BooHoo’s higher marketing spend is very much in evidence – I keep seeing ads for the company on TV. Also, my niece has been educating me on the phenomenon of Vloggers – these are young people who do home-made videos, put them on YouTube, and in some cases (e.g. Zoella, and Alfie) have built up enormous fan bases of mainly teenage followers.

A few fashion companies (especially BooHoo) have got onto this trend, and sponsor the best Vloggers to promote their products, and to promote competitions, where teenagers can win free clothes, etc.

Zoella’s photoshoot of BooHoo’s new spring/summer season got a staggering 1.3 million views on YouTube in just 3 days, and 120,000 thumbs up votes. Those are stunning statistics, and shows that the top Vloggers have a greater reach than fashion magazines. They basically promote clothes & make up, and generally talk nonsense to the camera. They have no discernable talent, other than having an engaging personality, and being pretty.

Note also that BooHoo works with an Australian Vlogger called Lauren Curtis, and are planning to tie up with American Vloggers too. This is all very encouraging, as it shows that BooHoo understand their market, and how to promote stuff to them.

My niece tells me that BooHoo is popular amongst her peers (17-19 year olds), but that the product quality is a bit variable. However, she concluded that it’s cheap, so, “you get what you pay for”.

I feel that BooHoo definitely need to focus on improving product quality though, or they will lose repeat customers if they disappoint them too often with poor quality product.

The valuation here is undemanding once you strip out the large net cash pile, and factor in the likelihood that analyst forecasts could now be too conservative.

The growth focus is on certain key markets, e.g. France, Australia, USA, which I think is absolutely right, as opposed to a scattergun approach.

The valuation here is ridiculously low compared with Asos, even though BooHoo is a higher quality business – making a far greater profit margin than Asos, which is struggling to make any profit at all currently, and is buying in top line growth by discounting.

BooHoo also has greater growth potential than Asos, as it’s only about one sixth of the size, so much easier to get strong % growth stats when you’re relatively small, whereas Asos will really struggle to get rapid growth now it’s c.£1bn turnover company.

So I feel Asos should come down from a PER of c.80 to about 25. Whilst BooHoo probably deserves a PER of 30+, to reflect its international growth potential, and higher operating margin.

I reckon BooHoo is likely to surprise on the upside with the next sales/earnings announcement. Mgt sounded confident in the last conf call, and said that the impact of the new marketing campaign from 1 Mar 2015 had been good.

DYOR as usual.

September 19, 2013 by Harry
Category: blog