Apologies for the brief write-up, the thesis revolves around an event that occurred yesterday and is
relatively self explanatory so we wanted to bring it to the community’s attention quickly.
Home24 is a pure-play online furniture retailer based in Germany with c. 80% of sales derived from
continental Europe and c. 20% of sales derived from Brazil. It is one of the top players in both markets
within this category. Approximately half of revenues are derived from private label products, driving
higher margins and product differentiation, whereas the other half of revenues are from third-party
products (mostly non-inventory and drop-shipped).
We believe the December 4th announcement (after the close) of a potential IPO of Home24’s Brazilian
business (Mobly) as early as February 2021 could lead to 55% to 100% upside to the share price as this
news is digested by investors. This is to say, we think Mobly’s valuation nearly covers the entire market
capitalization of Home24. The key insight that the market may be missing is that while Home24 is
trading at less than 1x revenues, Mobly, which contributes approximately 20% to consolidated sales,
should be worth 3.5x to 6x upon a successful listing. More precisely, valuing the European business
(approximately 80% of sales) at the current revenue multiple Home24 is trading on while valuing Mobly
on 3.5x 2020 sales yields 55% upside from the current share price while valuing Mobly on 6x 2020 sales
yields 100% upside from the current share price.
Our methodology for the valuation of Mobly is a combination of an analysis of publicly listed
comparable companies and our conclusion was supported by conversations with bankers involved in
Brazilian e-commerce IPOs today. The common methodology for valuing fast growing e-commerce
players is to compare enterprise value / revenue multiples versus anticipated growth. If we regress the
enterprise value / revenue multiple versus the expected forward two year compounded revenue growth
for “quality” home furnishing e-commerce assets (we identify BHG in Sweden, Wayfair in the U.S. and
Temple & Webster in Australia as the best comparables), the analysis suggests a business growing
revenue at 25% to 30% (Mobly’s pre-COVID 2016 to 2019 CAGR adjusted for anticipated devaluation)
should be valued at nearly 3.5x EV/Revenue. Meanwhile, taking the median enterprise value to revenue
to growth of Brazilian e-commerce and ominichannel companies suggests an enterprise value to
revenue multiple of 6x for Mobly. (Note there is strong reason to believe that future growth of Mobly
could accelerate relative to history as IPO proceeds will be reinvested to drive future growth, which
would mean even these multiples are too low for Mobly.) Importantly, our conclusion was supported by
bankers in Brazil who are thinking about this issue given the Brazilian technology and e-commerce IPO
market is currently very active.
On the Europe valuation, the current ~ 1x EV/sales multiple H24 is trading on which we apply to the
European revenue base is a meaningful discount to H24 Europe’s closest peer, Westwing. Furthermore,
e-commerce companies globally are generally not valued below 1x EV/sales unless there is something
structurally broken with the business. From discussions with competitors in the space, H24 Europe is not
the obvious winner in the German/continental European online home furniture market as there are a
number of other strong players including Wayfair. However, we consistently heard strong arguments for
H24 Europe having a differentiated value proposition (strong private label offering, strong brand, etc.)
and that H24 Europe was in no way a broken or marginal player and would have a real niche in the
market long-term. As such, we think 1x EV/sales for H24 Europe could prove conservative as this is more
a floor valuation in the space outside of problem assets.
