Welcome to CDON press conference 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. I will hand the conference over to the speaker's Chair of the Board of Directors, Josephine Salenstedt, and CDON's acting CEO and CFO, Thomas Pehrsson, and Fyndiq's CEO, Fredrik Norberg. Please go ahead.
Thank you, operator. Good afternoon, everyone. Welcome to CDON's extra investor call. I'm Josephine Salenstedt. I'm a partner of Rite Ventures. Rite Ventures is one of the largest owners of CDON and has about 24% of the company. With me today, I have Thomas Pehrsson, CFO and interim CEO of CDON, and Fredrik Norberg, the founder and CEO of Fyndiq. The topic of this call is yesterday's announcement of CDON's acquisition of Fyndiq, the, after CDON, second-largest Nordic business to consumer marketplace. Before we jump into that topic, I will start with a short background. Next slide, please. From both a market perspective and a CDON perspective, the years 2021 to 2022 have been turbulent. At CDON, we have had a volatile financial development and a high rotation, both on CEO level and top management level.
These results are disappointing, and as the chair of the board, the final responsibility for this lays on me. We have had some progress. A consistent work have been done with improving our capabilities within SEO, SEM, and consumer experience. In Q4 2022, CDON executed on several commercial initiatives and on a cost reduction program of SEK 60 million-SEK 65 million, taking out about 35% of the cost, excluding one-offs. The aim was to increase efficiency and enabling profitable growth. For this reason, the Q4 results was heavily impacted by costs of one-off nature. We are now through most of this work, and we are proud that the EBITDA result was positive in January this quarter. With that, I consider a large part of the turnaround to be complete. In December, we also communicated that the CEO, Peter Kjellberg, would leave the company.
Thomas Pehrsson of CDON was appointed interim CEO. That was only about two months ago, the board is very impressed with what Thomas has accomplished during this time. In parallel with having to say goodbye to a large part of our team, the organization has refocused to our core processes and gained momentum in operations again. Now being closer to our goal of positive EBITDA for the full year of 2023, we have a much more solid foundation in place. Therefore, it is time for us to take the next step towards increased scale, next level of consumer experience, and of entrepreneurial leadership. For this reason, I am extremely excited by our intention to combine our efforts with the team of Fyndiq and to become partner with their owners and entrepreneurs. Later on in this call, Fredrik will give us a brief introduction to the company.
Before that, I will shortly cover the main pillars of the transaction. Next slide, please. CDON will acquire 100% of the shares in Fyndiq. Fyndiq's shareholders will be paid mainly in shares in CDON. The transaction also include a small cash component to enable key management in Fyndiq to switch from the current incentive program in Fyndiq to a new incentive program in CDON. The two businesses both have their strengths and weaknesses, and both have had different strategies the last two years in terms of investments and marketing. They also have different profitability profiles in the short term, but they do have very similar business models. We believe that the measure that most correctly reflects the underlying profitability potential in each company per today is profit after marketing.
Therefore, the relative valuation of the company has been based on the relative gross profit after marketing for the full year of 2022 for each company. CDON has a gross profit after marketing of SEK 118 million and Fyndiq of SEK 76 million. After smaller adjustments for relative excess cash positions and effects of the proposed incentive program, the ownership split of the combined company will be around 60% to the shareholders of CDON and around 40% to the shareholders of Fyndiq. Based on an average share price of CDON 10 days prior to signing, this implies a purchase price of about SEK 730 million. As part of the combination, Fredrik will become the CEO of CDON. This is something that I am particularly excited about.
With Fredrik, we get an experienced and driven entrepreneur who also have a substantial ownership in the company. In addition, I'm very happy that Thomas will continue in his role as CFO, and he will also assume the responsibility of being Deputy CEO. I'm convinced that Fredrik and Thomas, as the leaders, we will have a solid foundation in place for the future. Next slide, please. Let's now have a look at our rationale for the combination. First, getting the benefit from scale. The marketplace business model is substantially reliant on scale, with high incremental margins once the relative fixed cost base is covered.
We see a clear benefit from being able to leverage investment in customer experience and services on a larger customer and merchant base. While the final assessment and plan for synergies will have to wait until after completion of the transaction due to competition reasons, we see significant room for both operational and commercial synergies. Second, getting a strong entrepreneurial team and leadership. As mentioned earlier in the call, we believe that the highly entrepreneurial team of Fyndiq will complement CDON's current organization in several ways. The team of Fyndiq has impressed us within many areas. For example, tech development, customer experience, working quantitatively with data, and risk prevention. To us, it has also been key that Fredrik will have a significant ownership of about 3% of CDON upon completion of the combination.
In addition to this, the Board of CDON will be complemented with Erik Segerborg and Christoffer Norman. They are both active investors and entrepreneurs with extensive experience from very successful growth journeys on two-sided marketplaces as Avito in Russia and Hemnet in Sweden. Christoffer will be a large shareholder of CDON, owning about 3% of the company after completion. Erik has an ownership of 0.5% and will be offered to invest up to SEK 7.5 million in a convertible loan based on market terms. We are convinced that the combined company will have a very powerful and robust team at all levels, and that holds from the board to Fredrik as CEO and entrepreneur, Thomas as a commercially oriented CFO, and a solid and agile management team leading the organization. Next, I'd like to briefly touch upon CDON's previously communicated targets.
