MYTE - MYT Netherlands: Well-Positioned To Capture Online Luxury Trend

Summary

• Online luxury is a growing market and MYT Netherlands Parent B.V. is well-positioned to benefit from it.
• MYTE uses a data-driven platform, Mytheresa, to offer what consumers want.
• Management reiterated FY23 outlook.

Investment thesis

I recommend buying MYT Netherlands Parent B.V. ( MYTE ). The online luxury market is rapidly expanding, with projections estimating that it will reach $91 billion in 2025, up from $49 billion in 2020. I believe MYTE is well-positioned to become a dominant player in this growing market due to its multi-brand online retail model, which offers a compelling offering for both consumers and brands. MYTE's data-driven platform also allows the company to analyze data and generate useful insights to improve the customer journey and deliver personalized recommendations.

Business overview

Mytheresa is an online luxury marketplace. They provide an online platform where customers can shop for high-end goods that have been hand-picked by experts from various brands.

Online luxury is a growing market

I think MYTE has a great chance of becoming the dominant player in the rapidly expanding market for personal luxury goods purchased online.

I expect the global online luxury market to continue growing at a rapid rate ahead, and research from experts has agreed with my view as well that the market size could reach $91 billion in 2025, up from $49 billion in 2020 . The rising popularity of digital sales and the thriving luxury goods market around the world are to thank for this growth. Projections put it at $378 billion in 2025, up from $303 billion in 2021. The methods used to arrive at these numbers may seem arbitrary, but they all point to a rapidly growing and enormous market. When compared to more conventional apparel and footwear, I believe that the luxury market is among the last few categories left to expand online.

The online luxury retail market is highly fragmented, with a diverse range of players including regional department stores, local boutiques, and online marketplaces, as well as a limited number of global multi-brand retailers. However, it appears that multi-brand retailers and online marketplaces are increasingly gaining market share . Personally, I think that global multi-branded online retail offers a more appealing model than the marketplace model alone, benefiting both consumers and retailers.

• It offers consumers carefully curated selections from a single vantage point, facilitating both discovery and swift product selection.
• Brands can reach a wider audience at multi-brand retailers, and, more importantly, maintain more control over their own pricing and marketing strategies.

Multi-brand online retailers not only help brands reach more customers directly but also provide invaluable data on how various brands and product categories are doing. Additionally, they can guarantee that each brand is always represented in a manner consistent with how it would like to be regarded.

Data-driven platform to offer what consumers want

The sophisticated way in which MYTE employs data is directly responsible for its success in attracting luxury customers. Because MYTE knows its customers so well, it can cater to their needs and interests, resulting in increased brand loyalty. This works well for customers today, as they are pressed for time, and gravitate toward individualized attention, and value user-friendly interfaces. MYTE is not like other online fashion marketplaces where shoppers go to compare prices on standard luxury items; rather, it is designed to help users find and shop for unique items that they won't find anywhere else. This is a huge difference because it means that MYTE is where people first look when they need something, and if they find something great, they buy it.

MYTE has put resources into developing a tech platform that can analyze data and generate useful insights to improve the shopper's journey. Customers could be singled out using this information and given personalized recommendations across mediums like websites, emails, and products. Everything MYTE does, I believe, is motivated by this. MYTE's marketing and merchandising efforts rely heavily on the platform's data-driven nature so that they can provide a consistently experience to customers in all of their target countries.

To further position itself to seize market share from younger generations, MYTE has adopted a mobile and app-first strategy. In FY22, mobile orders accounted for 50% of net sales, with 38% of those coming from in-app purchases, and 79% of page views coming from mobile devices.

This data-driven approach could also be viewed as an important step toward enabling a flywheel effect. As more consumers visit MYTE, MYTE will be able to collect more data, resulting in more insights. These findings would then be used to fine-tune the platform in order to better target consumers. In general, the larger MYTE scales, the better it becomes.

