We like the Mytheresa business model, it operates a like an online luxury department store, better/more stable gross margins than typical department store and much better growth profile for the long term being in the growing online channel. It’s a good business with customer acquisition having clear leverage opportunity which means it is actually profitable, but perhaps not as sexy from a TAM perspective. Still it would likely draw interest from a mix of both Retail/Consumer and Tech investors. The model should be much better as it relates to the visibility to and stable growth of revenue and profits. Growth looks much more measured and consistent, almost like a luxury brand itself. As we look at the market, and the relatively low US penetration, there should still be plenty of customer growth and wallet share for the company to penetrate over a multi-year time period. Then there is likely long term wallet share opportunity here as well. The profitable incremental wallet share opportunity might aspire to be what like RH has achieved. What RH has done very well is growing its wallet penetration with the core ultra-high end consumer. You might hear the RH CEO reference how much some of the top customers spend. Mytheresa seems to be describing a similar dynamic with top customers (2.6%) accounting for 30% of sales. That implies nearly $11,000 in annual spend. When you create a luxury model, curate well, and expand categories as MyTheresa is doing (and RH has done/is doing) the amount of money you can extract from the very wealthy is immense. Other “luxury” platforms are thinking about volumes, are less focused with quality curation, deliver lower service, making for less sticky operations bringing in some margin pressure and less CAC leverage opportunity.
The company is pitching a steady margin long term story with 20-25% revenue growth. It has to temper margin expectations to keep street estimates down and keep the SG&A kitty full for continuing to drive top line growth. That’s been the way to go for biggest valuations in ecommerce names. Deliver the top line with the future promise of big profits. Though this business clearly can be, and is, profitable. We think the company will likely exceed the margins targets as outlined. As we look at the deal, the new revised range (now $24-$26 vs prior $16-$18) is looking a bit pricey. About 3x NTM Sales and 40x NTM EBITDA is hefty, though this Macro Quad 2 market is the market of big multiples in growthy consumer names. There aren’t really good comparables out there. The best comparison might be Yoox / Net A Porter which was purchased for ~$3.3bn (~20x EBITDA, ~1.4x Sales) by Richemont in 2018. MYTE is not comparable to platform models as the asset turnover/return profile is very different, and there aren’t many high end online retailers. AMZN is at 3.5x EV/Sales, RH (sales half online) at 3.8x, CHWY at 5x. For MYTE the top end of valuation we think is tolerable is 3.5-4x NTM sales. That would mean a stock $30-$35 (55x EBITDA at the top end). At the original range, it felt like a good deal, up here it’s a little rich, but perhaps still some upside. To be clear, it we were in Macro Quad4, at 3x+ EV/sales this is probably a short. If it trades into the 30s, we wouldn’t want to be holding this into 2H21.
