STOCK WATCH: It’s Not You, It’s Me – Why Investors are Dumping E-Com

Looking at the ASX-Listed E-Com Index used to be a bit like watching a reality TV show play out. Survivor? The Bachelor? There were the underdogs, the heroes, the ones who could do no wrong, the villains that the audience loved to hate (you know who, admit it). There was even that character that appeared late in the series who had apparently been there the whole time but was completely forgettable up until that point. There were ups, there were downs, there were cliffhanger episodes that left us all on the edge of our seats. But at the end of the day, there was a feeling that it was all kind of scripted and we knew how it would end. Successful business outcomes = share price growth. But at some point, the rules of the game seemed to change and the producers went off-script. (Like if a D-Grade Celebrity mastered the Tango on Dancing with the Stars only to be told that it was actually a Waltz and they were voted off the island or not given a rose…or whatever). Ok, it’s possible I’ve pushed this comparison too far. The point being, we’ve jumped the shark.

There’s been carnage on the ASX for a number of weeks. And given the landscape – inventory management issues, fulfilment delays, omicron, restrictions easing, travel resuming, it’s understandable that investors would be wary. But surely with reporting season in full swing and e-com companies at rock bottom, it makes sense that overall confidence in the sector would begin to rise. Adore Beauty, for example, has met its prospectus forecast for revenue, gross profits and EBITDA. Last week, it announced its H1FY 2022 results, reporting record half-year revenue and customer numbers announcing its half-year results with revenue 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 as well as EBITDA of $3.8 million with a margin of 3.3%. Adore also reported a cash balance of $25.1 million and no debt. While some suggested it was overvalued when it floated, its success in an otherwise challenging pandemic landscape revealed that it was able to acquire and retain customers, launch a private label, strengthen its brand and reach with low-cost marketing efforts like podcasting, and continue to cement its position as a market leader. Yet as at close of ASX on Tuesday, it is down 55.9% over 90 days.

Similarly, Kogan faced an extremely rocky period at the height of pandemic mania. It paid the price (literally and metaphorically) for its inventory management missteps, but has as yet failed to recover. In fact it has continued to spiral downwards. At $6 on open, it has shed 34.5% over 90 days. For a company that was comfortably above $10 not that long ago, that it hasn’t recovered is perhaps surprising.

Booktopia too has been actively focused on growth, acquiring companies (and customers) and focusing on retention and loyalty. Yet its share price has failed to reflect that. Unlike Adore, at listing it was conservatively valued, with speculation that it would outperform on the ASX. “Booktopia was in a position going into the IPO that the founders were the major shareholders. Our first capital raise occurred in the beginning of 2020 where we raised $8m for a minority share position. By the end of the year we listed on the ASX. These circumstances meant that we did not need to set a listing price at top dollar,” Tony Nash, CEO & Founder, told Power Retail last year.  “The IPO share price was set with some upside left in it based on supply and demand for the shares from the institutional and retail markets.” At $1.11 at close on Tuesday, the pureplay book retailer has now shed 49.8% over 90 days.

Source: Power Retail Australian Listed E-Comm Index, based on ASX reporting for the period

While MyDeal has not yet released its HY results, it has reported an 18.5 percent increase on PCP to $83.1 million and a strong start to the CY – a 44% increase in Gross Sales for January. At $0.55 at close on Tuesday, the company has shed 33.3% over 90 days. Similarly, Temple & Webster is down 31.9% for the same period (opening at $7.30). Redbubble is down 52.5% to $1.77. Though this is a slight lift in the last week (up 6% over 7 days) after its results announcement. “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 at the time.

Bike Exchange has dropped to $0.09 (which begs the question, how much further can it go?) but is not even the worst performer during this three month period, at -50%.

At $2.10, Cettire has shed 55.8% over 90 days, and is perhaps the only company on the index with a slightly different story to tell. After a massive nosedive mid-2021 when concerns were raised about its business model, it rebounded (and then some) and its share price sky-rocketed. Its performance now is perhaps a levelling out, unable to maintain its massive upwards trajectory.

In the last fortnight, the ASX-Listed E-Com Index is down 11.7%, underperforming compared to the ASX200 at -0.6%.

So why are e-com companies being dumped by investors? The tribe has spoken, as they say in Survivor…..and there are no roses being handed out at the Bachelor ceremony (it’s possible I overcommitted to the reality TV comparison, but I’m running with it.) The point being…it’s not purely down to performance.

“I think that investors are going through a very volatile period at the moment,” Ryan Gracie, CMO of MyDeal told Power Retail last week. “We look at inflation around the world; we look at the aggression that’s happening between Russia, Ukraine. This is all at a very high macro level, but you also look at results from Facebook and other tech giants that seem to be falling a little… and then the e-com sector, which is relatively small in comparison to all of those gets thrown into that basket where that volatility really hits home, because of the smaller market caps of the businesses in that Index. So it just feels like at the moment across the broader market, there is a great reset that is happening. And probably a reset that had to happen was that buoyancy and that tailwind of totally is certainly coming off.”

Will e-com recover? Certainly. But the goalposts have changed. A reporting season that defied expectations given the current challenging environment hasn’t been enough to boost the ASX-Listed E-Com Index. But online retailers will do what they’ve always done, which is adapt and grow.

Figures are current as at close of ASX on 22 February 2022. This is analysis only and not intended as investment advice.

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