For what it’s worth, I sold out of my residual MMM holding first thing this morning.
Things that didn’t sit well with me in this quarterly result included:
- Contribution Margins dropping sharply, with lots of references to cost pressures being made during yesterday’s call.
- Margin deterioration also apparently driven by changes in the sales mix, with lower-cost options (e.g. Dinnerly) representing a larger slice of the revenue pie.
- Marketing costs spiking to 20% of Revenue, with no simultaneous upgrade to CY21 revenue guidance (why, if “maintenance” spending is purportedly only 10% of Revenue?)
- G&A costs spiking to 19% of Revenue
- Growth spending and Capex funded with high-interest debt as opposed to cash flow (which is what had been previously stated at the last Capital Markets day).
My original investment thesis for MMM envisaged a company capable of generating ~100mA$ of EBIT by CY23. While further revenue growth from here is a distinct possibility, and while costs may indeed stabilise at lower levels as a % of revenue, there were too many red flags for me in this result relative to that aspirational EBIT target: even in a best-case scenario, there seems to be a clear intention from Management to run the company for growth as opposed to profit for the foreseeable future.
Based on the above, I consider my milestones breached and therefore I’m out. Good luck to all holders.
