Ann: Half Year Result Investor Presentation, page-5

Looks like @madamswer was spot on wrt cost of sales (how!?!), but CODB slightly under.
https://hotcopper.com.au/posts/64654315/single

Actually, I wasn't spot on wrt to CoS... I include terminal costs as part of CoS; the company breaks it out separately.

So my CoS estimate out by around $0.4m, my CoDB was too light-on to the tune of $1.3m, but my D&A assumption was conservative to the tune of $0.9m

So when all the compensating errors are considered together, my EBIT forecast was $0.8m too low, which is a big difference in percentage terms (actual EBIT of $2.9m vs expectation of $3.7m, so ~20% miss), but remember that EBIT is still coming off a small base, meaning that mere small variations in either Revenue or Operating Expenses will be dramatically amplified at the operating profit line.

In this case, the single biggest variation by far in CoDB compared to my guesstimate was in the Marketing expense line, which more than doubled on pcp, compared to my assumption of a "mere" 60% uplift in Marketing spend.

The $3.3m Marketing spend in the half (compared to my $2.6m expectation - which I thought was generous) means that Marketing expenditure now represents more than one-fifth of total CoDB.

This is significant for two reasons:

1.) It is this sort of "good cost" that is clearly having success in driving the spectacular top-line growth and will continue to do so going forward,

and

2.) At some point over the next few years, once the land grab has reached critical mass, this aggressive Marketing expenditure will slow, and at that point, the Revenue-Cost jaws will undergo an even faster opening than we are already seeing (even with the foot pressed firmly down on the Marketing spend pedal today).

(I suspect that Point 1.) many investors understand, but I don't believe that sure that Point 2.) is fully appreciated.)


What this means is that while the result "missed" my expectations, not all earnings "misses" are created equal; there are some misses that happen for good reason; for example, investing aggressively in the sort of "good" costs that accelerate top-line growth.

So SMP's result came in slightly soft, but the reason it did so is actually a far better thing for long-term value creation than if the company had "beat" expectations because it had been throttling back on the Marketing spend.

Because this is a leading indicator of the sorts of Revenue growth we can expect to see in coming financial periods.

So, in a way the stock remains a BUY - not despite the earnings miss, but because of it.

It's an example of what I call The Growth Company Paradox.

.