Morningstar | Dynamic Yield Acquisition Offers Longer-Term Offensive and Defensive Benefits for McDonald's
McDonald's $300 million acquisition of personalization and decision logic technology company Dynamic Yield won't immediately affect our $195 fair value estimate, but we believe the deal is still noteworthy from a strategic standpoint. Most of the headlines about the transaction focus on the benefits to McDonald's drive-thrus, including menu suggestions based on daypart, weather, restaurant traffic, and purchase trends. With roughly 70% of U.S. sales coming from drive-thrus, Dynamic Yield's technology has clear average ticket implications, especially if it can deliver the 10%-15% lift in average revenue per customer that the company has cited in previous case studies.That said, we believe there may be more significant upside as this technology is integrated into McDonald's kiosks and mobile app. Here, we believe McDonald's can drive more consistent transactions from existing customers while potentially lowering the acquisition cost for new/lapsed customers (via Dynamic Yield's reported reach of 600 million unique monthly visitors), strengthening the brand intangible asset behind its wide moat. We'll maintain our five-year average annual global comp target of 3% until we have greater visibility regarding implementation plans. We see potentially 50-100 basis points of upside based on the positive average ticket and transaction frequency benefits.
We also see two other potential positives from this transaction. One, improved personalization/targeted marketing capabilities has been a recurring theme among other high-frequency restaurant chains in recent years, and this move can put McDonald's several steps ahead of the quick-service restaurants and specialty coffee chains as the industry continues to shift toward mobile order and delivery transactions. Two, Dynamic Yield has said that it works with more than 200 global brands, which could eventually unlock new cross-marketing or other partnerships.
McDonald's franchises and operates McDonald's restaurants. The company's menu includes hamburgers and cheeseburgers, Big Mac, Quarter Pounder with Cheese, Filet-O-Fish, several chicken sandwiches, Chicken McNuggets, wraps, fries, shakes, McFlurry desserts, sundaes, soft serve cones, pies, soft drinks, coffee, McCafe beverages and other beverages. The company's restaurants in the United States and various international markets provide a full or limited breakfast menu. Breakfast offerings may include Egg McMuffin, Sausage McMuffin with Egg, McGriddles, biscuit and bagel sandwiches and hotcakes. The restaurants also sells a variety of other products during limited-time promotions
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