Description

Background: 

Moonpig is a UK-based e-commerce retailer of customizable online greeting cards and other gifts. Moonpig was launched in the Dot-com bubble in 1999 but managed to survive and gain scale over time. It was acquired by personalized photo/gift platform Photobox for GBP 120mn in 2011, itself backed by various PE/VC funds. In 2015, Photobox was acquired by PE firms Exponent and Electra for GBP 400mn. In 2018, Moonpig/Photobox acquired Dutch rival Greetz.  In 2019, Moonpig was again separated from the larger Photobox, which was still lossmaking. 

The pandemic was a huge tailwind for Moonpig’s digital business. Revenue surged over 100% to 368mn in FY 04/21. The owners seized this opportunity to seek liquidity. MOON completed an opportunistic IPO in February 2021 at GBp 350, with secondary shares accounting for 96% of the upsized offering. 

While the stock is down over 50% since, there may still be significant downside opportunity. 

Covid Beneficiary 

Moonpig’s revenue was supercharged by the pandemic and lockdowns, with revenue and Adj. EBITDA more than doubling.

Revenue subsequently declined 17% in FY22 (April) and margins contracted, albeit slightly. However, results may still have a ways to go to fully normalize; revenue was still +75% on a 2Y basis.  

Pandemic-era customers acquired are likely to prove low-value, and approximately 60% of Moonpig’s website traffic comes from search (paid + organic). The top referral sites are coupon/voucher sites; discounting is rife, and there is no moat from competition.

M&A: Buying Revenue?

In July 2022, MOON completed the GBP 124mn acquisition of experience gifting platform Buyagift. Buyagift was expected to bring a PF FY22 revenue base of GBP 44mn and Adj. EBITDA of GBP 14mn in FY22. The acquisition looks suspiciously like buying revenue near a market peak, or at least strategy drift. Whereas MOON historically talked up the synergies of cross-selling physical gifts to card purchasers, the Buyagift acquisition was “step-change” into a GBP 6B UK standalone experience gifting market. MOON cites Buyagift’s historical 10-year revenue CAGR at 10%, which for a business of its size does not appear especially noteworthy and is below the company's medium-term target despite the far lower base. 

In reality it’s difficult to see the business appeal of Buyagift and sister brand Red Letter Days, which look a lot like high-end Groupon sites but with more limited use cases. Search drives almost 60% of traffic including 26% from paid search. MOON touts ”unrivaled sourcing” but 34% of the product is hotel-related and little to none looks particularly proprietary. 

The acquisition also significantly increases MOON’s leverage. The company estimated PF leverage would be 2.3x at the close of FY22 (April 30) and jumping another half turn at 1H23 due to seasonal working capital build. 

Web Traffic Trends and Macro Headwinds:

Moonpig web traffic is running down by ~(15%) Y/Y since mid-year. 

Buyagift.co.uk website traffic turned flat/negative beginning in June 2022.

With inflation running at double digits in the UK heading into the holiday season, discretionary consumer spending faces obvious headwinds. 

Competition:

The business is #1 in UK and NL but the business also has low barrier to entry and there is plenty of competition. 

• Funkypigeon.com - personalized cards, gifts, flowers

• Thortful.com

• Papier.com - stationery and e-gift cards

• Touchnote - app-based digital and physical cards

• Larger US/international players: Paperlesspost, Jacquielawson, Evite, etc.

• Many mature flowers and e-commerce gift competitors

Outlook/Catalyst:

Moonpig announces 1H FY 04/23 results on December 7. Moonpig has forecasted GBP 350mn in revenue in FY23 including the addition of Buyagift from July, implying flattish growth ex-Buyagift. The company affirmed guidance in its trading update on September 20, but also emphasized results are expected to revert to pre-covid seasonality with the holiday period key, 58-60% of sales expected in 2H, and margins weighted to 2H. MOON also suggested they have “prioritized” greeting card sales, which appears to be a reversal from recent talking points focused on growing the gift attach rate.

Consensus is only modestly lower at GBP 344mn in FY23 and calls for another +14% growth in FY24, roughly in-line with the company’s mid-teens medium-term target. Consensus also calls for margin expansion despite the potential sales deleveraging (organic) in FY23. Together, these figures appear to leave plenty of room for missed 2023-2024 results which may not be fully priced in. 

Potential Selling Pressure:

Exponent is still the largest shareholder with 41mn shares or 12%, and other legacy PE investors still hold a few percent more. They completed a 27mn share secondary in May at 250 GBp (8% discount). Sooner or later, another discounted secondary is possible.

Catalyst

Lowered 2023 and medium-term growth targets; increasing leverage