Ann: Adore Beauty Trading Update, page-78

*Horribly misvaluedwith the benefit of hindsight.

During the deal roadshow Morgan Stanley's valuation was quoted in the AFR:

Morgan Stanley analysts valued Adore Beauty at $651 millionto $870 million, or 4.1 times to 5.5 times forecast revenue for the 2020calendar year. The valuation was done using a 10-year discounted cash flowmethodology.

Consider that the timing of the IPO was before the US election, before thevaccine rollout, growth stocks were still really hot, inflation concernsweren't really apparent among other things that I have overlooked. We're deepin an economic crisis and a global pandemic. Do people forget this? Avaluation in a emerging industry requiring a 10 year forecast stoodno chance against the economic events (turmoil?) occurring following October2020 which continues today. We have a classic case of outcome bias. Made worseby investors in positions that are down 40-50% over the course of 6months. At the time of the float the valuation and listing process madesense, so much sense they managed to raise A$270m.

Someprice comps (not normalised, rounding errors included):
Kogan 52wk high: ~$25, ~$21 when ABY floated, now trading at ~10$
Temple & Webster 52wk high: ~$14, ~$10 when ABY floated, now trading at~$10
Red bubble 52wk high: ~$7.35, ~$4.3 when ABY floated, now trading at ~$3.5
Adore 52wk high: ~$7.42, now trading at ~$3.4

It will take some time, at least another year, for the market to understand thecurrently sold-off e-commerce sector, the ABY business model among otherthings. The same could be said for any of these new tech floats. There'stoo many incongruencies withinvestor's expectations, the analyst's forecasts and the largeamount of pessimistic retail bros. We ultimately need more data frommore reporting periods.

When the dust settles in a year or two, it will all make sense. At the time oflisting, e-commerce had exponential growth curve. Now there is a bit morecolour to the sector and the pendulum has swing the other way - growth hasslowed (still growing though). The latter was not perfectly forecasted for inOctober 2020. We only know this because we have the benefit of lookingback.

NassimNicholas Taleb has a lovely 2 cents on how useless forecasts are.

Other commentary:

Analysts clearly still see a runway for this company, price targets rangefrom $5-$6 at the moment (UBS, Morgan Stanley, Morgans, Shaw & Partners).This is down from Morgan Stanley's $8.25 in December/January?? I assumesome big instos still see the runway as well, not many change in holdingstatement recently - so either they all left already (no faith), or are allhere to stay. With the continuing shift to cyclical stocks, tech indexes down20% in like a month, J Powell's US$tn money printer and the bungled ABYannouncements, folks are of course selling. It doesn't help that theliquidity on this stock is just terrible. Each day's spread is like 5% with0.3% of the market cap trading, huge spread, messed up really. ASX is ananny exchange dog.

The last year has offered a get rich quick scheme for so many in the stockmarket. People new to the market outside of r/wallstreetbets or r/asx_betsforums aren't used to seeing so much red on their winners. Not everygrowth stock goes to the moon. Especially not a niche like a beauty +e-commerce play. BNPL level returns were a thing of 2020. Doubters should justuse the stock to offset some capital gains and bring some liquidity to themarket.

Valuation comp table from the other day:



**Apologies for text font. IDK what's going on.