Pure play

Pure play refers to a company that focuses on a particular product or activity instead of various interests. Investing in a pure play can be considered as investing in a particular commodity or product of a company.^[1]

The term is ambiguous, but generally refers to firms that either specialize in a specific niche, or have little to no vertical integration. For example, a coffee shop may call itself a "pure play" restaurant, and a factory that only produces goods (not design or sell to consumers) may refer to itself as a pure play manufactory.

E-commerce companies are often referred to as pure play retailers, as they sell only through the Internet.

Pure play method

Pure play method is an approach to estimate the cost equity capital of private companies, which involves examining beta coefficient of other public and single focused companies.^[2]

Formula

The equity beta coefficient of a public company B is needed when estimating a private company A's equity beta coefficient. The equity beta coefficient of company B can be calculated by regressing return on its stock on the return on the relevant stock index. Then applying following calculation to get beta coefficient of company A.

Unlevered beta of B = (Equity) Beta Coefficient of B / (1 + DE_B × (1 − Tax Rate_B))

(Equity) Beta A = Unlevered Beta of B × (1 + DE_A × (1 − Tax Rate_A))

Where DE_A and DE_B are the debt to equity ratios of company A and B respectively.^[3]

Pure play foundries

Pure play foundries such as TSMC and GlobalFoundries are foundries who do not have any in-house design capabilities but only fabricate the Integrated Circuits (ICs) for fabless semiconductor companies such as Qualcomm, Broadcom, Xilinx, Nvidia and others.^[4] Integrate Device Manufacturer (IDM) foundries such as IBM, NEC, Texas Instruments and Samsung provides both foundry design services and ICs fabrication.^[5]

Pure play E-retailers

Advantages

Compared to traditional clicks-and-mortar, pure play e-retailers can serve a wider audiences without physical boundaries and distance. Besides, pure play e-retailers target at specific customer groups without high cost of obtaining information of these groups.^[6]

Disadvantages

Compared to clicks-and-bricks, pure online internet retails do not have brand recognition and reputation at the start-up stage so it lacks customer bases. In addition, pure plays' customers are unable to touch, examine and test real products before buying them. Furthermore, online shopping experience lacks human contact with consumers which is considered as an effective way to respond questions, provide professional advice and motivate purchases.^[6]

Pure play gets physical

Amazon.com customers in mainland UK with pickup code can get the order at collection lockers which are distributed in shopping centers and commercial blocks.^[7] Amazon has opened its first physical stores Purdue University campus in Indiana.^[8]

Simply Be has sixteen physical stores at present.^[9]

Net-a-porter has Launched a pop up window shop and apply image recognition technology to enable customers to find video content of the clothes and the online shop.^[10]

Kiddicare, a childcare brand, plans to open 12 stores in UK.^[10]

Ocado has launched virtual shopping wall at One New Change, Birmingham's Bullring shopping center and Bristol. Customers can shop by using Ocado's “on the go” app to scan product's barcode on the wall.^[11]

eBay opened an inspiration shop in New York in 2011.^[12]

See also

• Diversification (strategy)
• Bricks and clicks

Further reading

• Cleveland S. Patterson (1995). "Estimating for non-traded assets". The Cost of Capital: Theory and Estimation. Quorum/Greenwood. pp. 221–224. ISBN 0-89930-862-7. OCLC 31012404. 
• John Frederick Weston & Eugene F. Brigham (1974). "The Pure Play Method". Essentials of managerial finance. Dryden Press. pp. 623–624. ISBN 0-03-030733-3. 
• N.R. Parasuraman (November 2002). "Ascertaining the divisional Beta for project evaluation — the Pure Play Method — a discussion" (PDF). The Chartered Accountant. 31 (5): 546–549. 
• Collier, HW; Grai, T; Haslitt, S & McGowan, CB (October 2006). "Computing the divisional cost of capital using the pure play method" (PDF). Applied Financial Economics Journal. Taylor and Francis. 
• Larry A. Cox & Gary L. Griepentrog (September 1988). "The Pure-Play Cost of Equity for Insurance Divisions". The Journal of Risk and Insurance. 55 (3): 442–452. doi:10.2307/253253. JSTOR 253253. 

References

1. ↑ Law, Jonathan (2014). Dictionary of Finance and Banking. Oxford: Oxford University Press Print Publication. ISBN 9780199664931. 
2. ↑ Cox, Larry A.; Griepentrog, Gary L. (1988). "The Pure-Play Cost of Equity for Insurance Divisions". The Journal of Risk and Insurance. American Risk and Insurance Association. 55: 442. doi:10.2307/253253. JSTOR 253253. 
3. ↑ R, Fuller; H, Kerr (1981). "Estimating the Divisional Cost of Capital: An Analysis of the Pure-Play Technique". Journal of Finance: 997–1009. 
4. ↑ "What does pure-play or IDM mean with respect to semiconductor foundries classification? - Quora". www.quora.com. Retrieved 2015-11-01. 
5. ↑ Mutschler, Ann Steffora (2008). "Pure-play foundries comprise 84% of market, IC Insights says". Electronics News. Australia: Reed Business Information Pty Ltd, a division of Reed Elsevier Inc. 
6. 1 2 Kim, Eonsoo; Nam, Dae-il; Stimpert, J.L. (2004). "The Applicability of Porter's Generic Strategies in the Digital Age: Assumptions, Conjectures, and Suggestions". Journal of Management. 30: 580. 
7. ↑ "Amazon.co.uk Help: About Amazon Locker". www.amazon.co.uk. Retrieved 2015-11-01. 
8. ↑ Johnston, Chris (2015-02-03). "Amazon's first bricks-and-mortar store opens in Indiana". theGuardian. Retrieved 2015-10-25. 
9. ↑ "Simply Be Store Locator". www.simplybe.co.uk. Retrieved 2015-11-01. 
10. 1 2 "Do pure-play etailers need stores?". Retail Week. London: Emap Limited. 2011-11-04. ISSN 1360-8215. Retrieved 2015-10-24. 
11. ↑ "Window Shopping...". www.ocadogroup.com. Retrieved 2015-11-01. 
12. ↑ "eBay and Jonathan Adler Partner to Open "the eBay Inspiration Shop" – 24/7 Shoppable Storefront Powered Exclusively by eBay Mobile | Business Wire". www.businesswire.com. Retrieved 2015-11-04. 

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