After a year of lockdowns that have separated family and friends, staying in touch has become a lot more important. Moonpig (LSE:MOON), as an online retailer of personalised greeting cards and gifts, has been able to service that need, and in the process proved itself to be lockdown proof.
No surprise then that Moonpig sales doubled in the six months to the end of October, as high street rivals were forced to close their shops. It may also explain the timing of this company launching on the London Stock Exchange on 2 February. Moonpig debuted with an offer price set at 350 pence per share, giving it a total market capitalisation at launch of £1.2bn. Its shares closed trading last week (12/2/21) at 442p, a 26% increase on its IPO price.
Moonpig IPO was set at high end of the range
The launch price was set at the high end of the previously set range of 310p to 350p on expectations of strong demand for IPOs this year. We await further details of Moonpig’s fundamentals in forthcoming trading reports, but what we do know from the IPO prospectus is that full-year results to April 2020, so only covering one month of the pandemic period, show revenues of £173m, with an underlying Ebitda of £44.4m and a margin of 26%. Revenue growth was a substantial 44%, a solid increase on the previous year’s 36.7%. For the six months ended 31 October 2020, the group’s revenue was £155.9m.
Looking ahead, we can expect sales figures to continue on their strong upward trajectory, given that for much of last year the public had to go online to find cards and gifts. The lockdowns forced a change in spending habits that looks set to become the new normal, even after the full reopening of the high street, as more customers discover the benefits of the personalised cards and gifts service provided by Moonpig and its main online rivals Funky Pigeon and Thortful.
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Advantage over struggling high street rivals
The total cards market in UK, the Netherlands and Ireland in 2019 was estimated to be worth £2bn. As an online retailer, Moonpig holds a distinct financial advantage over its high street rivals, which have all struggled with the costs of their high street presence. Online penetration of these markets (in value terms, in 2019) was about 10% in the UK and 13% in the Netherlands, with expected growth of about 12.5% and 7.4% respectively, from 2021 to 2024. Moonpig is the clear online market leader both in the UK, under the Moonpig brand, and in the Netherlands under the Greetz brand, claiming market shares of 60% and 65% respectively.
Analysts were impressed by Moonpig’s UK market share, strong growth prospects and margins. However, Neil Wilson at Markets.com questioned the company’s valuation, while Michel Hewson of CMC Markets suggested the next financial results needed to justify its current valuation.
We like that Moonpig see themselves as a tech stock, using data to become a ‘holistic online gifting companion’ and to build a loyal customer base, while operating in a market with plenty of growth potential. That Moonpig was able to respond quickly to the pandemic with humorous Covid-themed cards showed their operational flexibility, unlike its more staid supermarket and high street rivals with their large inventories. And we also like that it is a highly cash generative business, with high margins, relatively low capital expenditure needs and a competitive edge.