Boohoo.com: Unicorn Diagnostics, Dec 2016

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Why are investors in love with Boohoo.com?

In the end of Nov 2016, Boohoo plc had a market cap of £1.4bn on revenues of £195m. To mirror this, Asos market cap was £4.3bn on revenues of £1.44bn.

Since Boohoo's IPO in 2014 the company has struggled to keep pace with its explosive growth rates. Our view is that the company has grown faster than its management structure, its IT infrastructure and its fulfilment and logistics... yes, pretty much the whole company.

None (or very few) of the top managers have experience of fast growing businesses. This is not a critique as they are all very experienced in their own field. Our recommendation would be for the co-CEO's to hire a Chief Strategy Officer with such experience, who can pull everything together.

The founders still control a significant stake in the business. This is both for better and worse. They know garment manufacturing very well which is a bonus. However, with the family involved in the business and an acquisition of Prettylittlething.com on the cards in Feb/Mar-17 we would also like to see a consolidation of all the various garment/apparel related companies the family has an interest, into the Boohoo group to ensure clarity. There is a risk that the company will become another Sports Direct.

The views expressed are our own and does not constitute investment advice. The author does not hold stock in Boohoo or any of its suppliers, competitors, customers, etc.

UPDATE 14 Dec 2016, 10am: Earlier today Boohoo plc announced their acquisition of a 66% stake in Prettylittlething.com for £3.3m leaving 34% to incentivise the management. The timing of this comes at the same time as Boohoo announced higher than expected earnings forecast. Umar Kamani, the son of the CEO of Boohoo.com, will remain as CEO in Prettylittlething which is thought to be close to breaking even.

 

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