Hello, everybody. Welcome to this presentation of CDON's quarterly result for the second quarter. Presenting this today is myself, Fredrik Norberg, and our CFO and Deputy CEO, Thomas Pehrsson. Today, we will go through our long-term goals, short-term focus, the Q2 results, and the integration status. Will Thomas guide us through the financial performance. As usual, we will end with a Q&A. Our long-term goals is to become the leading marketplace for the Nordics. To also increase the penetration of marketplaces and reach a double-digit market share in the Nordic e-commerce industry. Lastly, to leverage the scale benefits of the model to deliver reliable growth with expanding profitability. To achieve this, we have three focus areas for the short and midterm.
We will increase our supply and provide with more of the products that people want and utilize the low margin cost of bringing in more supply. We will improve our customer happiness and get CDON to the high levels that Fyndiq managed to reach the last couple of years and continue from there. We will create distinct customer experiences and leverage two brands with different value propositions to serve different types of customers and needs. If we dig into the numbers, here we see our three main KPIs. We start with the GMV, representing our turnover, pretty much shows our attractiveness of our proposition to the consumers. We ended this quarter on almost half a billion SEK, versus last year, that's +1%.
When we're talking about these numbers now, we are comparing this quarter is the group, including Fyndiq, from the 12th of April, comparing with last year's quarter for CDON. It's a little bit of a complex quarter, this quarter, but I will try to be clear around this. If we move to the next KPI, which is our main KPI, and this is gross profit after marketing, which is the money we keep from our sales with the marketing cost deducted. This kind of shows our operational efficiency of the business. Here we have an impressive increase from last year of +80%, ending on SEK 48 million. I will on the slides after this show you some comments and dig deeper into these numbers.
This sums up to our profit and loss measure, represented by the EBITDA, which shows the operational efficiency of the company. Here we have a huge turnaround from the loss of minus SEK 20 million last year to plus SEK 2 million this year. If we dig into the GMV, we can see to the left that for the group, we reached +1% versus last year. If we look into separately on the marketplaces, we can see that CDON had -19% for this full year quarter, full quarter, compared to last year's quarter. If we look into Fyndiq, we had -1% compared to last year. This is due to the fact that we have a really challenging marketing, market development in Sweden at the moment, with -2% in April and -12% in May. We haven't yet received the numbers for June.
CDON experienced really strong sales last year from mobile phones and PlayStation 5s. As you know, it was really a feeding frenzy last year of PlayStation 5. On top of this, we can see that we have really a increased focus on profitability for both marketplaces, and this is at the expense of low, low-margin sales. If we dig into the gross profit after marketing, our main KPI, we can see for the group it was plus 80% versus last year. This is mainly driven to the additional value that Fyndiq brings to the table, but also, if we look into the both of the marketplaces, we can see a good organic growth. If we look on CDON, it's plus 22% versus last year, and this is especially impressive, given that the GMV was minus 19%. Fyndiq had plus 10% versus last year.
This is due, mainly due to that we have increased take rates, mainly for CDON, but also for Fyndiq, and also a strict focus on increased marketing efficiency for both companies and especially for CDON. This trickles down to our EBITDA, which is a turnaround of the loss of -SEK 20 million last year to +SEK 2 million this year. Looking into CDON, it was -SEK 20 million last year, and now it's +SEK 0.3 million, and Fyndiq moved from -SEK 2 million to breakeven this year.
I also should note here that on CDON, we have adjusted for extraordinary costs of -SEK 3.7 million on the EBITDA, and for Fyndiq, +SEK 3.5 million. The reason for this turnaround of the loss from last year is partly due to the strong gross profit after marketing from the last slide, also the reduced OPEX in CDON, following the cost reduction initiatives launched in December. Worth noting is that the impact from communicated SEK 40 million in cost synergies is not yet visible, will mainly come during next year. I know that this slide is a little bit scattered, I will guide you through this. This is the quarterly EBITAS for CDON since 2019. The blue bars is the second quarter results for these four, five years.
Here, we can see that we have a strong seasonality. As every retailer and e-tailer, CDON is really backloaded seasonality-wise, with a peak in Q4. Looking at the fact that we have a break even, both the first quarter and the second quarter this year, which is the first time during this period of time and the first time in many years, we are very confident that we will reach our target of at least EBITA break even for this year. If we move over to the integration status, to repeat, we will create one team, one merchant interface, while maintaining two offices and go to market with two distinct brands. Our integration process is running according to plan, with focus on synergy, realization, and performance improvements. On the supply expansion focus, we have accelerated our focus on new supply.
We have signed a major Nordic home electronics merchant. We have ramped up our focus on our fulfillment services, represented by the FBC. On the customer experience side, we are continuing to move to a customer-centric approach at the core of our business. This will lead to updated merchant agreements, which may lead to us losing some unprofitable merchants and supply. This will lay the foundation for us reaching our midterm goals and long-term goals. We have also centralized our internal customer services to the Malmö office. On the marketing efficiency, we are each and every day now validating and optimizing the profitability of our marketing channels. We are also sharing best practices between the sites and really cherry-picking the best of the best from the best practices that the two sites have.