Curated product assortment

When comparing MYTE to traditional retailers like department stores, I find that the curated selection offered by MYTE is far superior . They're able to pull this off by collecting the most sought-after labels and, from those labels, the most unique, fashionable, and expensive items. Additionally, MYTE edit provides a carefully selected, high-end assortment of luxury items that are presented in an aesthetically pleasing manner throughout its digital footprints. As was mentioned before, MYTE took a data-driven approach to easing the discovery process by providing users with tailored suggestions and straightforward comparison tools. In addition, MYTE's in-depth familiarity with its clientele enables it to make the best possible purchases of curated inventory, ensuring a rapid inventory turnover and a high rate of full-price sales.

Loyal customer base

Among MYTE's clientele are an increasing number of high-net-worth individuals who have been long-term customers. Customers of MYTE make two purchases per year, on average, spending €985 in 1Q23, up from €900 in FY22. In addition, MYTE's active customer base has grown steadily since fiscal 2016, with sales to existing customers accounting for the bulk of the company's revenue. All of these metrics point to MYTE's strong execution, and the fact that its platform is highly regarded by its clientele.

MYTE has a very strong LTV/CAC ratio, which showcased the efficacy of their S&M and profitability. Customers who choose to use MYTE platform tend to increase their spending over time, as shown by an increase in net sales retention compared to previous periods. This, in my opinion, is indicative of MYTE's ability to keep its customers and grow both its revenue and the number of its active ones.

FY23 outlook reiterated

There was growth across all categories, including the newly introduced "Life" category, and geographies, contributing to MYTE's 20.8% GMV growth, which increased by 110bps sequentially to a 25.9% 3-year CAGR in 1Q23. Specifically, for the fifth consecutive quarter, the United States has had better results than the rest of the company. In addition, the number of active customers rose by 13% in 1Q23, while the number of top customers rose by 22.7%, and gross margin rose by 90bps, indicating profitable expansion.

Most noteworthy is, despite macroeconomic challenges, management remains confident in the FY23 top- and bottom-line targets that were previously communicated. The forecast for FY23 from management remains unchanged at GMV between €865 and €910 million, or net sales between €755 and €800 million. In spite of rising inflationary pressures, MYTE's management has reaffirmed their full-price selling model and projected EBITDA margins of 9.0% to 9.5% for FY23. This growth in Gross Profit dollars is expected to demonstrate MYTE's full-price selling model.

Valuation

My model suggests MYTE could be worth 30% more than it is today, if it trades at 16x forward earnings multiple in FY23.

Model walkthrough:

1. Revenue to follow management full year guidance in FY23 and continue to grow at pre-covid rates as the macro-economy normalizes
2. MYTE earnings margin to continue expanding as it leverages all its fixed cost and benefit from better LTV/CAC ratio
3. MYTE to trade at a forward earnings multiple of 16x earnings in FY23, assuming it trades at a similar multiple as S&P500 long-term average.

Risks

Competitive landscape

MYTE faces competition from both traditional brick-and-mortar multi-brand luxury retailers and new entrants to the luxury resale market. Post-covid, there may be more competition in the online luxury market brands increase investments in their own digital channel at the expense of their exposure to the wholesale channel, which would be bad for wholesale business models like MYTE.

Over-indexed exposure to Europe

Since the majority of MYTE's sales occur on the European continent, the company's success is directly tied to the state of the European luxury goods market. MYTE's results may suffer in the short or long term if the company is unable to successfully expand into international markets, especially in light of the dim economic forecast for Europe's macroeconomy.

Conclusion

MYT Netherlands Parent B.V. is an online luxury marketplace that allows customers to shop for high-end goods from various brands hand-picked by experts. The online luxury market is expanding rapidly, projected to reach $91 billion in 2025, and MYTE's multi-brand online retail model is appealing to consumers and brands. MYTE's data-driven platform generates valuable insights to improve the customer journey and provide personalized recommendations. With a focus on mobile and in-app purchases, MYT Netherlands Parent B.V. is well positioned to attract younger customers and generate a flywheel effect through its data-driven approach.

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