As indicated by
@Tony999 , EZZ and STP have a similar business model.
Step One and EZZ have been listed since 2021.
Their business model has been tested during that period. After an initial challenging period, both companies are now showing high margin and a good level of growth.
This model relies mainly on 2 elements :
- a high gross margin (80 %+ for Step One and EZZ own brand),
- large advertising and marketing spending (they are using influencers and other more traditional communications online).
Overall, it enables these 2 companies to get an EBITDA margin of 20 %+ (just looking at EZZ own brand for EZZ).
Both companies are selling only online and are not manufacturing their products, so they have a low cost basis (excluding cost of good sold and advertising) which also explains why they have a very low level of Capex (around 1 % of revenues in both cases).
Their high margin, good cash flow conversion and low Capex explain their high level of free cash flow.
This model looks so interesting that it is right to wonder whether it will attract more competition.
Obviously, EZZ and Step One are not the only companies selling respectively supplements and bamboo underwears online.
So far, my understanding of both companies' edge :
- for EZZ, it seems to be due to a very good understanding of social media (and influencers) in China, where they sell a very large part of their products (however it is difficult to understand why they are so popular online in China, but not in other countries so far, in particular in Australia which is their market of origin),
- for Step One, their edge seems to be more around their product (getting good reviews overall and a high level of returning customers).
