IPO Watch: MyDeal rides ASX's e-commerce wave

Sean Senvirtne is the CEO of MyDeal, which is an online marketplace focused on household goods, such as furniture and homewares. It's yet another e-commerce company which has recently completed its IPO, having raised $40 million, and then began trading on the ASX last Thursday where it closed at $1.75 or 80 per cent above its offer price of $1. Since then though, it's dropped quite a bit and closed on Tuesday at $1.28.

MyDeal’s main source of revenue is a commission fee charged to sellers for every product or service sold on its platform and they're obviously coming off a very strong few months of sales, given lockdowns. As Sean tells me, though, MyDeal is focusing on expanding its private label range, which offers much higher margins, as well as improving its technology, both are areas of the business where the $40 million it raised will be allocated among other things.

Here's Sean Senvirtne, the CEO of MyDeal.

Table of contents:
Delayed IPO
Use of IPO funds
Private label margins comparison
Replicating the success of other ASX e-commerce stocks
Growing competition & how MyDeal differentiates itself
High valuations of e-commerce stocks
Importance of investing in tech
Pipeline of next 6-12 months

Thanks for joining us, Sean, there's obviously been this massive rush to online shopping throughout COVID. Was it always the plan to list at this time, or was that a decision pushed back or maybe even forward due to what's happened with consumers’ mass shift online?

Yeah, look, the MyDeal journey has been about 10 years in the making. We have made a few attempts to list the company in the past, but these IPO windows are quickly opening and closing. We were sort of her planning to list the company, actually, we were on track to list the company earlier this year, around sort of April/May. But then obviously COVID started, you know, all the investment bankers’ sort of gone home or basically left the window shut. So essentially, we got delayed, but then obviously this massive shifting online happens and the IPO market started opening, and so we'd done a lot of the work even earlier this year, so we started that road back and away we went. It was in the planning to list the company for a few years and yeah, finally we got that window to get the company to the ASX.

And you raised $40 million for the IPO. Could you explain what sort of interest you received leading up to it and a brief rundown on what the funds will be used for?

Sure. Obviously, MyDeal has a very strong track record of growth. We've been growing 100 per cent year on year for almost most of our years and then obviously, last financial year, I think we grew 160 per cent, year on year from about $42 million to $103 million. It's a small team, it's a technology-driven company, with a low operation cost. I think that's sort of resonated with a lot of the funds that we spoke to. Actually, the IPO was very aggressively oversubscribed. The use of funds, obviously if you look at our Q1 annualised run rate we own about over $220 million of a run rate right now based on Q1 numbers.

Now it is important to understand that the business has achieved this growth of about $5 million external capital to date. So we have only raised just over $5 million external capital, and we have built a business, gross sales over $220 million on a run rate basis as of our Q1. This new capital that we raised through the IPO, which obviously allows us to now continue to build our technology and hire talent to execute that strategy, things like mobile apps and lots of new technology features we want to roll out to our customers, like loyalty programs, what not and also private label which we're really excited about. It is a new initiative we rolled out about two and a half to three months ago within the business. The business itself has over 10 years of the sales and analytical data, so utilising this data now, we are able to introduce products directly from the manufacturer to the customer at very competitive pricing. Private label is a key area that we’re focused on to grow in the years to come. What we are very excited about that particular part of the business is that the margins are about 40 per cent upwards margins, we are enjoying with the private level products and it's growing very aggressively. Also, to have that very strong balance sheet for the next acquisition opportunities and whatnot and obviously continuing to increase our brand awareness. We have done very little marketing, above the line marketing, talking about our range and prices on the MyDeal store. So increase brand awareness, growth in private label, continuing to build a technology mobile app and hire the talent. Yeah, those are the initiatives that we were excited about that we want to roll out in the next few years.

And you talked about those margins for your private label products, which as you said, you're looking to expand. How do those margins actually compare to those of your non-private label products?