Next slide, please. In Q3 last year, we communicated financial directives aiming to clarify our strategic priorities and high-level targets. With a combination with Fyndiq, we accelerate our pace in taking market share towards our long-term goal of 2.5% of the e-commerce market. CDON's average take rate will increase as a direct effect of the combination, with Fyndiq having a substantially higher take rate than CDON of approximately 25% compared to CDON of 11%. When implementing learnings from both companies after completion of the transaction, we expect there to be room for incremental positive development with regards to take rate on top of the direct effects. We are also confident that the combination will shorten our time to attracting attractive profitability levels as the marketplace business model has the ability to generate very high margins when basic operational functions are covered.
Both Fyndiq and CDON have expectations of profitability in 2023, independently of each other. We will take measures to maintain the momentum of each company in the short term. In the medium term, we expect significant synergies on both operational and commercial level, though the timing of those are yet to be defined. The path forward in this respect will be finalized after completion of the transaction. Our target of positive EBITDA in 2023 remains intact, as well as the long-term target of 2.5% market share in 2025. With that, I'm happy to let Thomas continue the presentation. Thank you and good afternoon.
Thank you, Josephine. Next. Okay, thank you. CDON has been listed at the Nasdaq First North since the 6th of November, 2020. After the completed combination with Fyndiq, the combined company will continue to be listed at Nasdaq First North and traded under short name CDON. After the integration, the combined forces of both companies will operate as one team from Stockholm and Malmö offices. The former one will act as the company headquarters. The company will act on two clearly differentiated consumer brands, where both CDON and Fyndiq will continue their respective focus on the core categories, which will allow for optimization in both segments. This will also allow for continued improvements in the commercial process and customer experience. The integration is expected to take place gradually in the coming 12-18 months to ensure efficient integration of our commercial processes and human capital.
Next slide, please. To the pro forma financials. Please note that these financials do not consider any potential synergies. As we have just signed the agreement, we have yet to begin the integration process and cannot currently provide quantitative estimates around synergies. That being said, given the similarities of the business models, we believe there are significant commercial and operational synergies that will result from this combination, and we look forward to providing greater detail once the integration is further along. The table you see on the screen now, shows preliminary pro forma numbers based on CDON full year results and unaudited numbers for Fyndiq 2022. The combined company of CDON and Fyndiq had for the full year a 3P GMV amounting to SEK 2.3 billion, and a gross profit amounting to SEK 326 million.
CDON is currently phasing out its 1P business. The combined business has approximately 10% of the GMV related to own inventory. Total net sales amount to almost SEK 1 billion, with a gross profit of SEK 352 million and a gross margin of 37.4%. During 2022, as Josephine Salenstedt said, CDON has incurred significant one-offs, as well as initiated a large cost reduction program, which means to go forward, OpEx level will be much lower, as you can see on the right side of the screen. As a result of the combination of CDON and Fyndiq, we expect significant synergies, as I said, in terms of gross profit level from commission optimization and harmonization between the companies. We also expect synergies on the operational expenses with reduced costs relating to IT, office spaces, and organizational efficiencies.
The strong performance from Fyndiq in the full year of 2022 and the initiatives of CDON in the past quarter make us confident that we will reach our EBITDA target of being at least break even in 2023, as Josephine also said. Thank you for that. I hand over to Fredrik, please. Next slide.
Thank you. Next slide, please. Hello, everybody. These are the bullets I will guide you through. I will start with some information of who I am and then tell you a little bit about the Fyndiq story. I will go into my high-level thoughts on the new CDON. Next slide, please. I am 43 years old, married, and father of 2, Edith and Adam, eight and 10 years old. We live on Södermalm in Stockholm, and I originally come from the west coast of Sweden, Gothenburg. I usually describe myself as an academic entrepreneur since I have a Masters of Science in Innovation and Entrepreneurship from Chalmers University of Technology in Gothenburg, but also a bachelor degree in finance from School of Business, Economics and Law at the University of Gothenburg.
After that, I really haven't had the opportunity of showcasing my broad academic background but have started several companies since the beginning of my twenties. The last company is Fyndiq, which I founded together with my four cofounders in 2009. Next slide, please. Here are some highlights from this 13-year-old exciting journey. We went live in 2007. After that, we got our first seed round, and we got amongst others, we got the legendary businessman Janne Carlsson, Sasjanne, as investor and part of the board of directors for a couple of years. After that, we had a couple of years with high growth. One year we grew from SEK 8 million- SEK 56 million in turnover. The Next Web graded us as one of Europe's fastest startups.
