The online retailer surprised the market with a COVID update yesterday – the stock swung around in a ~10% range through the day on the news, settling 1.49% better at the close. We hold TPW in the Emerging Companies Portfolio and found their update useful in terms of TPW themselves, but also their views around the evolution of online shopping more broadly.
In terms of TPW, 3Q21 saw revenue up 112% on 3Q20 – while impressive, it becomes hard to compare the periods properly given March 20 was heavily impacted by COVID without the massive stimulus that proved a strong tailwind for retailers. April though becomes a better judge with the company saying revenue was tracking at pace 20% better than April last year.
More interesting is what the company is seeing in terms of the retail landscape. Obviously, they are bullish online retail with their assessment that COVID has permanently accelerated online purchasing (we agree with this view) – I know I’ve bought more online since COVID and I’ll continue to do so. In terms of homewares and furniture, 20% of sales in the US in this category are online. In Australia, only 5% was purchased online in 2019 and TPW estimates that number is was ~9% in 2020.
The below chart was included in yesterday’s announcement, which shows Australia’s online adoption in the furniture and homewares market significantly lags that of the US, plus it stylises a hypothetical roadmap which is useful in how we should be thinking about companies in the space. Essentially, businesses start-up, they then scale to expand their market share, and that obviously equates to strong revenue / sales growth but not profit growth (given reinvestment), before they mature and start banking the benefits of market share and scale. I bet Apple would show you a very similar ‘stylised’ view of how they thoughts about their business, having gone from losing money to producing $64b in profit last year and now holding $195b in cash!
The key takeaway for MM is that the online swing has only just begun, particularly in Australia. This has implications for other online retailers (+), but also payments (+), logistics (+), property (mixed), retail landlords (-ve), Online advertising (+) to name a few.
