Otis Worldwide Corporation is one of those weird companies you might not know about. However, there’s a good chance you use their products daily.
For the unfamiliar, Otis builds and maintains elevators.
If you’ve used an elevator or escalator in the United States, there’s a good chance it was made by Otis. This is very much a weird, niche business. And one that 99.9% of investors overlook.
Otis is so obscure, in fact, that it recently reported fantastic news — and nobody paid attention.
What was the announcement?
Not only have Otis shareholders beaten the current 8.5% inflation rate, but they’ve actually grown their wealth too.
How Does Otis Worldwide Make Money?
In terms of business models, repeat customers are essential. And on the surface, it seems like Otis is a one-and-done company. They install an elevator or escalator, and that’s it.
Obviously, a business like this would go bankrupt fast. Since there aren’t enough new buildings going up to maintain a steady sales flow.
That’s where maintenance comes in.
Otis Worldwide makes about 45% of their sales through the “New Equipment” department. That’s installing new elevators, escalators, or those people moving conveyor belts you sometimes see at airports.
55% of sales come from the “Service” department. This is stuff like maintenance, repairs, and upgrades to existing elevators or equipment.
Now, here’s where things get interesting.
The “Service” sector equates for 79% of all operating profit.
This is a sticky business with recurring revenue. Once a high-rise or airport buys Otis equipment, they need to continuously pay for routine maintenance. These service contracts provide predictable income streams, and keep Otis from being a one-and-done company.