2 years after that, this led to an investment from Northzone, the Nordic venture capitalist. two years after that, we got our biggest shareholder, which still is Karl-Johan Persson, the previous CEO of H&M, and that's through Philian Invest. In 2018, we realigned our strategies and focused on proving that a marketplace like us could become profitable. We worked a lot with that during 2019, which was perfect timing for the upcoming pandemic. During 2020, as a part of this, we also built our second version of our marketplace platform. We have built everything in-house from day one. This was the 2nd generation of our marketplace platform, which we launched one year after and with a very successful launch.
The proof of the quality of this platform is that we also, the year after, we sold a copy of this platform to a global big retail company. According to them, this is due to the fact that this platform is the best that is out there. Last year, we reached a milestone which is very, I'm extremely proud of, and that is that we reached 4.3 in Trustpilot score. That seems like a minor thing, but we moved from 4.2, which is light green stars, to 4.3, which means dark green stars. I have never loved dark green as much as this time since we did that move.
This also says a lot that you could see that we could have challenge when it comes to quality of the products. We have low price products and so on, and being able to deliver this high customer satisfaction score is impressive, if I may say. On the other spectrum, we can see that we have a really high employee NPS of +50. The employee NPS ranges from -100 to +100. Usually, you say that above +30, it's extremely good, and we are solid on +50 for a long time. This also showcases my strongly believe that a coworker that is happy and in balance is the best coworker. We also can see the GMV of roughly SEK 500 million for last year and the net reviews of SEK 125 million .
Enough about Fyndiq. Next slide, please. Let's talk about CDON and what really impresses me with CDON. There are a lot of things, but I would like to highlight five things here. To start with, CDON has always been like a bigger brother for us to look up to and look into and get inspired from. Yeah, this is a big thing for us. If I would highlight five things, the first thing is really the reorganization that have been done since in December. I've been through that two times in the history of Fyndiq, and it's not fun, but it's also crucial sometimes that you have to do that. The key to succeed with that is that you get the new normal very fast, and you get a new team that's into that normal and have a forward-looking attitude.
As I understood it, this is something that the management have succeeded with the lead from Thomas, and I'm very impressed by that. Also the strong brand that they don't have now and have always had, I would say. I know this really from firsthand because in all the brand positioning analysis and service that we have made, we have always had CDON as a comparison for us, of course. We can really see that CDON has a really strong brand when it comes to top of mind, aided awareness, and even down to the very crucial consideration part of the branding. Also, I would like to touch upon the rebranding that have been done now.
To be honest, as a new upcoming CEO, it's maybe not the dream to get a new branding in the lab, rebranding from an old CEO who's leaving the company. I was a little bit worried about this to be honest. I must say that this has panned out in the best possible way. I really like what the team has done when it comes to rebranding, and this is perfectly in line what I see that we should do with the CDON brand and the Fyndiq brand, which is to emphasize the position that they today have and emphasize it even more to position them apart in the future. This has really laid the groundwork for being able to do that. Really happy with that.
I'm always also been very impressed with the brand merchants, so to say, that they don't have been able to acquire and work with both the Swedish with good big brands and also international ones. This is something that we at Fyndiq always have longed for to be able to also get on board. Then we have a part which is competing with giants. I mean, it's been quite some big competitors that CDON is still competing with, like MediaMarkt, which now will turn over to Power, but also Elgiganten, and also, of course, Amazon. Being able to grow with that competition is really impressive. Last and least, I would say, but I call it FBC.
I don't know what the name really is, but Fulfillment by CDON, the third-party logistics part of it, is something that I'm really interested in and curious about to understand more. This is a part that I strongly believe is crucial for the long term when it comes to delivering a good customer experience, both when it comes to being able to deliver fast and in line with what the customer expects from a top-of-the-line e-commerce player, but also being able to help merchants that have great products with great prices but don't have a good logistics set up or warehouse set up. This I think is a perfect way of onboarding those types of merchants. Lastly, I also think that this is a perfect revenue stream.
Looking into Amazon, this is big business for them, and I think this is a really big untapped potential in the long term for CDON as well. Next slide, please. What brings Fyndiq to the table? If I would like to highlight five things here as well, I would start with the happy customers that I already touched upon, 4.3, and you see the beautiful dark green color here. We are also live in the Nordics since more than a year ago, and it's still early days for us. If we look into the satisfaction score there, we can see that they also are high. In Denmark and Finland, we are at 3.9, and in Norway, we are at 4.1. I would say this is very impressive given that this is early days still.
In the beginning, you of course do mistakes. Even though it's so new for us, we are delivering a really high customer satisfaction score. The second part is our take rate, which is +25%. For last year, it was exactly 26.1%. This is internationally on a good level. This is not something that we just raised last year or so. This is something that we have had on pretty high level for a long time. It's a recipe that really have worked for us. The third part is our in-house bid platform that I already talked about, and I think this is something that really can serve in the long run for CDON as well. We have the strong and unique bargain position.
ot as strong when it comes to awareness, it's strong within its part of the industry, which is the discount industry, and more specifically, the bargain position. When we are asking and doing service, we can see if people are talking about striking a bargain online, the number one answer is Fyndiq. That position is unique, and it's strong, and it's good to have with us. Lastly, we have the CDTC, China Direct to Consumer. So we have been working with this for a couple of years and really established this as a solid part of our business model. Roughly 20%-30% of our sales is from Chinese sellers sending directly from China to Swedish consumers. What they bring to the tables are two parts.
