Thread by @puppyeh1

I took a deep dive into Cettire, $CTT.AX, after reading this interesting tweet from @SharogradskyM.

You all know I'm not a 'growth bro' but for the life of me I can't work out why $CTT.AX is so cheap. It seems mispriced, by a factor of 50-100%....here's why 👇👇

THREAD

https://twitter.com/SharogradskyM/status/1370309710520455169

Cettire is an online platform for luxury goods. They connect w/ offline suppliers (dept stores, wholesalers, etc - NOT the brands directly) to sell products online. $CTT.AX holds no inventory; their ERP connects directly w their suppliers. They function just as the shopfront...

...whilst all product/inventory risk remains w the supplier.

The biz operates worldwide (in 53 countries), w/ 90% of revs being outside Aus (despite the Aussie listing)...here's the main page:

cettire.com

Before diving in a word on accounting. Despite essentially functioning as a marketplace, they book revenue on a principal basis (ie 100% of transaction value) which makes comping vs comps tricky ($FTCH, etc).

In reality the revenue line at $CTT.AX is more akin to GMV at comps..

...so when I comp to other names I tend to look at EV/Gross Profits (which equalizes for differences in how you book revs).

There's a no of things that piqued my interest....

1) Aussie listing at Xmas: 🇦🇺is great 😎but it's not where hot tech cos normally reside...

...and the timing of the listing meant that it def fell through the cracks. Good sign - not too many paying attention (yet)

2) Small float w/ founder still dominant: founder/CEO still owns 66% of the biz. Free float only ~$140mm (AUD). Again, small cap land so not too many 👀

3) Eye-popping growth: gross revs (think of it like GMV) grew ~500% last year, and is still growing near 500% in Jan this year. Moreover this biz was growing exponentially pre-COVID. See for yourself:

4) Growth WITHOUT marketing spend: the crazy thing is this biz has grown basically organically, since historically its spent very little $$ on marketing. Before IPO, it spent a grand total of $2.5mm on marketing 🤪🤪. This is PEANUTS:

Even in the explosive 1H'20 (thru Dec), marketing spend was only 9% of sales and tiny in absolute $$ at $3.5mm (note this is <half the % sales of a $FTCH and obviously a much lower $ number):

It appears this is because free marketing - mostly organic search I guess - is almost half the business:

Obvi online luxury is a huge potential TAM, and this is a tiny minnow for now. But to recap we have a massive TAM in play; a tiny Aussie company growing 500% pa despite spending no money to grow; and a founder/operator still fully invested.

Let's talk about valuation 🥳

W/ 500% topline (largely) organic growth, a huge TAM, and no debt I thought we'd see 15-20x revs.

No no, this isn't the Nasdaq - the biz listed at ~2.5x LTM revs (!!!!) and today trades at ~5x CY (to June), but I think ~2.5x on FY1 and more importantly ~8x EV/Gross Profit...

Note of course I am assuming normalization in growth (to 125%), even tho the co has suggested nothing of the sort, and in fact is implementing free returns (as per most comps); a tie-up with BNPL giant Afterpay; and other new features to 'supercharge' growth (their words)...

Where do comps trade, you may ask? Here's a handy chart - you can see the US names trade 11-25x EV/GP despite growing much more slowly (or negatively!!), and already facing tougher comps through larger base comparisons:

Perhaps its simplistic but on the basis of the comp set, if $CTT.AX was putting up 1/5th the growth rates but going public via SPAC I'm fairly confident it would achieve 3x the EV it has today (yes, the EV in USD terms is just $320mm today)...thanks 🇦🇺for the inefficiencies!

But thinking in absolute terms we need to ask ourselves two questions: 1) why did they sell/IPO in Aus (at such low valns); and 2) do they have a sustainable/better mousetrap?

It's not easy to answer the first question...

...as the valn disparity is gargantuan. But Dean (the founder) has all his eggs in this basket, took a print on 15% of his holdings, and still owns 66% of the biz, so whilst he prob got some bad advice (listing in Aus) it doesn't preclude him achieving full value over time...

So I'm not too worried and think its a bit of a happy accident (Aussie listing bec Aussie founder; near-Xmas; small cap/low float).

As for Q2 - what are they doing differently? Well the organic growth jumps off the page, so they must be doing something right...

Otherwise their TrustPilot score is a good deal better than $FTCH, their number 1 comp:

And they seem to run very lean (only 18 FTEs!) with automatic integration into the supplier's own ERP the key differentiator. Consumer acceptance and take-up is evidenced, I would argue, by the superior returns on CAC...

...indeed this may be the most mind-blowing of all stats $CTT.AX put out - they earn a 3x return, UP FRONT, on new customers (high order value + low customer acquisition = great returns), crushing what $FTCH does:

No doubt there is more biz analysis to do here, and understanding their true edge will take time (and need to be proven out) as the biz grows.

But at barely 2.4x FY1 revs (so call it GMV) yet still growing triple digits, or more, the market is just really mispricing this asset..

...and if far more mature (yet arguably of lower-quality) slower-growing direct comps earn 12-25x gross profit multiples, then this early S-curve $CTT.AX has huge optionality that is not yet close to being priced in. I think it will be soon enough 💰

Finally, the technicals are in our favor here...as there's zero sell-side coverage today, only $140mm AUD of free float, meaning it takes only one or two US growth funds to want to own it to rerate it to $2-3/share, in my view.

Remember to always DYODD, this is a small cap, illiquid 🇦🇺stock, and I am not 100% sure about the biz quality. But yes, I do have a long position...GLTA 👊👊

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