Is "Themarket" a Giant and very expensive White Elephant ?
The Market launched 1/8/2019 and in its first year they sold $58.1m on the platform and lost $14.7m (Source 2020 annual report)
In its second year despite the massive rise in online spending readily observable by all other retailers reports and despite lengthy lockdowns, sales through that channel reduced 17% to just $48.2m and the loss increased to $20.7m. WOW !! (Source 2021 annual report).
Yesterday they signaled "Increased investment in the market and an increase in digital spend. Hmmm
Perhaps it s a little early to call it a white elephant but relative to the extraordinary online growth by all other retailers the significant reduction in turnover and increased loss is certainly cause for real concern because in a Covid environment that prevailed in FY21 and only for a modest part of FY20 when there's been an extraordinary jump in online shopping one could reasonably have expected the market would have gained significant traction from its existing customer base and attracted new customers, not lost significant momentum.
Its certainly off to an inauspicious start and the loss of momentum suggests early platform adopters were most unimpressed. Yesterday's announcement suggests they are doubling down on their "themarket" bet. One of the reasons I sold out in early October is I was concerned that the market is going backwards...that's deeply concerning to me in the prevailing circumstances.
But hey...lets keep throwing tens of millions of dollars at it, double down and boost our digital spend by tens of millions more...what could possibly go wrong... Hmmm
Winner is right to remind us that their cash position was clearly noted by the company last year as being materially compromised by the lockdown and the subsequent payment of a ~ $60m dividend in November when the current half earnings are well south of there, together with increased capex spend means the cash on hand at the half year point will be a very long way south of the $160m they held as at balance date.
Capex spend is an interesting subject of itself. $85m in FY21 but this from the 21 annual report caught my eye. Guidance of $115m - $135m for FY22 and at that level in future years.
All the low hanging fruit has been picked. My view on valuation remains as articulated yesterday. $3.20 is where I see fair value at this point.