Made.com’s [MADE.L] share price looked like it was going to have an inauspicious start on the FTSE 100. Having started at 193p on 16 June, the stock dropped in the morning session to trade at around 182p, before closing its first day of trading at 197p.
At that point, traders could have been forgiven for thinking that London’s leading indeed had another Delveroo on their hands - a much-hyped debut that failed to deliver.
Made.com had set its initial offer price at 200p, giving the furniture seller a market cap of roughly $775m - some way below the $1bn it had reportedly been looking for.
Yet, Made.com’s share price seems to have overcome its opening week jitters, and is now up 5.9% since listing, to trading at 208.6p at Tuesday’s close. While that is still towards the bottom range of what was initially hoped, it looks like the first flurry of negativity around the stock might be unjustified. For comparison, Deliveroo’s share price [ROO.L] is off around 10% since listing and has never traded north of its opening day price.
“As the dust settles, this volatile start may smooth out over the weeks to come” - Susannah Streeter
In the IPO, Made.com sold 5m shares to raise £100m in fresh capital. That money has been earmarked to improve its supply chain, shortening the length of time from when a customer orders online until they receive the goods
“As the dust settles, this volatile start may smooth out over the weeks to come,” said Susannah Streeter, an analyst at Hargreaves Lansdown (Via Sarecast), following the IPO.
Fundamentals behind Made’s share price
The pandemic has accelerated Made.com’s business model, with more customers making larger orders. Chief executive Philippe Chainieux has said that the company is now profitable before deducting amortisation and depreciation charges, with the UK being profitable for ‘some time’.
In 2020, Made.com reported £247.3m in sales, up from £211.8m in 2019. Gross profit for 2020 was £131.6m, up from £115.2m. Promisingly operating losses narrowed to £12.8m, down from 2019’s £18.9m loss.
Valuation of Made.com's sales in 2020
As a newly minted public company, investors will be able to see how profitable Made.com really is when it releases its first set of earnings results. Proof that it is indeed narrowing losses could help Made.com’s share price get back to levels first hoped for.
Growth drivers for Made’s share price
Made.com could be looking at a growing market, if its investment prospectus accompanying the IPO is anything to go by. According to the Euromonitor data cited in the prospectus, the markets Made.com operated in were worth a total of £94bn in 2020. Making up these markets are the United Kingdom, France, Germany, Austria, Belgium, Spain, the Netherlands and Switzerland.
Between 2020 and 2025, Made.com’s current market is expected to grow at a 5% CAGR to be worth £118bn in 2025. In the same time period, the total European market is expected to grow at a 5% CAGR to reach £194 billion by 2025.
Expected valuation of Made.com’s market by 2025
“[Made.com’s] got a large addressable market and a lot of share to go for, but historically it has wrestled with achieving profitability and scale in the UK market and it has gone ahead and pushed into international markets despite that,” an unnamed banker told the Financial Times.
Made.com identifies the shift to online channels as a key growth driver. In 2019, it represented 12% of the online homeware and furnishing sector, a share worth around £12bn. By 2025, the company expects its penetration in the sector to grow to 19%, or £23bn, according to the prospectus. Driving this growth has been the COVID-19 pandemic and increased e-commerce functionality on the sites that it operates.
“The introduction of direct platform purchases and one-click checkout options on social media sites where Made has a strong presence is further shifting consumer shopping habits and driving mobile e-commerce growth,” the company noted in the investment prospectus.
“The introduction of direct platform purchases and one-click checkout options on social media sites where Made has a strong presence is further shifting consumer shopping habits and driving mobile e-commerce growth” - statement from Made.com
Other growth drivers include Made.com’s commitment to sustainability and the shift to working from home, which has led to workers improving their home office spaces.
While this could be expected to change as the economy comes out of the pandemic, Made.com points to Euromonitor data saying ‘68% of global professionals expect a permanent shift towards working from home’. The company also suggests that this shift will lead to ‘drive more frequent purchases of both large furniture items such as sofas, as well as homeware accessories to match and style.’
If demand continues - and indeed grows - Made.com’s share price could continue to benefit. As it stands the comparisons with Deliveroo’s rocky IPO appear unjustified.