Pure play#Pure play method
{{Short description|Type of company}}
A pure play company focuses solely on a particular product or activity. Investing in a pure play company can be considered as investing in a particular commodity or product of a company.{{Cite book|title = Dictionary of Finance and Banking|last = Law|first = Jonathan|publisher = Oxford University Press Print Publication|year = 2014|isbn = 9780199664931|location = Oxford}}
Pure play firms 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 designing or selling to consumers) may refer to itself as a pure play manufactory.
Companies that transact exclusively via e-commerce and have no brick and mortar retail spaces may be referred to as pure play online retailers.{{cn|date=July 2021}}
Pure play method
In finance, the "pure play method" is an approach used to estimate the cost of equity capital of private companies, which involves examining the beta coefficient of other public and single focused companies.{{Cite journal|jstor = 253253|title = The Pure-Play Cost of Equity for Insurance Divisions|last1 = Cox|first1 = Larry A.|date = 1988|journal = The Journal of Risk and Insurance|doi = 10.2307/253253|last2 = Griepentrog|first2 = Gary L.|issue = 3|pages = 442–452|volume = 55}} See also Hamada's equation.
Here, when estimating a private company A's equity beta coefficient, the equity beta coefficient of a public company B is needed; the latter can be calculated by regressing the return on B's stock on the return on the relevant stock index. The following calculation is then applied to return the beta coefficient of company A.
:Unlevered Beta of B = Equity Beta of B / (1 + DEB × (1 − Tax RateB))
:Equity Beta A = Unlevered Beta of B × (1 + DEA × (1 − Tax RateA))
::where DEA and DEB are the debt to equity ratios of company A and B respectively.{{Cite journal|title = Estimating the Divisional Cost of Capital: An Analysis of the Pure-Play Technique|last1 = R|first1 = Fuller|date = 1981|journal = Journal of Finance|volume = 36|issue = 5|doi = 10.1111/j.1540-6261.1981.tb01071.x |last2 = H|first2 = Kerr|pages = 997–1009}}
Pure play foundries
Pure play foundries, such as TSMC and GlobalFoundries, have no in-house design capabilities, and fabricate integrated circuits (ICs) for fabless semiconductor companies,{{cite book|last1=Brown|first1=Clair|last2=Linden|first2=Greg|title=Chips and change : how crisis reshapes the semiconductor industry|date=2011|publisher=MIT Press|location=Cambridge, Mass.|isbn=9780262516822|edition=1st|url=https://books.google.com/books?id=9RnxtWd3ZEkC&pg=PA47}} such as Qualcomm, Broadcom, Xilinx, Nvidia, among others. Integrated device manufacturer (IDM) foundries, such as Intel, IBM, NEC, Texas Instruments and Samsung, provide both foundry design services and IC fabrication.{{Cite journal|title = Pure-play foundries comprise 84% of market, IC Insights says|last = Mutschler|first = Ann Steffora|journal = Electronics News|publisher = Reed Business Information Pty Ltd, a division of Reed Elsevier Inc.|year = 2008|location = Australia}}
Pure play e-retailers
Compared to traditional retail stores, pure play e-retailers can serve a wider audience without physical boundaries and distance, and may target specific customer groups without the high cost of maintaining physical stores.
Compared to companies that integrate both offline and online, pure online internet retails do not have company brand recognition and reputation at the start-up stage, and customers are unable to touch, examine and test real products before buying them. The online shopping experience foregoes human contact with consumers.{{Cite journal|title = The Applicability of Porter's Generic Strategies in the Digital Age: Assumptions, Conjectures, and Suggestions|last1 = Kim|first1 = Eonsoo|date = 2004|journal = Journal of Management|doi = 10.1016/j.jm.2003.12.001 |last2 = Nam|first2 = Dae-il|first3 = J.L.|last3 = Stimpert|volume = 30|issue = 5|page = 580| s2cid=2925596 }}
See also
Further reading
- {{cite book | title=The Cost of Capital: Theory and Estimation | pages=221–224 | chapter=Estimating for non-traded assets | publisher=Quorum/Greenwood | author=Cleveland S. Patterson | isbn=978-0-89930-862-3 | year=1995 | oclc=31012404}}
- {{cite book | chapter=The Pure Play Method | title=Essentials of managerial finance | author1=John Frederick Weston | author2=Eugene F. Brigham | name-list-style=amp | year=1974 | publisher=Dryden Press | isbn=978-0-03-030733-1 | pages=[https://archive.org/details/essentialsofmana00west/page/623 623–624] | chapter-url-access=registration | chapter-url=https://archive.org/details/essentialsofmana00west | url=https://archive.org/details/essentialsofmana00west/page/623 }}
- {{cite journal | title=Ascertaining the divisional Beta for project evaluation — the Pure Play Method — a discussion|journal=The Chartered Accountant|volume=31|issue=5|date=November 2002|url=http://icai.org/icairoot/publications/complimentary/cajournal_nov02/p546-549.pdf|author=N.R. Parasuraman|pages=546–549}}
- {{cite journal|author1=Collier, HW |author2=Grai, T |author3=Haslitt, S |author4=McGowan, CB |name-list-style=amp |title=Computing the divisional cost of capital using the pure play method|journal=Applied Financial Economics Journal|date=October 2006|publisher=Taylor and Francis|url=http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1172&context=commpapers|format=PDF}}
- {{cite journal|title=The Pure-Play Cost of Equity for Insurance Divisions|author1=Larry A. Cox |author2=Gary L. Griepentrog |name-list-style=amp |journal=The Journal of Risk and Insurance|volume=55|issue=3|date=September 1988|pages=442–452|doi=10.2307/253253|jstor=253253}}