Yep, so we are a marketplace, as a marketplace currently if you look at our prospectus, we've managed to increase that from about 11 per cent to about 16 per cent over the last few years with our new initiatives that we have embarked on. But what we are most excited about the private label products is because we are being able to offer directly from the manufacturer to the customers on these products, being able to get that 40 per cent of margin on those products. The marketplace itself, we’re operating on average about a 14-15 per cent margin. So there's a significant difference between the private label business and the marketplace model. But the marketplace model obviously has massive scale. If you refer to our Q1 numbers, for example, we did $56.6 million of sales, which is up 317 per cent year on year and the private label as a portion of those sales are quite insignificant which is about, probably just over $1 million, but we are very much focused on growing that part of the business to about 20 per cent of our sales and I think we are very much on track to do so.

As you increase your private label range, I imagine that will prompt the need for inventory, which as I understand, is not a potential cost you have to deal with at the moment. Will the money you're making from increased margins on those private label products be able to offset those inventory costs that you might incur?

Yeah. Look, I think it is important to understand that we are not trying to go to a full-blown having hundreds of thousands of SKUs. With our private label, it is very much a data-driven approach just to utilise the data, look at the data, look at the trends and based on those trends, just to introduce products on key categories and now with the very established 3PL providers that are in the marketplace, be able to still keep our costs really, really low and pass those savings to the customer. So essentially at the moment the person that is spearheading that project for us is a person called Dean Ramler.

Dean is the founder of Milan Direct back in the days, that got acquired by Temple & Webster just before their IPO and obviously, he was quite essential at building their private label business to where it is today. And now he has joined MyDeal, he is an investor, he is a shareholder, and he's a full-time employee, with the title of Chief Merchandising Officer. With his expertise and with his private label manufacturing and logistics, supply chain expertise, plus our data and marketing technology experience, we are able to marry those together and be able to continue to offer those key products on key categories with the 3PL at a low cost to our customers.

I mean if I would just to give you a quick overview right now, as of our Q1 update we have done over $1.6 million of sales with our private label, but we only have about 100 products on the website, so a hundred SKUs. We are planning to grow that very aggressively in the company in the coming years and the problem that we have when it comes to inventory is these products are getting sold out before even hits the shore, because our pricing with those products are quite competitive and very attractive to the customer.

Your main source of revenue is currently that commission fee that you're charging to sellers to sell products on your platform. Is that expected to change as your private range expands or will that revenue still be in place for other products that are part of your non-private label range?

Look with the marketplace products, I think it'll remain very much the same. We don't see it going up or down because we are offering a relatively competitive commission structure to our sellers very similar to other marketplaces. But the private label is where we see the next paradigm shift in the business to increase that take rate as the business continues to evolve. It is very much also important to understand that we are a growth business, we are a growth stock, and we are focused on the growth. I mean, if you look at our active customer growth in the last quarter it's grown 268 per cent. We have close to 670,000 active customers and our short-term initiative is just to grow that to about a million and continue to keep these customers continue to purchase within our ecosystem.

And investors have been jumping on stocks similar to yours in a way such as Kogan and Adairs, Temple & Webster, things like that and they've seen their share prices jump dramatically this year. Is there an assumption that you might be able to replicate the performance of those stocks?

Look, I mean, it'll be hard to argue why can't we do that because I mean, I'll be very interested to see any other retailers that are experiencing the growth rate that MyDeal is experiencing. We are growing year on year nearly 317 per cent. Now, it is also important to understand Alex that MyDeal was growing even before COVID last November. For example, we grew 120 per cent year on year. This shift from bricks and mortar to online has been happening over the years. I mean, I've seen that trend evolve since 2010, 2011, but what COVID has done is essentially accelerated that further. As a technology-driven e-commerce business we have just over 30 staff within the CBD, Collins Street, predominantly marketers and engineers. From the outside world, we look like a retailer, but it really is a technology company.

We built our technology, we own it, proprietary marketplace technology and we continue to build on top of and evolve and add new features and be able to run a business that on run rate basis in excess of $200 million as of our annualised Q1 number with the less than 40 staff. And there's a lot more exciting stuff in the pipeline with our very strong balance sheet we have right now that will continue to get that scale. And just to go back on that little point again I know I'm giving a very long answers, but it is important to understand that since inception, this business has gone through three revolutions. From group buying to a traditional warehouse model where you pick and pack and ship the goods yourself, and to a drop shipping model, where the likes of Temple & Webster, for example, right now, where you get someone else's product, and then you create other different pricing to the product and now to a full-fledged marketplace, and to a private label.

