ADMP Investment Proposal (Optoro)

TO: Clark Hansen, CEO

FROM: Jennifer Lau, Research and Development 

DATE: October 20, 2023

SUBJECT: Optoro Investment Proposal

---

Based on my research and analysis, I recommend that AMDP investigate further before investing in Optoro, Inc. This reverse logistics company has created software to help retailers sell returned goods and excess inventory. The company claims to prevent millions of dollars of landfill waste and donate millions of pounds of goods to charity. However, AMDP needs more information to verify Optoro’s sustainability claims and financial health before considering investment. 

This memo contains:

·       Summary of AMDP’s sustainability and ethics standards

·       Overview of Optoro’s background, financial data, and claims

·       Two expert opinions on Optoro’s environmental impact

·       Final recommendation

AMDP Standards

AMDP’s mission centers on sustainable, ethical operations and impact. We emphasize these four mission values:

Triple Bottom Line (3BL): consists of “Three P’s”: people (impact on communities), planet (environmental effects), and profit (financial performance for shareholders). The triple bottom line tracks the social, economic, and environmental value or cost of a company (Kraaijenbrink, 2020).

Corporate Social Responsibility (CSR): a company’s accountability to shareholders and the public. CSR measures positive societal impact in four areas: environment, ethics, philanthropy, and financial responsibility (Fernando, 2023).

Social Enterprise: a business with positive social impact as its goal. Social enterprises use profits from selling goods or services to support communities, nonprofits, and charities (CFI Team, n.d.).

Carbon Footprint: the sum of a company’s emissions of all greenhouse gases, such as methane and carbon dioxide (University of Michigan, 2023). The calculation includes direct emissions from company operations and indirect emissions like electricity in company buildings (Badamasi, 2023). By measuring and reducing its carbon footprint, a company can reduce climate change, maintain stakeholders’ trust, and meet government compliance standards (Badamasi, 2023). 

Company Background

Tobin Moore began the business in 2004 as eSpot, listing sellers’ used goods on eBay in exchange for a percentage of the sales. The company grew by helping local retailers sell excess merchandise. In 2010, eSpot rebranded as Optoro and released a software system. This software tracks returned goods and excess inventory to prevent retailers from throwing away unsold items. Optoro has earned a positive reputation among venture capitalists, who respect the company’s mission and growth opportunities and have invested over $129 million. With this financial backing, Optoro has helped major retailers like Home Depot and Target to reduce landfill waste (Adams, 2017). 

Financial Data

According to Mergent, Optoro’s financial metrics indicate mixed performance: 

1.     Return on sales (ROS) = -12.1. ROS measures operating profit per dollar of sales (Hayes, 2022). Negative ROS means Optoro’s operating expenses exceed sales revenue, so the company is losing money from its operations. 

2.     Return on net worth (RoNW) = -6.6. RoNW is a ratio of annual net income (revenue minus expenses) to shareholder equity (Borad, 2022). It measures how much net income a shareholder would receive. A negative RoNW indicates Optoro’s operations yield negative returns, but since Optoro is a private company, its owners can temporarily absorb these losses.

3.     Quick ratio = 1.2. The quick ratio measures how well a company can pay off current liabilities using its liquid assets (Kibet, 2022). It divides quick assets (assets convertible to cash in 90 days or less) by current liabilities (financial obligations, like debt, that must be paid within a year). Since Optoro’s quick ratio is over 1, the company has enough liquid assets to pay off all current liabilities if necessary. However, Optoro could increase its liquid assets for an even greater cushion. 

Company Values & Claims

Optoro’s 2020 Code of Conduct says it has a responsibility to be “a Good Steward to the Planet.” The company commits to removing “all waste from retail returns…[to] make positive change to the use of our planet’s resources.” In its recent Impact Report, Optoro claims to have diverted 4.6 million pounds of waste from landfills, and prevented 17.7 million pounds of carbon emissions. This follows AMDP standards for reducing carbon footprint. The company also highlights its clients’ donations of $11.9 million of goods, thanks to Optoro’s technology. Optoro also claims to have donated more than 15,000 items to Harvest Time International, a nonprofit, for Florida hurricane relief (2022 Impact Report, 2023). These actions align with AMDP’s social enterprise standards but would be more convincing if a third party verified Optoro’s claims.