Before I hand over to Thomas for more detailed numbers, I would like to just summarize and say that we are going according to plan. We have good progress in our integration, and we have a laser focus on our gross profit after marketing. This will lay a great foundation for us to be able to reach our midterm and long-term goals. With that said, I hand over to Thomas.
Thank you, Fredrik. On to the financial performance. First, some introduction. This quarter is a very special quarter in many ways. First of all, the acquisition of Fyndiq was finalized the 12th of April. CDON Group second quarter financials consist of results from Fyndiq from the 12th of April until the end of June, while results for CDON consist of the entire period. Fyndiq was not part of CDON in 2022, there are no comparable numbers from comparative periods included in the official numbers. To get a better understanding of the performance of the group, I will present these numbers in this presentation later on. It was also presented in the Q2 report as referenced at the end of the report. CDON and Fyndiq are both marketplaces. They operate in a slightly different way.
CDON's 3P business is an agent-based business between the suppliers and the consumers, where CDON does not buy nor sell products. Therefore, only commission and value-added services are accounted for as net sales with limited cost of goods. Fyndiq marketplace, on the other hand, operates on drop shipment business model, where there is a transaction between Fyndiq and their supplier. This makes Fyndiq the legal owner of the goods, even if merchants ship the goods directly to the consumer. This results in a higher net sales and cost of goods than CDON. Group income statement. First off, I represent the official reported number for the CDON Group.
The total GMV for the group amounted to SEK 497.3 million, compared to the same period last year of SEK 493.3 million, which is a slight increase of 1%, as Fredrik mentioned. This is mainly due to the combination of Fyndiq and the absence of comparative period for Fyndiq. Net sales for CDON Group increased to 60%, which is due to the addition of Fyndiq's operating model. Gross profit after marketing increased with 80% to SEK 77.3 million, compared to SEK 54.6 million from last year, due to the combination of Fyndiq, but also a stronger take rate, with enhanced focus on profitable marketing spend. We are very happy to announce that CDON Group, in second consecutive quarter, is EBITA profitable.
EBITA amounted to SEK 1.8 million in comparison to last quarter, which amounted to SEK -20.2 million. During the quarter, there has been one-off costs of SEK -3.5 million related to the acquisition of Fyndiq, SEK -2 million related to the last settlement of the restructuring program started last year, and the reverse accrual of SEK 5.7 million positive, related to the IMY Google Analytics case. Group balance statement. Total non-current assets increased to SEK 765.3 million due to goodwill of Fyndiq after the acquisition. The increase in equity is due to the newly issued shares related to the acquisition of Fyndiq. We ended the quarter with a cash balance of SEK 109.7 million, which includes the cash balances for both CDON and Fyndiq. Group cash flow statement.
Cash flow for the period amounted to positive SEK 11 million, which is a result of a positive cash flow from operating activities, as well as a positive effect from changing operating liabilities. Total cash flow for the period amounted to SEK 53.7 million, which is mainly related to the contribution of Fyndiq's cash balance, as well as a positive cash flow from operations. As said, we ended the quarter with a cash balance of SEK 109.7 million. Group income statements for reference. Just to be clear, this means entire comparable periods for both marketplaces. With the results of the entire period for Fyndiq and the comparable period 2022 for Fyndiq, total GMV for the group declined by 16%.
The decline in GMV is a result of the challenging e-macroeconomic climate that has a negatively impact on the e-commerce market, as well as the shift to focus on profitable sales. Net sales decreased by 14%, which is mainly due to weaker sales for the 1P segment at CDON. Gross profit after marketing, however, increased by 70%, even with a weaker top line, due to a stronger take rate and more efficient marketing spend in the paid channels. The solid performance of gross profit after marketing in relation to a stable cost level, resulted in a positive EBITDA of SEK 0.5 million in comparison to last year on SEK -22.6 million. We are still confident in our ability to reach our short-term targets of being at least EBITDA breakeven for the full year 2023.
Thank you, over to you, Fredrik.
Thank you, Thomas. Now we end with opening up for the Q&A.
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 Equities. Please go ahead.
Thanks, operator. Good afternoon, everybody. I obviously think it's quite an achievement to turn around on the EBITA line and sustain that trend into Q2, which has been very difficult. I wanna start by asking you to give us some more details on the GMV developments for the core CDON business, the 3P business that is in the period. As you point out, it looks like the market is perhaps down 6%-7% or so in the quarter to end of May, whereas you report a 14% decline. I understand and appreciate that you're going for profitability rather than top line growth, perhaps, but please, if you could expand a little bit on what's actually going on at the CDON's 3P business, please.
Thank you, Nicholas. For the period, we have numbers for April and May, and April is down 2% and May is down 12%. We haven't yet received the numbers for June, but it's not that far away from rest of the market. In addition to that, CDON had really strong sales last year, especially driven by the PlayStation 5 frenzy that everybody had. All parents, maybe you included also, must had to buy a PlayStation 5, and a lot of people were buying from CDON. We don't have that super trend this year.
