Cdon AB
OTC:CDOAF
Earnings Call Analysis
Q4-2023 Analysis
Cdon AB
CDON, a leading marketplace, showcases a story of ambition and progress in their earnings call. The commitment to strategic initiatives has been prominent, as evidenced by the significant inclusion of 164 new merchants in Q4 alone, demonstrating a substantial increase in supply and efforts to elevate customer happiness. This surge represents an average of 55 new merchants per month in Q4, up from 21 per month in Q3, and management is optimistic about witnessing a positive sales impact from these new partners by the end of Q1 of the following year. Remarkably, customer reviews improved from 3.8 to 4.1 out of 5, reflecting an enhanced customer experience.
Financially, CDON has delivered an impressive EBITDA improvement of SEK 138 million for the full year compared to the previous year, marking their fourth consecutive EBITDA positive quarter with Q4 closing at plus SEK 70 million. The pursuit of efficiency didn't temper growth ambitions as they registered a gross profit after marketing increase of 14% for CDON and 12% for Fyndiq for the full year. Further emphasizing their disciplined approach to finance, CDON has announced a one-off cost plan of SEK 7 million to SEK 9 million related to the centralization of operations, which will be offset by lower OpEx from having a single office location. They remain confident in achieving a reduced SEK 40 million OpEx run rate by year-end.
The call brought attention to a 4% decline in leverage during the quarter compared to the previous year, but CDON managed to grow net sales by 6% for the year. This was driven by both the acquisition of Fyndiq and a commission increase across their sites. On one hand, CDON segment saw a decline of 28% versus last year, reflective of a period influenced by lower margin GMV, but Fyndiq sustained a high gross profit margin. The company has achieved a gross profit of SEK 112 million for the quarter and SEK 353 million for the year, a testament to their resilient model in a challenged e-commerce landscape.
Despite the complexities of merging operations with Fyndiq since April 12, CDON has managed to navigate effectively, achieving a turnaround in EBITDA performance and setting the stage for a future of profitability without the need for additional cash inputs. They have established themselves as a cash-generating business and anticipate a continuation of this trend, strengthened by operational improvements and strategy execution.
Management steers the company with a future-focused strategy, emphasizing platform migration, which is on track for completion by September. They hint at a positive second half of the year economically, in line with a Swedish consensus expectation, and are determined to capture growth opportunities in the e-commerce sector amidst favorable market winds, such as retail shifts toward online. With a careful balance between market conditions and strategic initiatives, CDON is not just navigating current challenges but planning for a future where they leverage both organic improvements and market dynamics to bolster their position.
A significant portion of the Q&A focused on cost savings and investment strategies. The company reiterates its commitment to stripping out SEK 40 million in costs by the end of the year, reflecting progress made and the impact of one-off costs associated with pivotal platform migration. At the same time, the overarching narrative remains one of prudent financial stewardship combined with precisely timed growth acceleration efforts. As for specific guidance, company executives strategically refrained from precision, subtly indicating their confidence in meeting these objectives through carefully orchestrated organic growth and market share gains.
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Hello, and welcome to this earnings call for CDON's fourth quarter. Today, we are broadcasting this live for the first time from our office in Stockholm. And also for the first time, I have our new CFO, next to me, Carl.
Super excited to join you here today.
Great. And we will hear more from you in a bit when we are diving deep into the numbers. First, a summary for the quarter and full year. We see a good progress in our strategic initiatives, namely massively increase our supply and greatly improve our customer happiness. From the supply side, we have onboarded 164 new merchants just for Q4 for CDON. For the customers' happiness part, we have improved the customer reviews from 3.8 to 4.1 on sale. Our platform migration is running according to plan with the deadline in September. And this will also realize the majority of the lower communicated OpEx run rate. We have a continued solid growth of gross profit after marketing, our main KPI.
First segment, for the full year, we have increased that KPI with 14% for CDON and 12% for our Fyndiq. And lastly, but not least, we have an EBITDA improvement of SEK 138 million for the full year of '23 compared to full year '22. This also marks the fourth consecutive EBITDA positive quarter. The Q4 ended on plus SEK 70 million, and we had for the full year plus SEK 23 million and greatly improve our customer satisfaction. You can see on the left side, where we have the graph of new onboarded merchants on the CDON side. You can see this is a big improvement from Q3 and the rest of the year up into Q4.
