- Asos is an attractive opportunity in eCommerce due to its strong focus on the young adult segment and dominant presence in the UK, where competitor Zalando has a weaker footprint.
- Gross and operating margin have been slightly better than Zalando, driven by its targeted go-to-market approach and a simpler business model.
- Price could have been more attractive than 0.8x P/S, given the weak execution in recent times, negative cash flow situation, and COVID-19 impact.
The London-based Asos (OTCMKTS: ASOMY) (LON: ASC) is one of the eCommerce names we have been taking a closer look at for some time. The company has over 22 million active customers, with 70% of the €2.7 billion of revenue concentrated in the EU and UK, while the US made up 13% of the revenue. The company has differentiated itself by targeting the young adult segment, allowing the company to leverage a targeted go-to-market approach. Top-line growth and operating profitability have been steady over the last five years, though the business saw some operational challenges in 2019. While we believe that the long-term prospect as a +20% grower remains intact, we will maintain our neutral rating on the stock, for now, considering the potential near-term slowdown in operating and investing activities due to the COVID-19 situation.
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