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Verkkokauppa.com - Focusing on growth in 2019E

As competition is likely to remain tight and price-driven, we are not expecting margins to improve in 2019E. Investments in marketing should bring more visibility and support sales growth. We retain our rating “BUY” with TP of EUR 4.7.

Attractive pricing and marketing likely to support sales

Verkkokauppa.com was able to increase its market share, driven by solid revenue growth of 13% y/y (revenue of EUR 116m) in Q1. In 2019E, the company still seeks to win market share and compete with low prices. The company has made investments into marketing and targets to reach larger audience by new campaigns and tv-commercials. Vekkokauppa.com also continuously aims to improve the user experience online and in mobile. With these investments, we expect revenue growth to continue in ‘19E.

No expectations of margin improvements in 2019E

Verkkokauppa.com’s Q1 operating profit decreased by 14% y/y and was EUR 2.3m. This was mainly due to lower gross margin and increased marketing expenses. Revenue growth in 2019E is unlikely to come for free and price-driven competition adds pressure on the margin. Gross margin is also impacted by wholesale/B2B sales which varies by each quarter. As investments into marketing are expected to continue, we believe OPEX will remain at higher level in ‘19E. The revenue from Apuraha continued to grow and was EUR 0.83m (EUR 0.67m) in Q1. Apuaraha financing is expected to continue growing and supporting margins also in 2019E.

Retaining “Buy” with TP of EUR 4.7

We have slightly adjusted our estimates with 2019E sales totaling EUR 522m (prev. EUR 519m), gross margin of 14.7% and EBIT of EUR 13m (prev. EUR 14m). The company reiterated its guidance for 2019E and expects revenue of EUR 500-550m and EBIT of EUR 11-17m. On our estimates, Verkkokauppa.com trades at 11.9x and 8.7x EV/EBIT in ’19-‘20E, which translates into 67% and 49% discount compared to the online focused Nordic & European peers. We retain our rating “Buy” with TP of EUR 4.7.

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