We have increased the average newly onboarded merchants from 21 per month in Q3 to 55 new merchants per month in Q4. We have also implemented a new process at the end of Q4, enabling us to double this velocity of onboarding merchants. And looking into the important aggregators and October specific, we can see that we are now increasing the sales from these merchants from 1.9% of the GMV in Q3 up to 3.2% of the GMV in Q4. And worth mentioning is that you don't immediately get sales from a new onboarding merchant. You first need to get the merchant onboarding and this is includes a lot of technical aspects. Then you need to make sure that you get products uploaded that are compliant, categorized correctly and so on. Then after that, you need to make sure that your marketing channels find these products and start to test them on the new customers.
And all in all, this can delay the sales effect from the new merchants up to 3 months. So we are very positive that we will see a sales effect on these new merchants by the end of the first quarter. Looking into the customer satisfaction part, you can see to the left is the customer review score. From the start of the summer, you can see that we are increasing this in a very good way. So we have moved from and customer review score of 3.8 to 4.1, only on CDON for Q4 and become better, which shows with the customer satisfaction score that has improved by 10% for the second part of the year compared to the same period last year.
And last but not least, we have financial impact this quarter from defaulted merchants. This is thanks to our switch into becoming more customer-centric in our approach and also prolonging the payout times to the merchants. And this marks the first quarter where we have no financial effect from banks from. As we announced earlier this operations to one-off office. This means that we will close down our second office in Malmer. This affects full-time employees and third to part-time employees. The majority of the full-time employees will be offered similar roles in Stockholm, while the customer service will be fully outsourced. We are really hoping to see as many of our colleagues from the Malmer office Moving Over To Stockholm and continue the journey on CDON from Stockholm.
The cost side of this, this was not due to cost savings. This is due to us increasing the efficiency in the organization by having everybody under the same roof. However, we see some increased cost, one-off cost for this year of SEK 7 million to SEK 9 million. These consist of tech and finance interim consultants. We have customer service outsourcing transition, and we have recruitment costs. We see though that these increased costs for this year will be offset already by '26 due to a lower cost base from just having one office. We have increased confidence to realize our communicated SEK 40 million in lower OpEx run rate by the end of this year.
With this said, I would like to hand over to Carl and some deep dive into our numbers.
Thank you, Fredrik. Let's dive straightaway. Looking at our reported figures. And please note that the performance of '22 is really group of CDON, including Fyndiq from April 12 and 2022, both the fourth quarter and the full year is really effectively only looking at the CDON segment, the comparability is [indiscernible]. We will be looking into the segments further down further in this presentation. So despite adding continue to our business, we report a 4% lever during in the quarter compare last year.
On a full year basis, we are 50% lower than last year. We grew our net sales by 6%. And driven both by the acquisition of Fyndiq, but also a commission increase on both of our sites during the year. We had higher gross profit, higher gross profit of the marketing and this stems from the underlying higher margin on Fyndiq and the effect has on the group. In total, we were able to turn around a negative EBITDA performance of minus SEK 115 million in '22 to SEK 23 million EBITDA in 2022.
Turning into statements. This will not necessarily add up to the group. And as mentioned, it has to do with the inclusion of Fyndiq only from April 12 in the group figures. By moments we have faced the tough [indiscernible] estimate the impact on the e-commerce as a whole to 8% on an annual basis and 11% in Q4. CDON is down 28% versus last year. We do compare that with the period which was fueled by lower margin GMV, but we are [indiscernible] did not necessarily reach targets that were set up internally. Full year [indiscernible] on the full year. On the other hand, continuing, we are slightly more positive, and we have grown in the fourth quarter of 5% versus last year.
We had a strong Black Friday November sales period, and that contributed to this performance. Full year, roughly in line with last year of SEK 492 million equal to a minus 1% performance on the segment. Looking into some of profitability measures. CDON has improved its gross profit margin to around 60%, following a lower one in the share of our business, becoming more dependent on the trust share with a fundamentally higher gross profit over sales. Fyndiq has sustained the high loss broken margin of around 98% in the quarter end year.
Combining these 2 segments, we're reaching an absolute gross profit of SEK 112 million in the quarter, SEK 353 million full year, this is actually higher under report years of 2022. We have seen a step change in our take rate in '23, which is driven by the commission increase and also the shipping increase. We have not only been able to sustain the high take rate that we performed in Q3. So, the commission increase in Q1 on the CDON segment, but also the commission -- sorry, the [indiscernible] service organization that we did towards the end of the year and the effect it had in Q4. Full year take rate has increased from 11% to 13%. That is something that we're very proud.
