Equity research CDON: A new platform to build marketplace excellence
31 okt 2024
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Carlsquare Equity Research initiates coverage of CDON. While growth dynamics are challenging in the short term, the merger with Fyndiq creates a stronger Nordic online marketplace group with a broader customer offering. Technical and organisational integrations will be completed in 2024. We believe this provides the stepping stone for markedly improved financial performance.
A new chapter has started for a leading Nordic marketplace
In 2023, CDON merged with Fyndiq to consolidate its position as the leading Nordic marketplace. That was a timely move, as size and network effects are critical for profitability. This is demonstrated by the high margins of larger international peers, as well as CDON turning EBITDA positive last year following the merger. CDON has also strengthened its position in the bargain segment, which is growing more rapidly than the general market. The CDON board and management have long experience building successful Internet businesses, and there is significant insider ownership.
Growth headwinds could fade towards the end of the year
Major changes to online search and advertising algorithms and competition from Chinese platforms create choppy waters for many Nordic marketplaces and etailers. GMV for the group has decreased (year-on-year) for the last four quarters. On the bright side, consumer spending is recovering from the doldrums of 2022-2023. Also, we estimate that marketplace penetration in the Nordic is still low compared to the rest of the world, and there is plenty of room for growth.
A play on Nordic e-commerce converging towards global trends
As a (soon-to-be) pure-play marketplace provider, CDON is a rare animal among listed Nordic internet companies. Compared to most Nordic online retailers, CDON has a larger TAM because it offers a broader range of product categories, and there are no apparent constraints on capacity. We expect robust scalability and operating leverage if and when growth picks up.
Actions to unlock the profitability potential of the marketplace model
We estimate that total traffic to CDON group sites has likely bottomed. Management is taking several steps to improve customer experience. In parallel, the migration to a shared back-end platform for CDON and Fyndiq was recently completed. That should help CDON achieve profitable growth (GMV) in the current quarter. Assuming a return to double-digit growth, we expect CDON to make headway in narrowing the margin gap to its larger international peers (EBITDA-margin 20 per cent+) in the coming years.
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