Allegro - Bracing for Market Share Loss
Allegro stock has registered a decline of nearly 6% since our last update in November 2020, which means it underperformed the broad market by a staggering 32%. Nevertheless we stand by our contrarian bearish view on the e-Commerce marketplace, which in our view is poised to lose its dominant position in the Polish market. There is no question that Allegro will benefit from the rise in e-Commerce in the coming years, but its sales growth is not likely to top industry averages because of its structure, and because of increasingly stiff competition.
Our negative view sets us apart from most market analysts, who are currently predicting a rise in Allegro’s market share despite the fact that, in Q2 2021, an 11% rebound in the gross merchandise volume sold via the allegro.pl marketplace put it 7pp behind the average for the market.
Going forward, in its determination to retain market share as Amazon makes increasingly bold moves in Poland (amazon.pl has just cut the minimum order value for free deliver by more than half), Allegro will probably also lower the thresholds of its 'SMART!' loyalty program – with implications for EBITDA.
After updating our models to factor in the Covid boost and favorable market conditions, on the one hand, and lower expectations for future revenues and margins, on the other hand, our revised EBITDA forecast for Allegros sits 9% below the Bloomberg consensus. We also set a new price target for ALE stock at PLN 52.40, implying a sell recommendation.
On our updated 2022 estimates, currently ALE stock is trading at 27.7x EV/EBITDA, showing a big premium to the peer group (+137% vs. Alibaba, +42% vs. Amazon) which we consider undeserved.
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