Despite the small drop in Q4 for Fyndiq take rates, which is really due to a seasonally higher average order value. We observed a higher full year take rate of around 28% versus 25% for that segment. Very legitimate performance in the backdrop in mind. It is a rather impressive GPAM gross profit after marketing performance with see on the CDON segment. Despite a 21% decline in GMV, GPAM has increased by 14%. The GPAM margin has increased to 9.2% in the quarter and 8.2% full year and equal to a roughly 50% increase versus last year on quarterly as well as full year basis.
Fyndiq margin remains strong. increasing further from 17.2% to 17.5%. Well, essentially captures the net effect of our take rate and marketing efficiency. It's where like you look at also the absolute marketing cost as a percentage of GMV. We see a lower market spend as a percentage of GMV on the CDON segment due to our increased efficiency in our marketing spend. It is -- has been rather stable during the year and something that we expect to continue going forward. Fyndiq [indiscernible] all our increased take rate and our ability to spend a higher absolute amount on marketing. And as you remember, we were still able to increase [indiscernible].
We're adding up these 2 segments received SEK 11 million EBITDA. Business an improvement of close to SEK 130 million versus last year. It's slightly different from the reported SEK 23 million as Fredrik mentioned, but it has to do with the inclusion of Fyndiq from April 12. We know the seasonality in our business and business model and the importance of the fourth quarter to us. EBITDA accounted to SEK 17 million alone in the fourth quarter. Going forward, we expect strong leverage on our profitability. And as GMV normalizes, we should be ready for profitable work from here.
As mentioned in the Capital Markets Day in November, we will clearly observe a lower cost base in '23 versus '22. At the same time, we have a higher temporary cost base in the second half of '22, which stems from the ongoing integration of our 2 companies as well as the platform migration. We remain confident that we will reduce the cost base during 2024 and achieved the minus SEK 40 million run rate savings that we communicated in connection with the acquisition of Fyndiq. The centralization of operations in Stockholm will has further strengthened our confidence that we will achieve this. It will add some one-off costs in 2024 looking to do the transparent and adjusted showed a operating cash flow before changes in our working capital. We expect this positive trend to continue from here. And in combination with the extended payout time for merchants, we'll be -- we are in a strong cash position. I do not foresee any additional cash need and that we are now a cash-generating business.
Good progressing according to plan and with a deadline in September. We have a continued solid growth of our main KPI, our gross profit at marketing, and we can conclude a fourth consecutive EBITDA positive quarter. With that said, this marks the end of the first part of this call, and now we open up for the Q&A session.
[Operator Instructions] The next question comes from Nicklas Fhärm from SEB Equities.
So a lot of interesting KPIs and numbers to discuss today, I think. But let's start somewhere. I was going to ask you, when it comes to the churning or purging of unprofitable volumes and merchants, could you give us some idea of how you actually performed on a more sort of organic or like-for-like basis compared to the market development that you just discussed?
Communicated, we should shortly and I believe we sort of have soon an end of that big spring cleaning that we have been doing. As you were talking about Fyndiq, we are starting to add merchants. And I think it's now rather a trimming of performance of merchants on our platforms rather than a sort of bigger cleaning on actual number of merchants. I don't have a -- what I can procedure on the exact organic performance, but we should be seeing the end of that cleaning period.
And also just reading up on sort of the word from the CEO and the report, et cetera. It seems to me if I try to summarize that. implementing your strategy that we also listened to on your Capital Markets Day recently, you expect a significant buildup in inventory and in turn, that will drive perhaps in combination with some increased marketing efforts. Do you think though that -- I mean, how should we look at Q1 Specifically in terms of purging still unprofitable volumes in merchants. Is that sort of net each other out? Or do you still expect that whatever you do achieve in terms of your strategy to increase inventory, et cetera, that we will still -- that we should still expect you to underperform the overall market development in Q1 this year, irrespective of how the market develops?
Good, question. We try not to be too specific in our guidance. What we can say, though, we have the ambition, and we are very confident to be able to grow for the full year and grow with a profit. When exactly that will happen, we can to say that the Q1 is a little bit a special month given that we have the Chinese New Years and that affects especially the Fyndiq part of the business. And as we're growing the Chinese supply on the Fyndiq side, we get more and more sensitive, so to say, from that effect from the Chinese New Year. However, after that, if it's a second or third quarter, we strongly believe that we will be able to show growth on top line as well.
Yes. All right. Let's carry on. When it comes to -- when it comes to the increase in take rates, I think it's quite an extraordinary increase, to be honest, even though it's very much in line with our communication at the CMD and your guidance. Can I just ask you, to what extent does that actually reflects a change in mix in GMV, for example, a lower share of electronics, et cetera?