Expert Opinions

Optoro is a privately owned company of about 200 employees. It was challenging to find outside sources to support Optoro’s claims about sustainability and social initiatives. Sources spoke positively of Optoro’s business model and goals, but they did not address Optoro’s specific claims and numbers from the Impact Report. 

Opinion 1

Sarah Needham of the Centre for Sustainable Fashion at University of the Arts London praises Optoro for preventing unwanted goods from reaching the landfill. Reselling these items prevents clothing and shoe waste. When companies resell the returned goods instead of making them again, they save energy and scarce resources (Constable, 2020). Experts like Needham support Optoro’s solutions, a positive sign of its viability.

Opinion 2

CBS News says Optoro’s operations are “making the business of returning products more sustainable.” Describing the business model, the article highlights Optoro as a key player in the initiative to reduce the 6 billion tons of return inventory in landfills (CBS News, 2021). CBS sent news correspondent Janet Shamlian to interview Tobin Moore and observe how Optoro uses software to process goods in its warehouse. Shamlian’s nationally televised visit supports Optoro’s claims, and correspondent Jamie Yuccas calls Optoro’s business model a “win-win-win.” CBS’s credibility as a national news company suggests Optoro’s sustainability initiatives are reputable. 

Final Recommendation

Optoro claims to support the triple bottom line by reducing greenhouse gas emissions and landfill waste. Outside sources speak positively about the company. However, coverage is limited, so AMDP does not have enough information to decide about investing in Optoro. AMDP should also seek more financial data to forecast when Optoro will earn a profit. I recommend meeting with Optoro’s executives to learn more about its operations, sustainability, and social impact. I also recommend hiring an audit firm, such as Ernst & Young, with CSR experience to verify Optoro’s claims and financial strength.

Thank you,

Jennifer Lau

Works Cited

Adams, S. (2017, September 28). Optoro is building a billion-dollar business helping companies cope with a glut of rejected stuff. Forbes. https://www.forbes.com/sites/susanadams/2017/09/26/optoro-is-building-a-billion-dollar-business-helping-companies-cope-with-a-glut-of-rejected-stuff/?sh=3fc06a5f1a8c 

Badamasi, H. (2023, September 26). Explainer: What is carbon footprint and why does it matter in fighting climate change?. Earth.Org. https://earth.org/what-does-carbon-footprint-mean/ 

Borad, S. B. (2022, June 20). Return on net worth. eFinanceManagement. https://efinancemanagement.com/financial-analysis/return-on-net-worth 

CBS News. (2021, December 27). As retailers struggle to handle holiday gift returns, some turn to tech for faster and more sustainable options. https://www.cbsnews.com/news/holiday-gift-returns-online-shopping-optoro-retailers/ 

CFI Team. (2023, October 7). Social enterprise. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/esg/social-enterprise/ 

Constable, H. (2020, December 2). Your brand new returns end up in landfill. BBC Earth. https://www.bbcearth.com/news/your-brand-new-returns-end-up-in-landfill 

Fernando, J. (2023, July 18). Corporate Social Responsibility (CSR) explained with examples. Investopedia. https://www.investopedia.com/terms/c/corp-social-responsibility.asp 

Hayes, A. (2022, March 18). Return on sales: What ROS is and the formula to calculate it. Investopedia. https://www.investopedia.com/terms/r/ros.asp 

Kibet, L. (2022, July 8). Quick Ratio: Definition, Equation, Examples. Business Insider. https://www.businessinsider.com/personal-finance/quick-ratio 

Kraaijenbrink, J. (2023, September 12). What the 3PS of the triple bottom line really mean. Forbes. https://www.forbes.com/sites/jeroenkraaijenbrink/2019/12/10/what-the-3ps-of-the-triple-bottom-line-really-mean/?sh=3a7896335143 

Mergent. (2023, October 4). Ratios : OPTORO, INC. Los Angeles.

Optoro. (2020). Code of Conduct. https://info.optoro.com/hubfs/The%20Optoro%202020%20Impact%20Report.pdf 

Optoro. (2023). 2022 Impact Report. https://info.optoro.com/hubfs/2022%20Impact%20Report/Optoro_2022%20Impact%20Report.pdf 

University of Michigan. (2023). Carbon Footprint Factsheet. Center for Sustainable Systems. https://css.umich.edu/publications/factsheets/sustainability-indicators/carbon-footprint-factsheet