This is something we can see both on Fyndiq and CDON from time to time, you have these super trends, and then the next year, it's really hard to keep up with those last year numbers. Also in addition to that, we see also that we have really increased the marketing efficiency when it comes to CDON from the end of last year and to the beginning of this year. That makes also that we have more profitable sales, but then a bit declining top line sales. From my point of view, I feel that this is quite natural explanations to it.
Excellent. Excellent. Very good. Can I follow up on the same topic? If I look at as I understand, pro forma Fyndiq GMV, breakdown at the very end of the quarterly results report, they are at a flat year-on-year at SEK 108 million. Would you care to give us some insight on what's happening at Fyndiq, which is clearly outperforming, no matter how we slice it at this point?
I would say it's the opposite there. Fyndiq didn't really have a super trend this time of year last year. The constant improvement of each and every week, improving things, makes a progress. Today we see that we are Fyndiq are performing better than the rest of the market. This is how it looks for the marketplaces from time to time. Sometimes you have some super trend and sometimes you not. This time of year, we can see just a solid sales increase for Fyndiq.
You don't think it's because people are kind of trading down, and you may be benefiting from the very weak consumer at this point in the cycle? If so, should we be somewhat more cautious towards, you know, the future whenever the cycle turns?
That's a good question, Nicholas. In theory, Fyndiq should benefit from harder economical times. It's hard to say because we're so much right into it, and we will be able to see this maybe in one or two years. In theory, you're right. I, however, believe that we still have potential also for Sello to grow, even with the more high-cost type of items that Sello are selling in the future.
Excellent. A final question, a bit detailed perhaps, but could you just outline what's actually in the net financial items? Is that the write-down of your previous associated assets?
Exactly, Nicholas, it is.
The entire amount?
No, almost, we had an impairment test item, I will have written that down in this quarter, also the combination of Fyndiq. Right.
I see. Perfect, Thomas. That's all for me. Thank you very much.
Thank you.
The next question comes from Adam Wyden from ADW Capital. Please go ahead.
Hey, guys. I have a couple quantitative questions, I'll sort of finish with a qualitative question. First, I know you guys are waiting to or I guess you're in the process of sort of finding those $40 million of G&A or, I guess, hard costs across the two businesses, that sort of will be prospective. Can you talk a little bit about, I guess the take rate development and sort of merchant initiatives? I know Fyndiq is, I guess, their take rate is about 26%, 12.5% is commission, you're basically making half of your take rate on value-added services. I don't know if that's advertising, logistics, what have you.
Can you talk a little bit about sort of take rate development, value-added services, and, you know, sort of merchant onboarding and development? I know you purged a lot of unprofitable merchants and a lot of unprofitable traffic, but can you sort of talk about those two things and sort of, you know, your development on there and what the prospects are for that?
Hi, Adam. Sure. If we start with the synergies on the cost side, as we said before, we see that we will reach the full potential by the end of next year, and we are getting improvements on that post each and every month that we are going now. If we look into the take rate development, this is something that we have several really interesting and high-potential areas that we are focusing on. As I mentioned before, we have the fulfillment services, where we see that we really can both improve the quality of the fulfillment services, but also have a financial upside on it as well.
This is something that I also been involved very much in the last couple of weeks. We are making a lot of progress in this area and looking forward to do something really big in this area for Sello. Another area, as you said, is the commission and the take rate alignment and so on. This is in progress, and probably we can be able to roll something out during this fall, but it's really in progress. When it comes to the merchants, we have set some really ambitious plans when it comes to acquiring both merchants and new supply. This is really, I would say, a long game for us, but we see already now some quick and short wins.
We have already now signed a major Nordic home electronics merchant that really will move the needle for us. We continue to strive to increase the mass of supply that we have on both Sello and Fyndiq. Some smaller short wins, but great progress in these long-term strategies that we have set up.
Yeah, no, I think there's been an I guess, what you said is, in your comments, that we were sort of buying unprofitable customers and, you know, using unprofitable marketing to sort of buy customers. I think some of the GMV development, at least maybe I'm not taking words out of your mouth, but some of that GMV development, at least the way I read the press release, is that you guys are unwinding some sort of unprofitable GMV, where we're spending money on bad sales and marketing, and perhaps merchants where we're, you know, sort of not making the math work. You know, the sort of the headline GMV, yes, is augmented by the sort of the end market, but to some degree, also just unwinding unprofitable business. Does that sound right?
...That's totally, correct. I wouldn't say it's easy, but it's easier to sell a product with no margin and to put a lot of marketing cost on it. The hard part is to really make gross profit after marketing. This is what we now see an 80% increase combined versus last year, and that we really have laser focus on. You are totally right, Adam.
