Reporting season is in full swing, but strong results are not necessarily leading to gains. What's spooking investors?
It’s reporting season which means companies with strong results will see a jump in share price. Or will they? Investors seem unconvinced, with volatility on the ASX.
Yesterday, Adore Beauty release its half-year results, with shares up in morning trade. By close of ASX however, sentiment had shifted and Adore closed at $2.48, down from $2.70 the day before. This marks a 14.5% drop over 7 days. So what happened? Looking at its results, Adore Beauty started FY 2022 strong, reporting record half-year revenue and customer numbers. Revenue is up 18% on the prior corresponding period to $113.1 million. Active customers increased 13% on PCP to 876,000.
There was a strong focus on retention, with returning customer growth of 56% on the prior corresponding period and a 5% increase in annual revenue per active customer to $224. EBITDA, which is arguably where investors should be looking, is $3.8 million and a margin of 3.3%. Adore also reported a cash balance of $25.1 million and no debt, and based on the massive investment in marketing and loyalty programs over the last quarter, this is impressive, especially given its position compared to other big players in e-com. With growth in active and returning customers as well as an increase in AOV and frequency, performance is strong and the company is well placed heading into 2022.
Adore Beauty’s CEO, Tennealle O’Shannessy, said of the results: “Adore Beauty has delivered another strong financial result with record revenue, active customers and multiple record trading days, one of which was achieved post lockdown. Valuable returning customers were the key growth driver in H1 FY22, growing 56% on the prior period and delivering 71% of revenue. These loyal returning customers become more valuable the longer they are with us, increasing their basket size and order frequency every year they spend on our platform.”
Though the company noted the “ongoing uncertainty” given the current COVID situation, it is executing a “clear and robust growth strategy” to cement its online market leadership position and is well-positioned to capture market share in a large and growing market “benefitting from structural tailwinds”. It has now shed 48.8% over 90 days.
Similarly, Booktopia, with its strong focus on growth and retention, has dipped 46.8% over a three month period, now at $1.15. Redbubble is the worst performer over this period, shedding 55.8% in this same time frame, closing at $1.67 on Tuesday. This morning it released its half-year results, its EBITDA down 84% to $8 million. The on-demand marketplace for independent artists has 8.1 million active members, down 12% year-on-year.
“We have multiple growth levers and through our process of targeted experimentation and disciplined investment, we believe we can deliver sustainable above-systems growth. Our strong cash balance allows us to continue investing in order to realise the potential upside that can be unlocked by aggressively pursuing this opportunity,” said Redbubble Group CEO Michael Ilczynski. As at the time of writing, its share price has risen slightly from $1.67 at open to $1.75 following its presentation.
Temple & Webster’s share price dropped to $7.75 at close of ASX yesterday, almost matching its 52-week low of $7.72 (which occurred at the end of last month). It has bounced back this morning, already at $8.31 at the time of writing. The company released its half-year results last week, comfortably meeting (if not exceeding) market expectations. CEO Mark Coulter flagged that the online homewares and furniture retailer is accelerating its growth plans, investing heavily in marketing, enhanced buying teams, and digital elements.
The company experienced a sales boost in January as omicron kept people away from in-store shopping. The shift in behaviour has meant that consumers are far more comfortable buying large scale items like furniture online. However, elevated shipping costs and supply chain disruptions impacted net profit after tax, down by 40% to $7.3 million in the six months ended December 31. Sales revenue was up by 46% to $235 million compared to the prior corresponding period. Active customers rose by 34% to 906,000 in the December half. And yet? The initial response was lukewarm (if not icy cold), mirroring what we’re now seeing with Adore (and what we expect to continue as companies on the index continue to release their reports). Its strong lift this morning however means that investors may be slowly coming around.
BikeExchange has held at $0.1o for the last few days, down 4.8% over the last week. Kogan seems somewhat steady, opening at $6.17 today and shedding 1.3% over seven days, though we expect movement in line with other e-com companies once half-year results are announced. Cettire is down 11% to $2.50, after some post-reporting swing downwards. Two weeks ago it delivered its H1 FY22 results presentation, reporting a 192% increase in gross revenue to $154.1 million (more revenue than what was generated in the entirety of FY21). It also reported a sales revenue increase of 181% to $113.7 million, and its active customer base grew 208% to 209,000. Cettire’s share price fell dramatically, from $3.02 down to $2.34 following the announcement, and seems to have somewhat recovered, though is has not yet returned to the $3+ we were seeing in January.
Source: ASX-Listed E-Com Index performance based on ASX reporting for the period
The ASX200 is up 2.9% over 14 days, a stronger performer than the ASX-Listed E-Com Index which has shed 11.7% over the same time period. Adore is the weakest performer over the last fortnight (down 23.7%) with MyDeal the strongest performer, up 0.8% in the last 14 days.
Essentially, it seems to be a short-term reaction to the current landscape, which is overlooking the massive growth of the last few years and is failing to take into account the massive levels of retention and potential for future growth. The issues with supply chain and logistics have no doubt impacted e-com companies across the board and clipped what could have been a more impressive earnings streak. The underlying uncertainty and questions around future growth potential is leading to a wait and see approach from investors. So while we expect to see more volatility in the market as more results are announced (even with strong performance), it’s unlikely the next few weeks will be reflective of the rest of the year.
Figures are current as at close of ASX on 15 February 2022. This is analysis only and not intended as investment advice.
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