CDON AB (CDON) Earnings Call Transcript & Summary

I'm joined today by CEO, Fredrik Norberg; and CFO, Carl Andersson, who will present the quarter and take questions during the Q&A session. Gentlemen, welcome. Thank you. And I figure we started right away, so I hand over the word.

Perfect. Thank you, Hjalmar. Welcome to this earnings call in this new venue of DNB Carnegie headquarter. Next to my side, as usual, I have our CFO, Carl Andersson, who will jump in with -- when we're talking about numbers later on. First, to give you a backdrop, this is CDON Group. We consist of 2 marketplace brands, CDON and Fyndiq. Combined, we have 3 million active customers. This means that we have the last 12 months have 3 million unique customers who have purchased something on CDON or Fyndiq. We have annual visits of 100 million. And combined from 3,000 merchants, we have 30 million SKUs products for sale at our marketplaces. We are operating an asset-light scalable business model fueled by a negative cash cycle. This means that we get -- within 1 to 2 days, we get paid from customers and then roughly 2 weeks later, we pay out to the merchants. And we are operating in a highly attractive market, the e-com market of Nordics with a large potential. The potential we're talking about is how you are shopping online. In the rest of the developed world, you are shopping through marketplaces when you shop online. In the Nordics, 10% of the online shoppers are doing this through marketplaces. And this leads us to our mission to unleash the power of the marketplace to give the best shopping experience in the Nordics. All right. To summarize this quarter, I'm very happy to report that we are regaining momentum. Our first quarter -- this was the first quarter with growth both in GMV and gross profit after marketing since the merger. And this includes both segments, both CDON and Fyndiq. We have a continued positive sales from end of Q1 with 4 consecutive months with positive GMV growth. And our positive effect from the new European merchants we have been talking about is yet to be realized during the third and fourth quarter this year. Looking into the hard numbers, our gross merchandise value increased by 8% compared to last year, up to SEK 460 million. Our main KPI, our gross profit after marketing was increased by also 8% to SEK 48 million. And when it comes to our profit, EBITDA, we went just above 0 with plus SEK 400,000 compared to last year's adjusted EBITDA of minus SEK 4.4 million and also reported EBITDA of minus SEK 9.4 million. So this is a great improvement year-over-year also when it comes to the bottom line. If we dig a little bit deeper, we can look on the left side here, we have the GMV growth. These are demand numbers. As we reported last quarter, we ended the quarter quite strong. We had a catastrophical start of the year with minus 17% and minus 18% in January and February. Then just above 0 in March, and we have continued step-by-step throughout the quarter and delivering an increased growth of our sales. And positive also is that it's both segments. It's not just one segment who's pushing this development, but both segments. Also that it's across both categories and merchants that are delivering a positive outcome. Looking on the right side, we have our main KPI, the gross profit after marketing. Here, we have the reported numbers. And the gray bars represent the second quarter. And as you can see here that usually we have -- the second quarter is in line with the first quarter or just below the first quarter. And here, we can see that we have a very positive development compared to the first quarter. And also looking ahead, you can see that we have a very important both third quarter, but mainly our fourth quarter, which for all the retail companies are extremely important. We have been a little bit negatively affected on our gross profit after marketing due to our marketing mix. We continue to have a little bit higher marketing costs than we are anticipating, and this is due to us having weaker direct and organic traffic than expected. Looking a little bit ahead, we have a clear focus for the remainder of '25. We have a pipeline of large European merchants integrating and being onboarded as we speak and throughout the third quarter, and we expect them to generate sales in the fourth quarter. We have a new category, Snus, a classic Swedish and Nordic category. Actually, CDON have had this before, but we lost the permit when we moved our headquarter from Malmö to Stockholm. And now we're happy to announce that we have regained that permit and expect to start the sales in the fourth quarter. Also, getting back to our marketing mix, we have a big focus now on SEO and AI search, which is -- they are closely combined to each other. And we have a new performance marketing agency called Viva Media, who we have now a close collaboration with to really double down on this area and make sure that we regain our positive momentum in this important channel. And we continue with our strategic review and continue to explore those venues. We remain committed to our long-term goal of becoming the Nordic -- the biggest marketplace in the Nordics. And we also continue to believe in the core parts of the marketplace model, massively improve supply and greatly improve our customer satisfaction. And with those 2, we see that the supply part is the main focus. Good products with good prices will deliver happy customers. So this is -- continues to be our main focus, and that will also be the base to enable happy customers. Yes. With that said, let's jump into some numbers.

