Equity Research 30.07.2021

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Zalando AG (ZAL): Europe’s Fastest Growing Online Fashion Retailer

 

Based in Berlin, Zalando, operates as an online fashion and lifestyle retailer for women, men and children, in 20 countries across Europe. Its product selection cover beauty products, sports goods, shoes, clothes & accessories form more than 1,500 brands.

ZAL sales grew by 23% in 2020 to €7.9 Bn, because of nationwide lockdowns with consumers shifting purchases online and physical stores were pressured to transition its business activities towards digitalization.

Over 185.5 M orders (+28% year-over-year y/y) were made on its platform during this period, taken part by more than 38 million active customers (+25% y/y). Also, more than 2,400 offline stores were able to transition efficiently on ZAL platform connecting their products to shoppers.

Overall, strong revenues driven by exceptional market conditions, enabling ZAL to generate substantial free cash flows

 

 

 

 

 

Online Fashion Thriving During COVID-19

After an exceptional year, business wise, ZAL is still hitting double digit growth. Its Q1-2021 was consistent in regard to market trends, reporting €2.2 Bn in revenues (+46% y/y). Fashion Store segment thrived (+44% y/y) connected to an increase in the number of new orders which benefitted from the consistent acquisition of new customers. In addition, the Offprice segment, also sustained excellent growth results (+72%), as its Private Oultet : Zalando Lounge (specialized in deals and discount) continued to attract consumers, offsetting Zalando business outlets (physical stores).

The industry and its players had seen significant growth using this business opportunity as a source of creating a new shopping experience for their clients. Online fashion has been effective in converting physical store shopping afficionados towards online sessions and digital transactions. Augmented and virtual reality, product customization, social media, e-wallet are the main drivers shaping customers behavior. In the long run, online fashion will account for the majority of all fashion sales.

 

As a goal of providing the best value / products for its active members (and acquiring new customers), ZAL  is set to make investments in customer relations, develop its active customer base and using digital tools to increase its returns. To fund these investments, ZAL has recently raised €1 billion through convertible bond offerings.

 

Share Price Expectation

YTD, the stock surged by 3.22%. The share price (29/07/2021) closed at 97.90€ per share.

As expected, stronger revenues / profits, means attractive value stock for investors. Excess cash is piling up, with ZAL having several options towards its business profit maximization by improving effectively its online shopping platform.

Zalando has strong potential to reward investors with high value in the next 5 years.

 

 

 

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