One part is that they are cutting middlemen and can really push down the prices. The second part is also that they are bringing trending products since these type of marketplace merchants are selling at numerous countries and marketplaces and can really fastly find new trending products. Usually they are fastest on it, even at our marketplace. This is a great value that we believe can add to the new company as well. Next slide, please. What do I see on the horizon? Really trying to become and becoming the leading marketplace for the Nordics and fending off Amazon. Let's do it.
We want to increase the penetration of marketplaces, market share in the Nordics, which is so low when you compare to pretty much the rest of the world. This must and should be increased to really much higher levels than we are seeing at the moment. Lastly, but not least, to leverage the scale benefits of the marketplace model to deliver reliable growth, but with expanding profitability. Next slide, please. Where will I start? Or where will we start this journey? We will massively increase the supply, both in reach, depth, and with quality, or I would say, but with quality. That's so important. The marginal cost of increased supply is so low for a marketplace, and that is something that we really need to utilize. We will strive for enabling growth through focus on performance and efficiency.
This goes with everything from marketing to organization, to merchants, to software, to tools we're using. Everything need to have a focus on performance and efficiency. We will aim to own the Swedish market and continue expanding in all Nordic countries. Next slide, please. We will become one stronger company to own the Nordics. We will be one company, one team. We will have one merchant interface. It will start with two, but we will go over to one merchant interface. We will continue with two consumer brands that will have distinct brand positions in the market, and each and every customer will know exactly why and when they should go to Fyndiq to shop something or go to CDON and shop something. This is a work we have ahead of us to really emphasize this on both brands.
As Thomas said, we will have two offices in Stockholm and Malmö. This was the last slide from me. Before letting in the questions and answers, I would also like to say that I'm really looking forward to this journey, and I'm looking forward to work with Josephine and Jonathan in the board, and of course, also Christoffer and Erik. Also really looking forward to working closely with Thomas as CFO and Deputy CEO. To have an American board member in Brad also is something that I'm really looking forward to. Lastly, but not least, I really looking forward to meet everybody in the Malmö team and to get to know that amazing team as well. Thank you for me. Now we open up for the Q&A.
Thank you. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Nicklas Fhärm from SEB. Please go ahead.
Thanks, operator, and good afternoon, everybody, and thank you for a great presentation and introduction of yourself as well, Fredrik. My first question would actually be, I'm fairly sure someone will ask a little bit about potential synergies, et cetera, on a separate note, but I would like to understand a little bit better the Fyndiq proposition. I would assume that the 25% take rate-ish is depending upon a likely lower average ticket. But it would be great to understand sort of the fundamentals of, you know, the KPIs at Fyndiq and what you were expecting Fyndiq to become in a slightly medium to longer term perspective. Sort of what was the ambition, where would EBIT margins eventually end up?
What share of the market would you be at, et cetera? Could you give us some idea of Fyndiq as a standalone entity ahead of this merger or acquisition, please?
Yes. Hi, Nicklas, thank you for your questions. If I start with the latter part of your question, I would say on a high level, what we've seen is that we have had a really good start in the Nordics, this is a potential that we strongly believe will continue for us and to grow that part of the business. What we've seen is that in the market in general, there is a little bit of a vacuum now after Wish who has pretty much left the whole market. They came in with a big bang, they left, I don't know, I'd say a fallen pancake as you say in Swedish. We see that this gap in the market is something that...
I mean, we still have a lot of people who want to find new fun products at low prices, and that's where Fyndiq have the strong value proposition that we have, and we can really deliver on that promise as well to the customers. What we've been missing the first years of the business, I would say, is to secure the customer happiness. This is a work that we really have done an amazing turnaround the last couple of years to have really high customer satisfaction scores. If we move over to a little bit more mid to long term, we are on a profitable path and we have a really lean and efficient organization, and that has been the plan to continue on that. We can add scale without adding cost to the company.
We have been on the path to doubling the profit for each and every year. I would say that roughly that's the path that we were are going on. Did that answer your questions, Nicholas?
No, absolutely. That's a great introduction. I... Let me see if we can get a little bit more detail. You closed last year with about SEK 500 million in GMV. If you say that your expectations were to double profits, you know, every year, what does that imply in terms of GMV growth, for example, let's say in the five-year plan or whatever you had on your desk at the time?
Mm.
I agree that sort of the retail market is clearly being separated into, you know, value proposition and perhaps, you know, aspirational proposition and some guys are clearly stuck in between. I share your underlying view on the growth potential in your segment of the market. What were you sort of planning for?
We have been quite solid in the growth. We have turned around to being focused more on profit and if we're looking at, I would say, both last year and this year, it's still very, very inconsistent compared to the years before the pandemic. It's still very much up and down. It's really hard for us to see how the macro looks like. As we're sitting now here, we have a very uncertain macro. If we elevate a little bit higher and look a couple of years ahead, I am totally certain that the place of for marketplaces in the Nordics have a so much higher potential than we have seen so far. That both applies on both the Fyndiq and CDON.