Thank you very much. Looking forward to taking you through our financial performance. So as mentioned, this was a very positive quarter for the group. We were able to carry the positive momentum from the first quarter into the second quarter. 8% higher GMV in the strong quarter for both segments. 3% higher net sales, where strong 3P was able to offset the continued weak performance in our 1P business. GPAM increased by 8%, but we also need to note the one-off merchant performance fee elements to this, which helped offset the negative impact from a category mix shift. All in all, a significantly improved EBITDA of SEK 0.4 million compared to the minus SEK 9.4 million just a year ago. Growth across both our segments following our strategic focus and positive GMV growth in the CDON segment does not happen often. It's the first time for me personally and for the company since the merger or the acquisition of Fyndiq. We grew by 6% in Q2. Very strong quarter for Fyndiq, driven by our continuous improvement in customer experience and also strong growth outside of Sweden in the other Nordic markets. Fyndiq grew by 13%, bouncing back from a rather weak first quarter of the year. Strong end to the quarter, and I believe we were able to build on the momentum and generate further momentum that we look forward to carry into the third and fourth quarter of the year. A somewhat mixed take rate development as a category mix shift in primarily CDON pressured our commission levels a little bit. We are selling an increasing share of home electronics on CDON, and this has contributed to a slightly lower take rate. Take rate was equal to 13.7%, which is an improvement from last year, but a decline from the take rate in recent quarters where we got accustomed to a slightly higher take rate following the new shipping fee model. A category mix shift is a natural part of the marketplace and just emphasizes the importance of having a broad and competitive assortment. Higher-than-usual merchant performance fees on Fyndiq pushed the take rate to 31.5%. This is high and adjusting for the one-off portion of those fees, the take rate would have been roughly in line with the previous quarters. Group GPAM grew and can be derived from our Fyndiq segment. So despite the growth in CDON, GPAM declined by 2% following higher marketing costs compared to a year ago. The GPAM margin fell slightly to 7.2% versus 7.8% a year ago. On the other hand, Fyndiq -- GPAM grew a staggering 20% in the quarter, partly explained by those higher merchant fees, but don't forget the strong underlying commercial performance in the segment. The GPAM margin increased to 19.5%. And as we've been talking about, the higher marketing costs compared to last year, but we have also been able to stabilize, and they are rather in line with recent levels. So across both segments, we see a continued high share of paid traffic. Our direct and inorganic is less than it was a year ago, and we're working closely with Viva Media to improve this. Marketing costs came down slightly for CDON in the quarter, but it's significantly higher than it was a year ago. For Fyndiq, it increased to 12% following a brief decline in Q1, but 12% is roughly equal that of Q3 and Q4 of 2024. A positive EBITDA in the positive quarter where we returned to GMV and GPAM growth, a significantly improved EBITDA of SEK 0.4 million compared to the SEK 9.4 million last year. We do not make any adjustments to Q2 results compared to Q2 last year when we adjusted for around SEK 5 million of costs associated with closing of the Malmö office. Our operational expenses are slightly above our ambition, but we do have a very clear plan on how to reduce during the second half of the year. OpEx is lower than it was a year ago, but at the same time, higher than Q1 of this year. We have had to keep migration-related consultants longer than expected and not been able to terminate all of the software license costs that we were anticipating. Costs should reduce further in Q3 and Q4 as we seek to complete the back-end part of the migration. That will allow us to ramp down consultants and also terminate the software costs associated with the legacy platform. We also left the Malmö office end of Q2. So savings from that will be visible already from Q3. A few words on cash, and it was a positive cash flow in the quarter following that operational performance. Operational cash flow before changes in working capital was positive of SEK 2 million, and our cash balance remains stable. End of period, it was SEK 82 million. That is roughly that of Q2 last year and slightly higher than the opening balance going into this year -- this quarter. So to summarize, from a financial point of view, a positive quarter where we returned to growth on GMV and GPAM level on group and almost on a segment-by-segment basis. Positive EBITDA stable cash position, and we have a clear plan to address the higher -- or the slightly higher operating expenses. So we will get back to our planned run rates. That said, I'll leave it back to you, Fredrik.

Yes. Some ending remarks here. I'm really happy that we can see now that we are regaining momentum. And I would also really to acknowledge the whole organization that really have managed to create this impressive output. You should all be very proud of yourself. And really looking forward to next quarter and be standing here again. With that said, we open up for some Q&A.

Thank you so much. And this sounds very optimistic looking into the future. I think we start off with the growth. Were you surprised by the strong growth in the quarter? And maybe could you elaborate on how you feel you grow in relation to your closest peers? Are you outgrowing the market? Maybe elaborate a bit on this?