You know, again, just going back to the original point that I started with, like, if I look at sort of, you know, CDON's 12% or 13% take rate, and then I look at Fyndiq at 26, you know, I sort of, you know, put my little, you know, Inspector Gadget, you know, sort of, magnifying glass, and I sort of went and did some research about becoming a Fyndiq merchant. You know, Fyndiq merchants are about 12%-13% commission rate, which is good, but again, you're selling, you know, you're selling a product, but you're really taking 26. I mean, what do you think the opportunity to get CDON's take rate up from, you know, 11, 12, 13 to 25?
When I think about that 12% delta between the two take rates, I mean, that's like SEK 250 of EBITDA. Now, I don't know if I can expect you to get all of it, but, I mean, the quantum of that, you know, increase in EBITDA from sort of take rate, value added services, commissions, advertising, you know, we're not even talking about SEO and SEM at that point. Like, I mean, is the opportunity that big? If it is, I mean, it, you know, I think that's sort of the, gonna be the driving force over the next couple of years, and less about whether GMV grew 50% or not, because we've seen in the past that, you know, growing GMV at 20% on properly doesn't really do anything for us.
Yeah. If we believe that we can increase the take rate and commissions, yes. Do we believe that we can increase CDON's commissions to the levels of Fyndiq? No. That is impossible, I would say, and that is due to the totally different type of supply and products that CDON and Fyndiq are focused on today and will be focused on also in the future. To sell AirPods Pros or PlayStation 5, it's impossible to even have double-digit margins on those products. To have dancing cactuses on Fyndiq, yes, you can have 25% on margin. That doesn't mean, once again, that we cannot increase the commissions on the CDON. That is possible.
We can also, of course, add on additional services that will help the take rate to increase.
Well, that's what I was getting at. Like, in terms of the mix, maybe I said it wrong, but I'm saying, if you look at the mix of... Again, I don't know how each one of your things are, but when I look to sort of become a Fyndiq merchant, I saw commission rates of about 12% or 13%, then I just sort of backed into the fact that there's probably another 10% or 13% of additional take rate from value-added services. I was really asking more about, like, that additional sort of 10%-13%. I don't know if that's logistics, advertising, whatever other things you're doing, but, I mean, is that applicable to CDON?
Sorry, Adam, we lost you at the end here. Can you repeat the question again? Sorry.
When I looked to become a Fyndiq merchant, I looked and it said, "Well, on average, it'll cost you 13%, sort of, vendor commission rate." When I sort of looked at it and I said, "If you guys are making a 25% or 26% take rate in aggregate, then the difference on average is value-added services." What I was saying is the quantum of value, like, Is there an opportunity with other value-added services that you're doing at Fyndiq to raise CDON's take rate? Not necessarily commission rate, of course.
On an iPhone, you're never going to get a 25% take rate, but could you get a, you know, a 5% take rate or 7% take rate in the, a commission rate, but then add on those value-added services that Fyndiq is making, you know, almost 1,000 basis points on?
Yes, Adam, there is potential for that. That consists for different, for instance, from freight and product fees in clear connection with the commissions. Of course, we can harmonize that between the two entities or marketplaces, CDON and Fyndiq. That can also be increased at the CDON part, so to say. The very commission itself-
Uh, cor-
The very commission itself, as Fredrik said, that's a little bit different story, depending on the product and the suppliers. All other services around that, we can harmonize and increase.
Yeah, I mean, that's sort of the take rate in aggregate. I mean, if you look at Amazon, we did some analysis on Amazon. They might be making as much as 50% to 60% on every dollar of three-tier marketplace. There was an article in Ehandel. You know, I think there's a lot of room on value-added services, freight, logistics, whatever, advertising, SaaS fees, you know, if we can sort of, you know, get that stuff going, then, you know, that's an opportunity to monetize our existing customer base. I think, you know, it's much more important at least, you know, we've seen recently that having profitable merchants, as opposed to just buying traffic, is not the right thing. We're seeing sort of the benefits of that, and I hope that's an early development. That's all good.
On the accounting front, Thomas, you guys booked one key. I'll say, you booked Fyndiq as one key. I know that many auditors and accountants don't let you change your numbers in the middle of the year. That's very commonplace, even in the U.S., but, you know, Fredrik made a comment on the last call that he had X million products and no inventory. We, you know, Fyndiq is very much a marketplace, and so is CDON, you know, and Fyndiq is very much margin accretive, you know, in that it's, you know, high gross margin, you know, relative to the old CDON, because we still have one key there.
What can you say a little bit about sort of transitioning the accounting next year, to get Fyndiq and CDON sort of on a similar sort of GMV take rate, sort of, you know, sort of apple-to-apple, you know, comparison, so, you know, everyone can sort of see what the margin capabilities are and the incremental margins and all that? I mean, is that something you think you can get sorted for next year?
... We can always work on getting some like for like comparisons and some reference statements and so on. From an accounting perspective and a legal standpoint, we can't change that, because the drop shipment marketplace model for Fyndiq, which is then also as the 1P business for CDON, it has to be accounted in that way, as it is. You will always see the numbers in the quarterly report on the first page, which is the one according to the legislation. There you will see the difference in the business models, if we continue with those business models. We can always, of course, try to do comparisons and show if it was working the same way, what that should look like. We can't officially report on that.