I strongly believe that over time, the growth rate of both companies should exceed the average growth rate of the e-commerce industry, which have, before the pandemic, grown with about 15% yearly.
Mm.
will probably continue for many years, that transition from physical retail into online retail. On top of that, I believe that the marketplace will even have a higher growth rate.
Yep. Very clear. A follow-up question on the same theme. I mean, looking out in the industry towards perhaps more mature markets and players, like everything from Adevinta to, you know, any marketplace in the U.S. or more mature markets, I guess, I would probably say that EBIT margins are hovering around 20%-25%. Is there any reason for why Fyndiq would reach that level eventually? Or for that matter, why it would not, I suppose? That's my question.
Short answer, no. I cannot see any reason.
Mm.
why we shouldn't be able to reach those levels as well over time. The really big role model that we have, and I have when it comes to marketplaces is bol .com In Holland.
Mm.
They have managed to become bigger the whole time than Amazon. Amazon's sixth biggest market in the whole world is Germany. They have roughly a market share of 40% of the total e-commerce in Germany, and just next country next to it is Holland. There they have the local marketplace, bol.com, which actually is five times bigger than Amazon in Holland, which is amazing.
Mm.
This is the role model that I have and we have also for our marketplace.
If you don't mind me, I'm not trying to put the words into your mouth, but if I understand you correctly, you're saying that basically base case is for the online market to grow at about a 15% CAGR over the, you know, coming years in more normalized macro environments, as it has been doing for some time previously. No, there is no particular reason for why you should not be able to benchmark your sort of underlying EBIT margin to those of similar competitors in more mature markets. Is that a fair summary?
I would say that's correct. I would emphasize the normalized market part of it because we're not...
Of course.
in the normal market as it is now, but hopefully this year, who knows? But yes, you're correct.
All right. I have tons of questions, but I'll stop for now and let someone else speak. Thank you.
Thank you.
The next question comes from Adam Wyden from ADW Capital. Please go ahead.
Hey, guys. Can you hear me?
Yes.
Perfect. Couple sort of logistical questions and qualitative. You know, we've gotten some feedback from some people going through the materials, and I think they're a little bit confused about the accounting. You know, obviously, you guys have a 25%-26% take rate, but your GMV and net sales are quite similar. It, it seems as if you're booking all of your GMV as net sales as opposed to just booking the royalty. Do you expect to adopt the CDON effectively, net sales methodology, where you're just running through your net sales of 3P as opposed to running through all the GMV?
I think that, you know, sort of building on Nicholas's question, because when you think about these businesses, you know, if you have a royalty-based business where you're not touching the goods, you know, even if looking at Allegro, you know, before Allegro sort of went down the path of buying 1P, I mean, margins were more like 50%. You know, do you expect to sort of adopt that sort of convention where, you know, you're basically a franchisor, you know, you're basically just consolidating franchises royalties, sort of top line take rate and then, you know, just building a margin off of the take rate as opposed to the GMV?
Hi, Adam. It's Thomas.
Yep.
Yes. Yes. We need to align the accounting of the two companies going forward. Not right now, of course, but we have to do that. Just to clarify a little bit, because I think a lot of people are confused, as you are saying, the net sales 3P for CDON is actually commission plus value-added services, and that's it. For Fyndiq, net sales is the GMV minus returns and discounts. They are two different things. Then we've go a little bit further below for gross profit for CDON. That is the net sales minus bank costs and handling fees and costs for value-added services only. For Fyndiq, gross profit is the net sales minus the cost of goods. The cost of goods for Fyndiq is merchant costs, selling fees, selling costs, and fixed product costs, and returns from merchants.
There are two different way of looking at the financials right now, and that is also what is disclosed in the press release. That is confusing, and we know that. Of course, over the time, we need to align the two accountings of the companies. Right now, we don't go into the Fyndiq numbers anymore because they are not a public company.
Right. Cool.
we've done in the integration of it. You're totally right, Adam. It is confusing, and we will see whether we go for the one that you are saying with the commission level, and so on and so forth. That would probably be the one. Let's come back to that when we are in the integration phase.
Yeah. Yeah. No. I think that will likely be helpful for folks in terms of people understanding the business quality because, you know, again, you know, in America, we have a lot of, you know, franchise-based businesses. You know, you guys have Hemnet and Rightmove in U.K. You know, when you sort of roll through all of the GMV through the income statement, I think people assume that, you know, you're touching the goods and stuff.
Mm-hmm.
you know, if you know, really just reflect the business, you know, that it's a royalty-based business, that you're, you know, charging commissions and SaaS fees, I think people will have a better understanding of sort of the margin characteristics of the business. I mean, not to insult Nicholas because he's a lovely guy, but, like, you know, 20% margins for a 3P marketplace business is absolutely abhorrent. I mean, at scale, a 3P business should have much, much higher margins. and if they don't, it's ’cause they're growing like crazy. I mean, 3P marketplace business effectively run as like a software business.