I can start with maybe the first part. I would say we were maybe a little bit more surprised of the weak performance in January and February, to be honest. We ended the first quarter quite strong with growth in March, and we could see that, that was on a very strong and positive trajectory. And so that didn't really, to be honest, come as a surprise for us. This was much more according to plan. When it comes to comparison with the rest of the market, it's kind of hard to say. It's very volatile now. The figures we get is 1 month up double digit and 1 month down double digit. What we can say, though, is that we are still in some kind of hygiene level business. We are still working with having the basics in place with having a good assortment with a good customer experience. So I would say from maybe by the end of this year, we should be able to more focus on getting market shares from our competitors.

Okay. So if you were to elaborate maybe on you gaining market share versus sort of like the underlying market, a more cautious customer, do you feel that you can grow maybe independent of the underlying market by gaining market share?

Yes, definitely. And I think that's what we are seeing now. I think overall, it's kind of weak sentiment still in the overall consumer market. So we are growing despite that, I would say. But then the second step is also to continue and take market shares as well.

I mean in my opinion, I think our growth is highly sort of internally generated. We've been working hard with our strategic focus areas, working with key merchants in key product categories. And our ability to improve that assortment is rather what's driving this strong growth. And to your point, driving market share rather than just riding the underlying wave. So we're very happy to see the sort of direct results of that hard work of everyone.

Yes. Okay. Maybe staying on the subject of sort of like internal versus external. If we apply that sort of reasoning on the gross margin as well, what do you feel looking ahead that can be done on the gross margin level? And which factors are the main sort of like internal factors versus the external ones?

So over time, we've had a fairly stable gross margin. Our commission levels are steady, and the pressure is rather a mix rather than a pressure on margins in certain categories. Then we have the marketing cost, which we must address and really get back to the organic and direct traffic and improve that and increase that share of our traffic mix. That, I think, is what can improve our GPAM margin over time. It is tricky. It takes time to change customer behavior and drive organic traffic. We probably need a bit of brand marketing around it as well to improve the visibility and the brand association. We also have a few other avenues to explore and expand our take rate further. We've been talking about retail media and other topics that could expand it. But over the sort of shorter period of time, I fall back to the boring answer of saying that we've had fairly stable margins over time, and I don't foresee any rapid shifts in...

Maybe adding to that also when we were talking about the marketing mix, when you are decreasing your sales, you could increase your organic traffic by being very good at SEO and making sure that Google and nowadays, the AI search engines like you. But one marketing channel that is quite hard to increase when you are decreasing is direct traffic. And now when we are turning around to growing, that will also come a little bit for free because over time, people tend when they're increasing their return rates, to move over to more cheaper channels such as e-mail and direct traffic. So this is also a step forward in order to fix the marketing mix is to start getting more and more customers for every month we're expanding now into.

Okay. Yes. We also got a question on that topic, on the topic of marketing. Can you give us maybe some rough estimates on some sort of time frame we can expect a more maybe balanced marketing mix, so to speak?

I must say I've been doing now almost for 20 years online marketing, and I don't think I've ever seen this type of fast changes that's happening now in -- when it comes to Google actually being threatened as the #1 search engine. So I think a lot of things are happening. I think things will change. Companies that have had a strong position on Google will be challenged by the AI engines. And I think this is a quite good opportunity for companies as us that now can do rapid changes and change how we are promoting, showing our products to the customers and adapting ourselves fast to the new demands from AI search engines and such. And we are running quite fast in that direction now.

Yes. Is there a possibility that we could see marketing cost as a percentage of GMV trend down maybe for the second half here?

I think it's quite tricky. We have been talking about and in all honesty and being humble about it, we have tried to turn around this. It is a changing macro as we are talking about, which increases complexity further to that. It's definitely our ambition, but I think it's too early to tell.

All right. Moving on then, we got a question regarding the Snus initiative. A question on how would you handle the age verification for this?

Yes. This is a highly restricted product category, and we put a lot of resources and time on to this. The compliance framework of selling Snus is quite extensive. That is one part of it to make sure, number one, that people under age cannot buy the product; and number two, that they cannot collect it when we are delivering the product to them. And this is done by a company that only works with Snus deliveries and Snus warehousing. So we are cooperating with the best of the best in this category.

Yes. All right. We take a step back here because we got another question then on the marketing. With the introduction in the marketing landscape of AI chatbots, how are you navigating this field? Do you see an opportunity here? And how do you sort of like adjust your marketing efforts to deal with this?