It is very much entrepreneurial driven that's what’s in our DNA, continually evolve, continue to look for the next thing. And why a full-fledged marketplace? Because that technology enables us to offer over 5 million SKUs to our customers now and get that scale, give that range to our customers. And as the marketplace automatically drives that very competitive pricing dynamics within the sellers, so if you're a seller within our platform, you are in charge of your products, your inventory, your customer service, and obviously a sale price. So you make sure you're competing with other sellers that your products are competitively priced, because what we well and truly believe, okay, there is, there is no doubt there's, there's more and more people shopping online, but as the customers get involved, they'll try to shop smart, which means where can I buy the same product at better pricing?

So you'll become the value-conscious buyer and I think MyDeal is perfectly positioned to take full advantage of that in the years to come because we are about the value. We are about passing those savings to the customer and being able to do that because of our technology and our low-cost operation in this model that we have.

It seems like the e-commerce sector is becoming quite crowded in the area you’re operating in. Are you concerned at all about competition or are you confident that you'll be able to differentiate yourself through those factors that you just mentioned in terms of your technology and your pricing?

Yep, Alex, it's a great question. If I just step back for the four years, we are if not the first online retailer to launch a marketplace in Australia, but since then, the landscape has changed and evolved significantly. Obviously, we have international players like Amazon arrive into the country and websites like Catch and Kogan have launched their own marketplace. MyDeal as a company, we needed to pick our lane. So when we looked at the data, the data says, we are quite strong in household and furniture goods almost to 70 per cent of the goods that we are selling in our marketplace is your obvious big and bulk goods, such as mattresses, bedframes, and whatnot.

And then when we look at the macro data, okay, in the industry, you'll see Australia as a country, quite highly underpenetrated compared to US and UK with the furniture and household goods when it comes to online. I mean, the Australian household goods, the market itself in excess of 55 billion, but the online household goods is just about 6 billion according to the Euro monitor. And then we look at that we see there is actually a gap for that marketplace for household goods, a focused marketplace that are really able to offer the customers that 5 million SKU range with the competitive pricing and really establishing themselves as a big and bulk to play. Amazon is in the world, they started with the books and I think they're not storing mattresses or bedframes and whatnot, neither is Catch or Kogan. So it is quite different to the other industry players. With our technology with a focus on the furniture, we believe we are perfectly positioned to capture that market in this country, in the likes of Wayfair, in US, which is a company that has continued to perform really well along with Amazon existing in that environment.

I interviewed the founder of Adore Beauty, Kate Morris, the other day and I'm sure you're aware of their recent IPO too. Some of these e-commerce stocks are trading at incredibly high earnings multiples and Kate said that she thinks some investors are now valuing e-commerce stocks in a different way to perhaps how they would traditionally value a stock. Is that something you agree with – that these e-commerce stocks are now kind of entering into that tech stock valuation?

Look, the only comment I would make is I would put MyDeal in the growth stock category. Okay. You’ve got to look at our growth rates. I can't speak for anyone else in the marketplace, but I would strongly say, with our current growth rate, we are still very highly competitive in the marketplace. I mean, we had a very interesting ride on the very first day, the stock was up like 120 per cent. But we try not to pay too much attention to what's happening in the market because we are very much focused on building MyDeal in the years to come. I mean, I'm the founder and CEO and I’ll voluntarily escrow myself for the next couple of years, because I really believe in the business.

I really believe in these opportunities that will come about in the next few years to come. I think that's probably one way to look at them because of stock. Look, you’re 100 per cent right, we are a technology business. I mean, I can't speak for Adore Beauty, but we are a technology business ourselves, we built our marketplace technology. We own it and over 60 per cent of our staff within our team is marketing and tech, normally tech. We are hiring more engineers. We’re launching mobile apps, we’re building loyalty programs and we are quite optimistic and excited about the opportunities that will come as our marketplace continue to grow. If you look at the traffic, the website's getting over 7 million monthly visitors, and we have new initiatives to monetise and capture those users even further in the years to come. And we have 1,000 sellers using the platform. We see a lot of opportunities. We see a lot of opportunities in the years to come and the MyDeal team here has a very proven track record of delivering very, very strong growth, with very limited capital. But now with a strong balance sheet, I'm very, very optimistic about the future.