Mm-hmm.
you know, a software business that has a 20% EBITDA margin is growing at an exceedingly high clip, or it's making a much higher margin, one or the other. I'm hopeful that over time, you know, people will sort of understand the margin characteristics of these businesses. Sort of building on that for a minute, you know, I sort of reread last night the transcript and, you know, you guys mentioned that you were profitable in January, CDON, and you raised your take rate in 2023 on January 23rd, 2023.
sort of again, doing back of the envelope math, and I don't expect you guys to give me forward-looking guidance on GMV, but if I just assume similar GMV trends throughout the rest of the year, I think it, you know, and of course, the market extremely turbulent, and we can't sort of assume that GMV is gonna be the same throughout the end of the year. If you sort of assume similar GMV trends and, you know, sort of you take the January, you know, sort of, you know, weight it through the rest of the year based on sort of similar GMV trends, I mean, CDON is solidly profitable.
I don't know if that's SEK 30 million of, you know, SEK 30 million of EBIT when you take in that, you know. I mean, the take rate alone is SEK 30 million of EBIT, assuming you can keep it the whole year. I mean, whether that's SEK 30 million, SEK 40 million, SEK 50 million, SEK 20 million, it's solidly profitable. I mean, it would be nice for either you or Fredrik or both to sort of talk about sort of the different buckets of value numerically. I know that Fyndiq is a private company and, you know, obviously, you know, Fredrik has had the benefit of reading CDON's public financials, and he runs at a 25% take rate, and we've been running at an 11, and we don't have ads.
I mean, it'd be nice to sort of enumerate, sort of the buckets of value in terms of where Fredrik thinks he can take rate at CDON, you know, what he can do with SEO and SEM. I know last year, you know, both businesses had GMV down, but I suspect, you know, his, I, you know, Fredrik's EBIT, I think it's publicly filed, actually. You can go and look at it. You know, his EBIT, you know, the previous year was higher than seven. I don't know if it was, like, SEK 20 million- SEK 30 million. I mean, it'd be nice to sort of give people a sense of sort of what the normalized jumping off point of EBITDA could be, you know, sort of before, you know, incremental GMV increases or decline.
I think, you know, a big sort of, you know, qualitative component of this merger is that there is so much day one cost savings and EBITDA savings, you know, sort of before you sort of factor in GMV growth or decline. I'm, you know, love for you guys to sort of tackle that a little bit.
Okay, Adam, I can start. Of course, we see a potential commission optimization and harmonization between the companies. It's too early to indicate any levels of that increase. That should be an increase, of course. Without talking about GMV at all, there are, of course, potentials in both companies of additional services, like ad incomes and things like that we've been talking about before for CDON only. That goes for the both entities. When it comes to other cost savings or synergies affecting the EBITDA, of course, we see rather big synergies, which is also disclosed in the press release. We are not going to quantify them here and now. They will definitely be there.
All in all together, yes, there should be an EBITDA increase going forward without any GMV changes. We are not to quantify that today.
Okay. Well, look, obviously we have our buckets of value and, obviously we think that without any changes of GMV, we think that there's meaningful EBITDA, if not triple digits. I know it's still early, but to the extent that you guys can help enumerate that and share that with everyone, I think that will be really helpful. We ourselves are very excited about the transaction and, I'll let somebody else jump in and ask a question.
Thanks.
The next question comes from Nicklas Fhärm from SEB. Please go ahead.
Thanks again, operator. Just coming back with a few quick ones. The EGM is scheduled for 28th of March, and it's quite obvious that all the major owners, not all, but enough of them are going to vote yes to this transaction. My question is, when do you think, and I hope you will, that we can get some pro forma P&Ls and balance sheets, et cetera, for Fyndiq, so that we have something to use as a base for a forecast going forward, please?
hi Nicklas again.
Hi, Thomas again.
Yeah, that's a very good question, actually. I think we have to go through Q1 as CDON as a listed company and disclose that as normal. We are planning on, of course, after the potential closing in Q2, then of course, we are going to see how to consolidate the companies and what that will be. When we will actually disclose that exactly in time, I can't tell that right now, to be honest, because we haven't worked that out.
Fair enough.
It might be Q2, after Q2, as some kind of pro forma statement of the two together, and we also align the accounting at least as a pro forma statement. Might be, but I can't tell that for sure right now.
Okay. Okay. Just a follow-up on Adam's question as well, which is extremely relevant in terms of synergy potentials. I'm sorry if I missed because the phone line cracked a little bit, but you were saying that you're not going to share any thoughts on synergies today. Is that correct? That was the first part of the question.
Yes. Not.
Yes.
We can speak about what kind of synergies, but not any specific numbers today.
I see. If I missed it, when would you expect us to be able to read up on sort of the actual numbers? Is that in after Q2 as well or?
At least we have to go through Q1, and the deal has to be closed, and we have to come up with those synergies. I would say in Q2, yes.
Okay.
After-
Hi, Josephine here. Maybe I can just add a little bit to that. We cannot, for competition reasons, share all the financial information with each other before completion of the deal, and therefore there is limitation to what we can actually, you know, analyze completely before the completion.
