PDD - Zalando SE: Fighting 'Crazy' Competition

2024-05-14 12:10:54 ET

Summary

• Zalando SE is facing severe competition from companies that are adopting aggressive growth strategies, often at the expense of current profitability.
• PDD Holdings, the company behind the Temu app, is losing significant money on each order but has seen its share price soar.
• Zalando's financials have been impacted, with lower margins and slower revenue growth, with the intense competition even threatening its viability.
• Zalando and some of its e-commerce peers are now trading at close to distressed valuations, as uncertainty and risks have significantly increased.

In a fight, who wins — the smart guy or the crazy guy? - Masayoshi Son

There is an interesting anecdote that when SoftBank's ( SFTBY ) CEO Masayoshi Son was discussing investing in WeWork with Adam Neumann, he asked him who would win in a fight, a smart guy or a crazy guy. Neumann responded that he thought the crazy guy would win, to which Son replied he was right and that he thought Adam Neumann and his co-founder were not crazy enough. While this strategy did not work great for either WeWork or SoftBank, it did help Amazon ( AMZN ) become the retail giant it is today. Jeff Bezos famously said, " Your margin is my opportunity ", and as recently as 2013 there were articles from important publications questioning whether Amazon would ever make money, and saying its behavior was challenging " mainstream finance theory ". Certainly, an elegant way of saying they were behaving like a "crazy" company....

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