The one we are reporting right now, as you know, in the end of the report, are the reference statements where we compare like-for-like periods. We have the full quarter for Fyndiq, the full quarter for the total company, and that's the only one that you have in the reference statements right now.
Right. I mean, at the very least, you know, everyone can look at our balance sheet and see that we have $14 million of inventory, and so for us to be doing this much GMV on a $14 million inventory, there's really no argument to be made that it's, you know, that they're both 3P marketplace things. It's just a, an accounting, you know, sort of issue.
Yeah, yeah.
Drop ship. Is that?
Yeah, yeah. No, you're totally right. Drop shipment is not 1P, per se. 1P is when you have your own inventory, and you have the risk of having an inventory and so on. Drop shipment, which Fyndiq has, that is actually going... Fyndiq is the buyer and the seller of the goods, but it doesn't end up in any inventory owned by Fyndiq.
Got it.
The accounting of it shows the similarity as with 1P, but then it is the marketplace. I wouldn't confuse by saying that 1P is the same as drop shipment.
No.
It's not.
Yep. Okay. I'll sort of terminate with this. You know, look, obviously, you know, you guys have gotten this merger done. You know, the stock has sort of been in sort of one way, sort of, you know, downward spiral. You know, we sort of learned that there was a single non-economic seller that was sort of selling stock, you know, indiscriminately, and we sort of have a view that they've stopped. You know, I think the market is sort of having a hard time making heads or tails of what's going on. You know, obviously there's been demonstrable progress, sort of, in the first quarter and second quarter. It's sort of abundantly apparent to us.
You know, I guess, you know, sort of my question back to you is, you know, now that you're sort of sitting here and, you know, you sort of, you know, Fredrik has been there now, I guess now for a few months. He's, you know, you know, Tomas, you've been in the driver's seat now for a while at CDON and sort of cut a lot of fat and purged a lot of unprofitable sales. You know, I guess my question is, I mean, EBITDA break even is sort of a, sort of a part, but like, again, you sort of have been EBITDA break even for the first 2 quarters. You know, we know that 3rd quarter and 4th quarter is gonna be obviously better because you have the take rates on a larger GMV number.
You know, you'll sort of be solidly EBITDA sort of break even this year. I mean, what can we expect in terms of sort of guiding people to, like, a normalized profitability? I think a lot of people are sort of looking at this and being like, okay, like, you know, your profitable rate, like, you know, I don't know if that number means SEK 20 million or SEK 250 million. I mean, where do you think you are in the journey in terms of sort of getting people to like a normalized profitability number based on this GMV? I know there are a lot of levers. There's the G&A, which is SEK 40 million, that's not in the numbers yet.
You know, if you guys, I don't know what you guys make on a combined basis, whether it's SEK 20, SEK 30, SEK 40, SEK 50 this year, you know, SEK 20, I don't care. Like, I guess my point is, you know, I think there's sort of a wide range of outcomes, and I think people are sort of overly focused on sort of this GMV development as the driver of EBITDA. I guess my question is, what is your comfort level to sort of say, "Hey, if our GMV sort of flat lines here and sort of grows at 5% or whatever, sort of what is that sort of normalized EBITDA of the business?
I know you guys are still early, and you're sort of, you know, sort of fiddling with take rate value-added services, but I mean, are you guys getting closer to sort of getting people to a point where they can sort of understand what they're buying on a normalized basis and then sort of work off of that in terms of their, you know, sort of their opinion of GMV growth? I mean, do you think you're sort of getting closer to getting people to that point?
I think we could say like this, as you said, Adam, we are a bit profitable or break even after 2 quarters. We are getting into the 2 better quarters of the year, with higher turnover, higher GMV. That should cater, of course, for more profit. Our goal is at least to reach EBITDA this year. Then you have the synergy effects, the SEK 40 million that will be fully realized in the end of 2024. That will also cater for a higher profitability. We can't give any guidance on exact numbers, what should be a normalized EBITDA this year or next year, because we can't do that. As you know, we don't give any guidance.
Do you guys have?
You can calculate, Adam.
What's that?
I said, you are good at calculating, Adam.
I'm okay at calculating, I think most of the people that are on Sweden are on this conference call. Look, I don't begrudge them. I mean, look, I think it's been a very, very challenging journey for a lot of folks, myself included, you know, with the spending on unprofitable marketing. I think, you know, people sort of assume the worst, and I, you know, I can do math. If you guys make SEK 20 million, SEK 30 million, SEK 40 million, SEK 50 million this year, and you add another SEK 40 million next year, and you get some take rate and this and that, this thing, you know, could be SEK 100 million of EBITDA, like, you know, like that.
When you really start flexing the commission rate and take rate, you know, I see arguments for SEK 250 of EBITDA, assuming no GMV growth. I think everyone seems overly focused on GMV growth. I sort of can do math. Separately, you know, do you like, we're getting into the point where we're anniversarying a lot of this bad, you know, sort of. I think Jonathan, Son, Chris, and yourself, sort of got into the driver's seat in Q3 and Q4 and CDON. A lot of that bad spending on marketing sort of got cut out. I mean, do you think that we're sort of gonna be an anniversarying sort of this, you know, bad, you know, marketing spend? Do you think we're gonna sort of get easier comps on the GMV front?