I think it connects to what I spoke with earlier. I think this is a great opportunity for companies that can move fast, try things. I think we have been too slow the last 2 years, to be honest, when it comes to these type of marketing elaboration and such. But now we see that we are increasing that speed and have -- are doing a lot of tests into that area. Still today, roughly only 5% of the searches and the traffic is coming from the AI search tools. But we, as everybody else, believe that this is just the start of it, and we will move very fast in that direction. And us as a company to have 30 million products, that should be something that's interesting for any search tool even despite if they are named Google or ChatGPT.

Yes. Yes. Okay. Yes. We also received a few questions on the merchant onboarding. What is maybe your current visibility on this factor? How confident are you? Is there anything that can be said maybe like a ballpark number of the numbers of merchants to be expected during the second half here?

I mean I think that's probably hard. And I think we can put them maybe in 2 buckets, right? I mean, if we take a step back, we've been working very hard on releasing this new API that will allow better, more stable and also essentially being a more scalable tool for us to onboard a higher number of merchants. Then it's rather about sort of quality or quantity. We're working very hard with sort of the quality bucket, handpicking large competitive, high-performing European merchants where we have a strong value proposition, offering a gateway to the Nordics. There, we have quite good visibility and are working with a number of high potential merchants that we believe in. Then we continue to open this API and will allow it and publish it really to any merchants that could be potential and fulfill our quality checklist. So once that is in place, I think we definitely have something scalable and solid that will allow us to grow faster in the future.

And adding to that, we can say -- I think we said it last quarter as well, we have a very high interest from these type of European merchants. The whole Nordic market is so fragmented and scattered when it comes to compliance, VATs, language, currencies, everything is times 4 and with small market sizes. So what we are offering is pretty much do you want to expand your sales into the Nordic region. The only thing you have to do is upload your products and make sure to ship them in time to the customers. And this value proposition to merchants have shown to be extremely interesting.

All right. So a lot of emphasis on the quality aspect of things rather than the quantity. Is there any risk relating to it that you see looking ahead? Could there be any turbulence in the integration that could see it being maybe prolonged or so?

It's always a challenging area, and it must work. I mean with 30 million products and 3 million active merchants, it's very large scale. So we need to be cautious, at the same time, not overly cautious and release it sort of just in time when we feel comfortable about it. We have been working on it for quite some time, and we have high belief in the team that has been working on it.

All right. And then another question on the Snus. Is it only Snus or will it include nicotine pouches as well or maybe more a broader sense of this product?

So the permit will allow us to sell both. We are still working on the exact rollout of these products, but we are looking forward to launching it during the fourth quarter.

Okay. And then we have a question regarding potential implications on Fyndiq, if there's a proposal then the EU proposal for tax on small parcels from outside of the EU if this were to be adopted. Would you see any potential impact from this?

I mean this is a quite frequent question when it comes to Fyndiq, and I think it's a relevant question. And my answer to that is we need to raise the question a little bit. The position for Fyndiq and the value proposition is discount shopping. Discount shopping have been here for hundreds plus, hundreds of years probably. And this was the idea, which I came with 15 years ago to be able to do this discount shopping online. And what we're talking about now is pretty much the supply chain. And the supply chain of getting the bargain products and discount products, that changes over time. In the beginning of Fyndiq, it was all Swedish merchants, and then it moved over to European merchants. And then all of a sudden, we had this big bridge over to China, which allowed us to, without any middle hands, get the products directly from China without stopping 3 times in Europe and Sweden. And that is probably about to change now as well. And we will adapt to the new supply chain that will appear and that we already have in place. We have roughly -- we have a lot of Swedish Nordic merchants that are selling on Fyndiq as well as European merchants. We are moving more and more of the Chinese merchants and Chinese supply into European warehouses as well. So I would say what's happening now is, as we were talking about the AI shift, this is a big shift when it comes to the supply chain, and we need to be fast to adapt to it.

And then a question on the customer experience or maybe customer satisfaction KPIs. Can you provide any numbers here, maybe the development over the last 12 months, something that you could share here on the sort of like customer experience KPIs?

It's been a quite solid improvement the last 12 months. What we can though say is that we expect that, that could drop a little bit. And there is a correlation with new onboarded merchants and new supply. And that takes a little bit a couple of months before we understand and the merchants understand that they need to ship in time, have the right products and so on. So we believe that maybe if we increase the supply and merchant base a lot now on CDON, that could get a little bit of a hit. We do everything we try to make sure that we get the right merchants with the right supply, but there is a little bit of a negative correlation between increased supply and the customer satisfaction. And that negative correlation is something that we address and focus a lot on. So it's rather positive rather than a negative.

All right. Perfect. Sounds good. Thank you so much, Fredrik and Carl, and I'll leave it to you for any concluding remarks.

No. I think that's it. Thank you for watching, and have a great summer.