Yeah. Absolutely understood. That's correct. Absolutely. Whenever that information will come, it will be very well received, of course. Maybe you can just, because I think we need to discuss this. Maybe you could just outline broadly speaking, what are, say, the main three components of whatever synergy number you will eventually end up with? Where do you think? Fredrik, you guys have probably been discussing for some time, and you have some knowledge of each other. Where do you think it makes a lot of sense to start the new combination, and where should we expect you to be able to announce any synergy estimates of substance?
Okay. It's Josephine here again. I will take this one, then maybe.
Thank you.
Fredrik can jump in afterwards. As said in the call, both companies have expectations for profitability in 2023 independently of each other. CDON had a positive development in January. We think it is very important right now to make sure that we maintain the positive momentum of each company right now. Over the medium term, we believe that there are significant synergies that we can take out, both on commercial and operational level. We need to get to know each other a little bit more before we decide exactly at what pace we do that. I think what is probably the most low-hanging fruit here is on the commercial side where we have the take rate, where CDON currently has a much lower take rate than Fyndiq.
Of course, we have slightly different merchant bases, so, a slightly different model in how we sell, but the businesses are also quite similar. Through harmonizing and optimizing the take rate, we believe that there is a significant potential to increase the take rate. In terms of operational synergies, we think there are things we can do both with the tech platform but also with the organization. We have been, we're very aligned on that we want CDON and Fyndiq to be one team working with the Fyndiq brand and the CDON brand as one team. We won't have separate teams working with each brand. This will mean that we will be able to get out synergies from the operations as well.
The third bucket I would say is within IT, where we see that there are significant cost synergies on actual IT infrastructure that we estimate to be quite significant actually.
Okay, Josephine, that's very helpful. That gives us, you know, some idea of what may come, and we're certainly looking forward to see sort of the numbers behind everything when that day comes. Okay, I think that's pretty much it for now. Let me possibly come back with a final question, but thanks again for now.
The next question comes from Adam Wyden from ADW Capital. Please go ahead.
Thanks, guys. I just remembered what I wanted to ask. This might be helpful. You know, this is for Fredrik. A big part of CDON's, I think, challenge. It had, you know, it's had sort of large, SEO and SEM. I mean, they use the example of we put the whole shopping mall on the site at all times, and you come from a marketing background, and you guys have real muscle memory on SEO and SEM. Obviously, you know, pooling the two buying organizations for SEO and SEM and, you know, that in conjunction with, you know, sort of the merchant model. Can you talk a little bit about sort of, you know, call it your net sales to sort of contribution margin to EBITDA?
I know, you know, you have a smaller corporate organization and whatnot, but you know, this is sort of building on what Nicklas was asking in terms of, you know, well, you know, how do you double profit every year? You double profit every year off of 15% GMV growth because you got this take rate and then you had this marketing cost and sort of. You know, sort of maybe it might be helpful to sort of explain to folks, you know, sort of your sort of aptitude for SEO and SEM and sort of how much of that take rate, you know, ends up becoming contribution margin within the original Fyndiq model and sort of how you can build that into CDON.
Okay. Yes. I love your expression, muscle memory on SEO. Gonna remember that. I'm gonna start a little bit more high level. I think when it comes to marketplaces, some people don't really realize the potential that marketplaces has when it comes to SEO and SEM. Why is that? That's because of the enormous broad assortment that the marketplaces have compared to other e-commerce or retail players. We most probably have millions of possible hits from searches within mainly the Google sphere. That's a big difference from a typical retailer or e-tailer for that part. So for a marketplace, that must be part of the DNA of the company.
I have been so much into the depth of and in the trenches of both SEM and SEO since day one of the company. This is really a big part of the DNA of Fyndiq. I strongly believe that that has to be a really big part of each and every marketplace in order to succeed, to grow, and to do it profitable.
If you add to that, you need a good CRM and good campaigns on that on top, of course. To really utilize the enormous supply that marketplaces has, you need to focus and have the A game when it comes to SEO and SEM. That's gonna be always a vital part of the marketplace. What that transcripts down to EBITDA and the margins and so on is I think it's a little bit too early and a little bit too detailed for me to throw up here or throw out here. A big part of increasing the profitability is, of course, the GMV growth, as you said, but also to increase the e-efficiency of the marketing. That's a relentless work that you have to continue working with each and every day.
Each week you need to do everything 1% better than the last week. By doing that, you're gonna increase the efficiency in the marketing, which is leading to increased profitability. Sorry, Adam, if I'm not into the numbers as you would like, but I hope I gave you something at least around those.
No, I, I understand it's very early, and you guys don't want to speak on CDON specifically. Let me ask you a separate question, and then I'll think I'll jump off. One of the sort of core competencies Fyndiq has is that they. You have this China DTC where you're selling, you know, sort of directly on behalf of manufacturers. You know, everybody else, you know, you know, one of my grievances with CDON, which has, you know, been forever, is that, you know, the, the merchants, whether it's ExtraDigital or Mobileshop, you know, we're sort of buying volume, so to speak. We're selling on behalf of a distributor. Well, by definition, a distributor has, you know, retail locations. They have lots of, you know. And they have to make their own margin.