So I think boring on the Fyndiq side, it's fair to assume that is a rather stable and accurate reflection of our underlying take rate. Looking at our average order commission often compared to Fyndiq where we are exposed to some fixed part of the commission, which take rates during the quarter. I think this is a relatively distributed plateau that we should be stable on Yes. And just to add to that, we don't see that this is any extraordinary levels by any means this is a new normal level that we have reached.
Savings ambitions, Admittedly, a really, really strong performance on cost management in last year, of course. But looking ahead now, you have communicated that you aim to take out another SEK 40 million in run rate cost as of the end of this year. And I think now you should have a pretty good idea on where those SEK 40 million will come from. And I would be very interested to hear your thoughts on sort of slightly more detailed levels to corroborate that total SEK 40 million, please?
So the SEK 40 million is most will build up of sort of 2, 3 large categories: personnel costs, consultants and platform and infrastructure costs. We have executed on the consultancy part of it and most of the personnel, not related to sort of platform efficiency. So the platform migration in September is key to us to realize the remaining part of the synergies attached to the combination with Fyndiq. We remain confident in that. The migration is progressing according to plan. Hence, we should be able to realize the SEK 40 million according our original plan.
And final question. SEK 7 million to SEK 9 million [indiscernible] in 2026.
Yes. So what we're saying is that...
2025, sorry.
Yes. So what we're saying is that we have a range, it's not defined yet. We hope as many as possible join us up to Stockholm. But depending on that, we will have a cost between SEK 7 million, SEK 9 million for this year. We see that already during 2026, we -- that one-off cost will be offset by a lower run rate due to the fact that we only have one office.
[Operator Instructions] The next question comes from Adam Wyden from ADW Capital.
A couple of questions. You guys didn't really -- in your EBITDA figures, you didn't really quantify one-off charges. I mean I know you quantified it -- quantified sort of what the one-off charges you would expect in '24 from the from the office. But I know you're not going to be precise, but I mean is there a way to sort of quantify how much in the SEK 23 million, sort of how much is sort of temporary consultants or one-off or restructuring charges that -- because I think it might be helpful for people to sort of have a better understanding of sort of what normalized profitability is?
Because I mean, headcount, the old pre-merger they attempted to sort of quantify what was sort of onetime in nature. I mean, is there a high level, is there any way you can sort of help to sort of give us order of magnitude of sort of what were sort of onetime charges in '23, so we can sort of get a better understanding of sort of an adjusted EBITDA or normalized EBITDA?
I can I'll do my best. And I think to start after no cost associated with restructuring costs. It's rather temporary consultants related to our platform migration in sort of order of a number of -- a low number of single-digit number of consultants in IT, tech and data really. We have been able to sort of lead out educative costs in software and sort of administrative costs associated with that. Out of the SEK 40 million and the 3 categories I was talking about earlier, I think we have done sort of most of the sort of fundamental cleanup of consultancy and the personnel cost side of things.
However, the net effect is diluted and sort of all consumed really of the temporary costs to that. The platform migration we released most of the SEK 40 million, and I think I mean to be talking -- to be saying that we're sort of halfway there, right? I think both in terms of time and our ability to achieve cost is not [indiscernible].
Okay. So yes, I'm just trying to understand. I think at the Capital Markets Day, you guys sort of throw out a number like you had a chart which sort of said you had an increase of about SEK 10 million of OpEx relative to the SEK 40 million. And so I'm just sort of working off of that and sort of, again, I think we're all just sort of trying to figure out -- I get it, there's a lot of moving parts and sort of there are some costs that are going up in the short term and some costs are sort of restructuring and sort of one-off, and I'm I think what we're really trying to understand is sort of like from where we are in sort of for the full year of '23, sort of how much of that cost is sort of that's not in the EBITDA is sort of temporary or sort of onetime in nature combined? I guess, is what I'm saying. I know there are sort of things that you're taking on your one-off and then you're putting other things on, but I'm just sort of trying to get a sense of like sort of what is sort of the normalized number based on this GMV base, but like obviously, not giving you credit for the take rate and the tech platform in that?
And SEK 2 million, I think also referring back to that chart from November in the Capital Market Day. We are still on the level of the acquisition and have not really been on there. We are probably roughly speaking in a halfway there, but we have added cost back to that. So the net position is really similar to the level in Q2 timing of the acquisition. So net effect on the P&L, a clear majority of that should come out from current levels in '24.