I mean, when do you sort of expect the sort of the market comps to get easier? Maybe this is a Fredrik question.
The marketing costs?
No, no, the market comps. Like, basically, the market has been negative. The market was very negative last year. The market has continued to be negative this year, right? I'm sort of trying to get your perspective in terms of when do you think the comps against the market, like the Swedish e-commerce market, will get better? That's one question. The second question is, you know, we are comping aggressive marketing spend. Peter spent a ton of money when we talked about this, that the company was spending a lot of money on marketing and basically putting the whole catalog on the website, and that was inefficient, right?
We're spending a ton of money on marketing, and we were also having unprofitable sales. In the first two quarters this year, you're seeing the effect on GMV of pulling back on that marketing. Jonathan and Thomas sort of got into the driver's seat in third and fourth quarter. Do you expect to have easier comps on that sort of unprofitable marketing spend? That's one question. And B, do you expect to have easier comps on Nordic e-commerce? Sorry, I, now, I hope that's clear.
Thank you for that clarification. It's very difficult commenting on future predictions on the general market. However, our ambition is to always gain market shares, no matter how the market is performing, through adapting our product catalog and efficient marketing. It's really hard to say now, how will the market go up and down? We can see that it's been a tough market for about a year now, much connected to the inflation and interest rates, especially in Sweden and so on. When will that turn around? Can it be worse next year? Hard to say, and hard to say if we are at the bottom now or halfway to the bottom or so.
The thing I, one thing I can say, though, is that we are really setting everything up to be prepared to catch the market when it turns around, and make sure that we are focused on profitable marketing, and that we can grow profitable when the tides turn around. We have some spring cleaning to do, both on the marketing channels, merchants, supply, ways of working, and so on, and this is the spring cleaning that we're doing now, and we're not done with it. There are a couple of more months of spring cleaning, I would say. After that, we have a really solid foundation to turn around from that.
Yeah. Well, look, it's... The progress is definitely apparent to us. You know, I think our only ask is that, you know, we try and find ways to stabilize our cost of capital, because I suspect that, you know, your job in terms of winning new merchants and, you know, doing these things will be easier because I think the stock is very much disconnected with the progress that you're making. We appreciate the hard work, and hopefully you guys can find ways to sort of stabilize your cost of capital and sort of, you know, sort of convert the progress that you're making with the company's cost of capital.
Appreciate that. Thank you, Adam.
Mm-hmm.
The next question comes from Drew, from KWM. Please go ahead.
Hey, Drew here on for Dave Kahn. I appreciate the call. Just a few questions for us. Wanted to ask about just the EBITDA guide.
Sorry, Drew, sorry for interrupting you.
Yep
bad line to you. We cannot hear your question.
Yeah, hold one second. An alternative could be that you write your question, in the chat, if it doesn't work with a better line.
The next question comes from Drew, from KWM. Please go ahead.
Hey, guys, is this a better connection?
Yes. Super, much better. Thank you.
Okay. Yeah, sorry about that. Hey, we have a few questions. You know, you guys are guiding breakeven EBITDA, here, on the short-term directive. Just kind of wanted to get a sense how you guys are thinking about second half of the year, and why you're just, you know, focusing on the breakeven side of that. You know, is that a conservative? Should we be thinking about that on a conservative basis, or?
...Yeah, we gave you some backdrop on that, on the slide in the presentation, showing the seasonality of the EBITDA. What we're kind of saying is that, as any other retailer, we are really backloaded when it comes to the seasonality towards the Q4. Looking backwards, we have our happy months ahead of us and the bad months in the back of us. If the seasonality is the same as it used to be, it looks good.
It looks good. We could maybe think about that in terms of it, you know, just being conservative, but saying that it looks good. Looking at year-over-year trends, we can maybe assume that it starts to be just on ad revenue. Wondering if you can give any, you know, cadence, any thoughts on when that may start to be a more meaningful contributor to the top line for you guys?
That's a good question, and it's a little bit connected to Adam's question before, concerning take rates. This is also a value-added services that, both CDON and Fyndiq, haven't really nailed it. We have done some tests, especially on the CDON side. This is, though, a potential we see ahead of us, and we will focus more on this. This is a hidden potential in the future for us that we believe in, but it's not, nothing you do overnight. You have to really find the right supplier and do this in the right way. We cannot see that, in contrast to all other marketplaces that are making a lot of money on this area, that we shouldn't be able to do the same.
We see a big potential in that as well.
I mean, I think I would ask, you know, is there... Have you guys thought about maybe, you know, testing out, you know, more in that area, some type of strategy to see what it looks like near term? Or is it just something that, you know, you're telling us is of interest over time, but just not, you know, a priority right now?
It's somewhere in between. We are doing some testing, to be honest, as we speak, but we're not sure if we are on the right track and so on. It's in progress.