If you're selling on behalf of ExtraDigital and their gross margin is 15%, well, you can't charge them a 25% take rate because their gross margin is 15%. When you're selling on behalf of a manufacturer, a cell phone case that has a 95% gross margin, well, then you can easily sell them a take rate at 26% because, you know, their, you know, their customer acquisition costs, whether it be a retail footprint or doing their own brand marketing or whatnot, you know, might likely be more than your 26%. I mean, can you talk a little bit about, you know, sort of, you know, optimizing merchant selection for, you know, DTC, whether it's, you know, Thule that sells ski racks or, you know, or, you know, Consumer Patagonia?
I mean, really sort of improving the mix of merchants that go beyond distributors and really just getting sort of that direct to manufacturer. You're getting, you know, a larger gross margin. That to me feels like probably the biggest opportunity at CDON, right? You know, getting take rate by improving the merchant base and getting, you know, higher quality merchants directly onto the website.
Okay. I mean, if you just look on one side of the coin when it comes to take rates, it's fairly easy to say that probably when you can come closer to the source, as in the China case, China merchants case, you should be able to take higher take rates. The thing is, though, that the flip side of that is that they have a, which most of the marketplace merchants have, is a cost-based pricing structure. They just add the value-added services that you need to sell for, let's say, Amazon or CDON for that case, the warehousing that you need to add and so on. That's everything they just put on top on the price. That ends up on a price for the end consumer.
If you're getting too eager to increase the take rates, you also really need to understand the end of that, which means what is the price for the consumer, and is that price competitive enough? If it's not, you will lose volume. It's this constant game between volume and margins and take rates.
Yeah.
Yeah.
You need to be able to sell the product cheaper than they can distribute it themselves, right? If they're gonna pass along the distribution cost, if they need retail stores or they need to sell it in a CVS or something like that, you know, then it'll get passed along. What you're saying is ultimately, yes, if you have a larger margin from the manufacturer, it allows you to get larger margin, but you have to be competitive on price to the end consumer, right?
Correct. In order to deliver or to have the leverage towards the merchants that they will push down their margins as much as possible, the only thing, roughly, that U.S. marketplace can offer is volume. The volume part is the one that really can push down the margins for the merchants, and they that they want or are able to do that. The volume part of it is so important to be able to really give high volumes, and that will decrease the margins or the demand for higher margins.
Got it. Yeah, well, look, obviously, you know, 1,500. How many merchants does Fyndiq have, roughly? I mean, I guess they're.
Um-
Mostly China, though, right? A lot of China. How roughly how many merchants does Fyndiq have?
It's not mostly China. It's mostly Swedish, actually.
Okay.
just it's around, roughly below 1,000 merchants. This goes up and down a little bit, but, roughly below 1,000 merchants.
2,500 combined, that's a very big. I mean, with the total addressable market for merchants is 35,000 or whatever it is, 35,000 in the Nordics. That's a very low penetration rate for merchants.
I agree.
Good. Okay. Very good. That's it.
Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Nicklas Fhärm from SEB. Please go ahead.
Thanks, operator. Hi, guys again. Final question. Don't want to get too detailed, but Fredrik, could you give us some idea of where your marketing spend has been or should be in relation to your GMV, please?
No. I don't think I would like to disclose that. That will be part of our secret use. It's very efficient, very efficient. That's the only thing I can say.
Yeah. Yeah. I suspected. Okay. Perhaps a final question. Just because I think some people may sort of look around and, you know, find other names in your industry, like, for example, Fruugo, which if you read sort of what they try to be, to some extent could be compared to Fyndiq, I guess, but not really. Would you like to outline a little bit how you think that CDON is the best strategic fit for Fyndiq, Fredrik?
Good question. To be honest, now it's the other way around, right? CDON has acquired Fyndiq. If it was only up to me, I still think that CDON is really a perfect match for Fyndiq. We have similar characteristics when it comes to the culture, organizations and merchant base as well. I think also though, that we have more distinct positions on the market than, for instance, Fruugo and Fyndiq has. I would say that Fruugo and Fyndiq is a little bit more similar to each other, but CDON is not that similar from a customer standpoint.
I think that type of integration that we're talking now about when it comes to the merchants and supply can contribute more to a bigger business by having different parts of the addressable market. Does that make sense?
Absolutely. Absolutely. Very helpful. I understand the complexity of sort of both timing and questions at this stage.
Yeah.
Thank you for a really good call and for taking all of these questions. That's it for me for now.
Thank you, Nicklas. I'm looking forward to talk more with you in the future.
There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Yeah. I just want to say I'm very excited about this. I think all the questions have been very well relevant and good, and we look forward to be able to come back to you with more details on synergies and how this will work out after the completion of the deal. For now, thank you very much.
Yes. Thank you. From my part also, looking forward to have more of this type of calls with all of you. Thank you.
Thank you.