Got it. Okay. That's helpful. Can you talk a little bit about like -- I know they talked about sort of take rate and mix and stuff like that. But I mean do you expect any development sort of on I know you guys took a big take rate increase in the Q1 on the CDON side. But I mean do you see sort of developments on take rate and sort of value-added service in '24 or is it primarily the focus on growing GMV in '24? Do you think that this sort of can be -- I mean Fyndiq is sort of already there, but on the CDON side, do you expect future sort of more development on the take rate side and the value-added services side?
Yes. We have some work that we are doing and are about to do when it comes to aligning the selling fees from our merchants. We have some aligning to do there that we can do during the year. When it comes to the value-added services, we need to make sure that we focus on the right things here. And for us, number 1, 2 and 3 is to make sure that we get the migration of the platform and done by September. So in the light of that, we are a little bit has hesitate about also putting focus on the value-added services, to be honest. And for now, we see also that the coming at least 6 months we will have a great focus on pushing top line up. And we see that there, we will have majority of the impact of the effect, which will to the EBITDA.
So again, I sort of go back to your slide on November at the Capital Markets that you guys basically had, I think, in your middle case like SEK 230 million of EBITDA for '26. I mean, we're sitting here in February of '24. Obviously, interest rates are coming -- going to come down. The consumer is probably going to improve in the back half. I mean it's fair to assume that the path to sort of SEK 260 million in '20, whatever 26 is not going to be like a hockey stick, you would expect some sort of linearity in that capacity, right? Like that you would this isn't like that you would expect sort of more linearity sort of in the financial plan from here, is that sort of fair to assume that like you would expect some sort of GMV growth in the back half and sort of sort of a more linearity sort of as you sort of go through '24 into '25? I mean obviously, the platform is a big one, that will be in Q3. But I mean, would you sort of expect more linearity?
We cannot say if it's on linearity, but definitely not a hockey stick. The hockey stick days are over, and we have a more solid growth in the company, definitely. So we're not pushing everything ahead of us. We see that we will have continue to have solid growth in our gross profit at marketing. The best way now that we can see how to increase those levels are to increase the top line GMV.
We know how to grow the -- grow a marketplace have done that successfully with Fyndiq, most recently now in the last 2 quarters. We understand how to grow that profitably and we should be applying the same residue, which we're doing strategic initiatives on CDON as well.
Last question for me. Is it fair to assume then -- I know Nicklas sort of tried to touch on this in terms of like growing out sort of growing market share beyond the market. But putting that all aside, I mean, I know you guys are not macroeconomists, but it's -- the Nordic e-commerce has historically grown 10% to 15% or probably closer to 15%. You've sort of seen -- and then when you adjust sort of for inflation as well, you had sort of big sort of big declines in '22 and '23. And even more so adjusted for inflation that are, I mean, wildly recessionary. And again, I just use U.S. as an example. I mean, in 2009, Amazon won a lot of market share because they were actually able to provide better value and better prices for the customer and they were more price conscious. I mean, I guess, my question back to you is I don't know, but I would -- I see a lot of retail bankruptcies in Sweden. I would think that, that would be an opportunity for you guys to, I guess, win market share. And I guess, I would think -- I'm curious of your opinion, but I would think that there's probably some tailwinds in e-commerce in the context of sort of price-conscious consumers, inventories getting moved from 1P or whatever you want to call it, like retail stores and people trying to get their goods.
I mean I read a thing that, well, one of the big sporting goods retailers is basically closing all their physical stores. And I think they're actually a customer of ours. I mean I would think that those would be all sort of tailwinds for e-commerce in the Nordics. I mean are you sort of expecting that? I mean it's one thing to win market share, but it's also another thing to just sort of have tailwinds in sort of the end market. I mean, would you expect sort of the end market to improve sort of in the back half or into '25. I mean you sort of have a view on that?
Yes. So I would say the consensus view, and you know that we like consensus in Sweden, the consensus view now is pretty much that we will have a tough first half year in general in the economy and a much more positive second half here. When you're looking into the consensus for the e-commerce industry. It very much aligns with that view as well. For us to be opportunistic, as you say, to attract more over Stockholm. We don't anticipate that. And we are much more fundamentally moving ahead with the big chunks of the core of marketplace model with the supply and the customer happiness. And of course, we can become opportunistic, but we still believe that these core parts are the parts that are on a bad both in the midterm and in the long term.
Good. Well, that's very helpful, and thank you guys for the progress. It's it's nice to have 4 consecutive quarters of EBITDA and no surprises in Q4. So hopefully, we see the shares follow soon. Appreciate all the hard work. .
Thank you.
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Yes. Just one before we close this, operator, we cannot see if they have come in any written questions. Could you please confirm that we have no written questions?
No.
Thank you so much for your time.