It sounds like Sean, that you think this level of consumer demand for online shopping for those homewares and furniture products will be sustained even as brick and mortar stores begin to open up on the other side of lockdown. Would that be correct?

Look, 100 per cent. Okay. I can’t record on to what level. But from what we have seen if we look at the data, daily, weekly, monthly, we're still seeing strong growth happening from New South Wales, Western Australia, Queensland, you know, obviously Victoria just opened up today, but we are still seeing strong growth from those states that are not part of the lockdown. Now, if I go back to my previous point, what I just mentioned, even last November, we grew 120 per cent year on year, which is before COVID. Right? The shift to online was real for over the years, over the last decade has been growing at a certain percentage, but what COVID has done is actually give that a steroid boost, in six months.

I personally, when I wanted something, I used to go to shopping centres and then I have to park my car, find that particular product put it on a trolley and you know, it's hard, especially with big and bulky. You just want it delivered but what the customer needs is that to create that great pricing, great experience, given the range to make that smart decision with the reviewers and whatnot and obviously with our marketplace, we have a refund guarantee as well with our business model, so with the peace of mind. So as they continue to get the benefits of shopping online, it's hard to see why would they go back? Finally, I believe MyDeal is now establishing itself we can give that range and the pricing and experience.

You mentioned before your focus going forward on technology and some of that $40 million you raised for the IPO is going towards developing and launching a mobile app. I just wanted to ask you how important it is to be consistently investing in this technology and optimising that consumer experience for tech, and e-commerce companies like yourself, given that competition we've discussed?

Look, it is absolutely critical and as a marketplace, we get to work with a range of enterprise-level retailers and it boggles our mind how behind some of these bricks and mortar businesses are, especially when it comes to technology. Our technology is one of our key difference abilities in this business, okay and also have a never-ending pipeline of new features. We want to continue to build and enhance that user experience. E-commerce is a mobile game. There's no doubt about it. I mean, over the years, we have seen, from about 30 per cent to now about 60 to 70 per cent of all the sales, all the transactions are happening through mobile. This is a business, MyDeal is a business still showing very strong 370 per cent year on year sales growth, quarterly with no mobile app.

But obviously, it is mobile-friendly website we have, so we are very much excited about these initiatives, especially mobile app. We rolling out our iOS and Android ordinary apps. We plan to get that out February/March next year and create the customer stickiness, create the customer loyalty program that even make that experience even more seamless. We are very much into machine learnings and the AI, obviously for customer personalisation. These things are going to be pivotal in the years to come because as the customers get smarter, you need to be… Alex if you purchased a bedspread from us, I don't want to recommend you a rug. I want to recommend you pillows and the sheets and bedside tables and lamps. Knowing your customer and being able to put aside that experience, continue to focus on the technology is quite pivotal. It is so important in this game, in this sector in the years to come and that is very much what we are focused on.

And just lastly, you've mentioned the app coming up and I just wanted to ask you, what else should investors be looking out for in the pipeline over the next six to 12 months?

Yeah, absolutely. Look, as I mentioned before, our private label, which we are very, very excited about because we believe in the long run e-commerce is about price play. Who's able to offer the same product with the best pricing in the market and we’ve got Dean Ramler on board. I mean it’s just showing enormous potential to this business, and what we can do with those great margins. And obviously, the mobile apps and loyalty programs and there’s new ways to monetise our customers and sellers as our marketplace continues to evolve, with the more sellers and the more customers, we are very excited about that. And also, with our new balance sheet, we always keep an eye on the right opportunity that we can integrate into our business to get that next X growth, so there's many exciting things in the pipeline.

Thanks very much for your time, Sean.

Thank you, Alex. Thank you for time.

That was Sean Senvirtne, the CEO of MyDeal.