Okay
... it's more than something in long future, but it's not something that will change overnight either.
Okay. Well, let me ask you another way. Do you think, you know, you're doing some testing, won't change overnight. Let's assume that the tests are good, and you say, "Hey, this could be more meaningful." It, you know, is it something that you would come back to us on a call and say, "Hey, we're having success here, we're gonna make this more of a priority"?" There, you know, there's obvious success with it on other platforms. Just trying to think about guys, you know, view, are viewing the potential there.
Yeah, definitely. This is something I'm looking forward to get back to all of you on some quarterly call, to address the how we're doing on that area. As I said before…
Okay.
We have a lot of, with the integration and so on, to do the spring cleaning and so on, this is more.
Sure
... on nice basis. Yeah.
Last question, just the, you mentioned, the new major electronics customer. You know, could you maybe just elaborate on, you know, the magnitude, maybe their impact, the top line, you know, maybe the size of that customer? Is it a... Obviously, is it a regional customer? You know, just sort of any details on how impactful the contribution to them, to the platform could be. I think what I'm trying to get at here is, you know, not to give, like, an exact percent of sales that that customer may be, you know, generating, but just how to think about how meaningful they'll be to you guys going forward.
Yeah. This is a top-tier merchant in our top-tier category. Definitely this is a huge potential to increase this. We will not guide on any numbers or so, but definitely, both top-tier merchant and top-tier category.
Would you say, like, they're now for sure one of your, you know, going to be one of your top three, top five generating customers? Is that how we should think about it? Are they of that size or?
Will definitely be.
Definitely, yeah. We believe it's gonna be... If the potential is as good as we believe, it's gonna be definitely a top three.
Okay. Well, guys, thanks so much. I apologize for the bad connection. I was on my headset I bought from here in the States. I probably should have bought a headset off the CDON's platform for the call. Maybe I'll do that next time. Thanks for the call.
No worries at all. Thank you. Thank you.
Bye.
The next question comes from Adam Widen from ADW Capital. Please go ahead.
Yeah, actually, two small updates. I think that was very helpful from Drew, and actually, my mind went to exactly where his went, which is, you know, a lot of the weakness that we experienced in the last, I would say, year and a half or so, has been sort of no electronics merchandise or maybe overselling unprofitable electronics merchandise between Vipshoppen and Mobileshoppen, the one fraudulent merchant and the bankrupt merchant. You know, obviously, you know, we've had a shortage of electronics. That's sort of been an ongoing thing, you know, as it relates to the four Q on both. I know Fredrik, in our conversations, you've said that, you know, you guys have been very focused on making sure you have the right supply going into four Q.
Do you think that you can have this merchant sort of ramped up fast enough for the peak selling season in 3Q and 4Q? You can get, so you can sort of get that electronics merchandise? I know that those two guys, I think, and again, this is going back in my memory now, almost a year and a half, but like I think Mobileshoppen was like over 10% of GMV or something. Maybe I can't remember if it was the bankrupt one or the fraudulent one, but they were both, those two big merchants were like huge as a percentage of GMV. I mean, do you think that if this goes well, that these guys can sort of replicate that GMV?
I'm asking the same question to you, as I'm sort of laying the groundwork for it.
Yeah, we think we're in that ballpark with this merchant. As we speak, we are testing some sales with them. We believe if everything looks good and they are happy, we will have the time to ramp up for the Christmas sales.
Okay. These guys are large enough and have the bandwidth. I mean, I know that. Again, maybe Thomas knows, but when I sort of do my back of the envelope, those two merchants, VIP and Mobile, the fraudulent and the bankrupt one, those guys could have been as much as 15% or 20% of CDON's GMV. I mean, if, again, you don't want to, you don't know because you don't know the merchants inventory, but I mean, this is a big enough merchant that you guys could, in theory, replicate all the lost GMV of electronics, if, you know, if obviously you get people to the site. They have the balance sheet and the inventory to sort of replicate those sales, in theory?
The Mobileshop and the fraudulent you're referring to, Adam, they were not as big as 20%. They were between 7.5% and 10%.
Well, one was almost 10, I believe. You're saying that... I'm just not saying 20 each. I'm saying like maybe 15-20 total across both of them.
Yeah, I would say more like 10.
Okay. All right.
This particular new one, yet it has this possibility. It has at least a equally broad assortment, if not better.
Mm-hmm.
It has a very good reach over the Nordics.
Good. As it relates to the Capital Markets Day, I mean, can you share a little bit? I mean, I know you're obviously not gonna, you know, give targets or anything like that, but I mean, I'm just curious, you know, you're obviously early in the journey, or maybe not that early. You know, Fredrik's been running a marketplace for a while, and I'm sure you've been studying CDON for a while, and sort of knows where the bodies are buried and clear what you're seeing in the progress. Like, can you talk a little bit about sort of what you, sort of high level, like the types of things you might be willing to share with folks in November?
