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.