WineDepot might be trying to build a marketplace business, but you will see that there are several wine related marketplace businesses in Australia, and WineDepot is the smallest of all of them (by a long, long way). The number of suppliers/products in its marketplace is woeful. It has no large venue groups in its marketplace (the largest venue groups have already signed up to, use, and are integrated into the competitor who is the leading marketplace).
And the key thing with a marketplace is that you need to have the supply side. The supply side in the wine industry relies on distributors.
Dean has spent the early stages of DW8 saying he is going to kill off the distributors because they charge too much and are inefficient, but you can't build a marketplace without them. That is the biggest problem with the WineDepot marketplace strategy.
Dean is absolutely right that there is a significant opportunity in logistics. This is what WineDepot actually does. And this is confirmed by its margins in its accounts. Each of the businesses that Dean has bought have been logistics/warehouse businesses. They are not tech businesses generating tech margins.
Have a look at the accounts for DW8 for yourself and ask does it look like a tech business. What is its gross profit margins? That will tell you if it is a tech business or not.
To me, it looks like DW8 has just bought revenues which underpin performance rights. For these to vest (at no cost) DW8 needs to achieve $1.25m in revenue over 3 months (for the first 50m) and $2.0m in revenue of 3 months (for the second 50m). The first 50m hurdle needs to be achieved by (I think) 21 August 2021 (being 3 years since employment commenced, but it is 100% clear if this is the date). If this is the case, depending on the completion date of the acquisition it may be achieved depending on how big this acquisition is. The second tranche of 50m performance rights should be easily achieved with this acquisition.
Deans best strategy would be to build up his logistics side, focus on the tech component of that to drive efficiencies, and partner with the leading marketplace (because they already have the buyers signed up to the platform). Building a marketplace is extraordinarily hard (and can be very expensive).
DW8 is currently priced like a high growth, high margin, tech business. Currently it isn't that at all.
Cheers Marv
DW8 Price at posting:
9.1¢ Sentiment: Sell Disclosure: Not Held
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