You know, because obviously, you know, I'm just sort of, you know, trying to sort of set the table, like, what do you think that you might introduce targets? Do you think it's more qualitative? I mean, can you share a little bit about, you know, sort of what your, you know, what you plan to share, I mean, at all, about the Capital Markets Day, or why you decided to do it?
I can answer on the second one, but not the first one. The first one, it's too early to give some more details about the Capital Markets Day. Why we're doing it is to come closer to the market and to you investors, and to get more reach on who we are and what we are planning, and why CDON is such a great company and will become a great turnaround stock in the market also. That's why we have this Capital Markets Day.
Good. Yeah, look, the valuation is getting to the point now where, you know, our biggest fear at this point is that, you know, some sort of strategic swoops in and buys it, or a private equity firm. When we sort of do our analysis on, you know, gross profit after marketing on an enterprise value basis, I mean, we're trading about, you know, a third. Obviously, we're smaller scale and whatnot, I mean, we're trading at, you know, a third or a fourth of where everybody else is. I gotta imagine you guys would be sitting here and being like: Wow, we're making all this progress, you know, we're purging unprofitable business. You know, I think, you know, I mean, things, I think, down almost 90% off the highs.
I mean, I would think that you guys might be a little bit nervous that, you know, someone else sort of gets the benefit of all our hard work. I think the sooner you get the cost of capital in line and get investors comfortable with the progress that you're making, the sort of the longer we can run with the ball. I, in addition to this Capital Markets Day, anything you can do to sort of, you know, highlight it. I know you guys are Swedish, under promise, over deliver, but, you know, there's a sort of a leveling effect here where, you know, you don't want people to take your sort of conservatism as fear or whatnot. That's the sort of final point.
Agree. We also have a third quarter, with us also to show the progress that we have been talking about and so on, and hopefully, with a good progress also on that quarter. Agree with you.
Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad.
Okay, If there are no more questions, we will go into the chat, and there we have got one question from our friend, Eddie. It says, "Congrats on the progress made. The stock is trading as though the company is going out of business. Can you please discuss at what level? Does it make sense to begin an opportunistic share buyback program?" That is actually something that we cannot comment on. If so, it would not be our decision here, but that will be a decision of our board. We cannot comment on that, unfortunately. I don't think there were any other questions in the chat.
It looks like Drew is in the line again.
We can take questions. Yeah.
Yeah. Did Drew have an additional questions?
The next question comes from Drew, from KWM. Please go ahead.
Hey, guys. Hey, thanks for grabbing this last question. Hey, just, wanted to ask, you know, just a little bit more about that large merchant. You know, I think some of the questions that I have there, you know, typically large clients, large customers beget, you know, other large clients, other large customers on a marketplace like this. I mean, it certainly validates it, you know, when you get a big player on there, you know, if they are indeed as big as you guys are making it sound. I think that a couple of extra questions are: was this... How did, how did it come about that they came onto the platform?
Was it you guys maybe approaching them to come on and, you know, I wouldn't assume that there's any, like, negotiated take rate with them being a larger customer, or did they, you know, fully on their initiative approach you guys to wanna come onto the platform? If you could speak to that. The second part of that question is, you know, what would we, you know, should we start to think about there being other large customers in the pipeline? Can you just kind of talk about what you're seeing out there or what you're hearing out there about other big players coming on?
Yeah, if we're talking about the process to acquiring this merchant or get it to start selling on CDON, it's kind of a inverted correlation between size and time to get them on board. The big ones take quite some time, and the small ones goes pretty fast. This one took some time, I mean, we had discussions with a lot of the biggest merchants and resellers, both in Nordics, and now we're also going very much looking into Europe as well. We have a strategy both focusing on these major players, but also to have a mass recruitment as well on different merchants and so on. It's not entirely just positive to have these giants and becoming too dominant on the marketplace.
Sometimes you rather would prefer many smaller merchants, but adding up to an increased sales and so on. This one took some time, we also have some interesting more ones in the pipeline.
Oh, of similar, in the pipeline of similar size or similar magnitude in terms of brand or company size? Is that what you're saying?
Yeah, I would say, so this specific merchant is in one of the strategic buckets that we have, and in that bucket, we also have discussions with a couple of more of this size. It's really hard to say when they start selling in 3 months or in 12 months or 18 months, we are accelerating these type of discussions as well.
Okay. Okay. Okay, that's helpful. All right. Well, yeah, I mean, again, you know, one large client oftentimes will, you know, evoke other large clients to get on there when they start to see bigger players on there. Of course, you know, it, it comes down to ASP of the items they have on there, and then, you know, how many they actually have on there. Hopefully, this large client is gonna put a ton of their products on there, and, you know, it'll bode well for you guys. Okay, I think that's all. I appreciate the color there, and we'll touch base with you guys next time.
Perfect. Thank you.
Thank you.
Yeah.
There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
All right. That was the last question. We have no more questions in the chat. Thank you, everybody, for your attention and really great input and questions. Looking forward to speak with you again in 3 months. Have a great vacation for you, who are having that ahead of you, and a great summer for the rest of you. Thank you. Bye-bye.
Thank you.