECs = 5,537k – 4,909k = 628k
2020 (Q4 2019 to Q4 2020):
Beginning EC (2019 Q4): 5,532k
Ending EC (2020 Q4): 5,642k
Retention: Assume 87% (Churn: 13%)
Expected EC without NECs: 5,532k × 0.87 = 4,813k
Actual EC: 5,642k
NECs = 5,642k – 4,813k = 829k
NEC Growth:
2023 to 2024: From 48k to 189k, a 294% increase.
2022 to 2023: From -48k (effectively 0k) to 48k, a significant jump but starting from a low base.
NECs were high in 2020 (829k) and 2021 (628k), reflecting strong conversion during the COVID-19 period, but dropped sharply in 2022.
Conversion Rates:
2023 Pool to 2024 NECs: 2023 new + reactivated = 1,965k + 1,902k = 3,867k. NECs in 2024 = 189k.
Conversion rate = 189k / 3,867k = 4.9%.
2022 Pool to 2023 NECs: 2022 new + reactivated = 1,982k + 1,945k = 3,927k. NECs in 2023 = 48k. Conversion rate = 48k / 3,927k = 1.2%.
2021 Pool to 2022 NECs: 2021 new + reactivated = 2,568k + 2,246k = 4,814k. NECs in 2022 = 0 (negative). Conversion rate = 0%.
something I find difficult for this investment is finding apples to apples comparison to get a rough industry value we should expect on this investment. what in your opinion should we use to help us: p/fcf of online retail companies? I think that would be a good start.
In the past, management has liked to use levered FCF yield and compare that to other companies in the industry. They do this in the 2019 investor presentation, for example. Malone has always been a levered FCF guy, and Maffei is basically his protégé and thinks the same way. But in general, I don't really think about industry value vs my investments.
To give an extreme example why I don't, the AI industry may be selling at a 50x multiple, and I found an investment in that industry selling at a 25x multiple. Should I be licking my chops? What if the industry multiple is overstated, and my company's multiple is correct?
Now let's take the flipside of this with a little thought experiment. What if an industry is selling at a 1x multiple and you found a company in that industry selling at a 2x multiple, and they are taking all of their earnings and doing dividends and share buybacks. So investors are getting a 50% yield. Do you really care that their multiple is double the industry? In a sense, this is what happened with banks in early 2023 (not as extreme as a 1x multiple though).
The key questions I ask, are "What is MY annual return on capital going to be? Is it attractive?" That return on capital doesn't contemplate stock-price appreciation but management rewarding shareholders. That way, I don't have rely on the market bailing me out. If the market was stupid enough to misprice this company, why should I be confident they will re-price it correctly?
On this basis, I evaluate each investment on its own merits, irrespective of industry multiples. I mean, let's be honest here: QVC is a unicorn. It's a media company that sells products instead of advertising. Name another company like that?
Now, to the extent that I want to point out how stupid the market is being, I may use multiple comparisons as an argument, but it's not something I think about when evaluating whether to buy or sell.
I couldn't agree more.
I totally understand this... but explain a continue decline in revenue..
7.5% drop in existing customers. 12% is from churn. They acquired the rest from their new/re-activated pool. That's still a negative customer count. With increased spend, YOY revenue is 6%. That's all there is too it. As NEC grows, revenue declines less and then turns positive.
Now back to the Laker game.
Thanks for sharing your insight sir. Enjoy