𝛼SKMad Paws Holdings Ltd: Continued Growth Despite Disruptions
Mad Paws Holdings Ltd
Continued growth despite disruptions
Mad Paws Holdings Ltd (ASX:MPA) has provided a December quarter/half-year trading update with the release of its 4C quarterly cashflow report. The key take out from our perspective is that despite continued COVID-related disruptions over the half, new customers continued to grow (+21% on June 2021 to 133k), as did marketplace GMV and revenue at +39%. Waggly was a first-time contributor for a full half, helping to boost total revenue growth to ~240%. The cash position remains strong at $8.9m and marketing costs well managed despite a significant push for Waggly and Dinner Bowl subscription customers. While disruption remains a possibility into CY22, the group will cycle disruption for most of the year with an ever-growing customer base. We make modest downgrades to revenue (-5%-8%) on lower subscription assumptions but reduce marketing costs but a similar amount, resulting in little change to EBITDA/EPS. Despite a significant sell-off in loss-making “tech” stocks since our initiation (November 2021), the MPA share price is unchanged against an average domestic peer decline of 25% and US peer Rover (-43%). Early market penetration, valuation and growth despite disruption are all reasons for this strong performance.
Business model
MPA operates an online marketplace which connects service provides with pet owners, predominantly for dog hosting, dog sitting and dog visits. MPA charges a 7% booking fee to “customers” and a 20% commission on the total service fee (less the booking fee) for service providers. The group operates a negative working capital model, with payment received pre- service provision and released post-service provision. The group has had ~133k unique customers since launch in 2015 and is looking to utilise this growing database to offer other pet services such as food delivery and insurance to capture a greater share of a conservatively estimated $4.0b addressable market.
Key take outs from the December quarter update
Despite ongoing COVID-related disruptions to both booking and average revenue/booking, MPA continues to grow both customer numbers (+21% from June 2021) and underlying GMV (+39% for the half and +45% for the December quarter). Costs are slightly below forecast as we had forecast aggressive marketing costs for subscription businesses, and as a result subscription revenue growth was slightly below forecast. The cash balance remains healthy at $8.9m providing a runway for growth and acquisition. We have reduced both revenue and marketing cost assumptions over the forecast period resulting in little change to EBITDA/EPS. In a “normal” operating environment MPA has significant leverage to additional customer numbers, higher average booking spend and lower cancellation rates.
Valuation remains $0.35/share or $76m market cap
Our DCF valuation for MPA remains $0.35/share diluted for all in-the-money options. The combination of a growing customer pool, cross-selling new products/services into this pool, and lower longer-term customer acquisition costs drives this valuation, with upside from both penetration rates and new products/services. Since our Initiation Report, Has the currency to be the top dog, on 4-Nov, nearest domestic peers (ASX:ART) and (ASX:Z2U) have declined 32% while US peer Rover has declined 47% (NASDAQ:ROVR). MPA over the same period is unchanged and in-line with the ASX-200. Near-term EV/revenue multiple discounts have narrowed as a result, with MPA now trading in-line with our assessed peers.
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