Great Expectations For Marley Spoon

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Marley Spoon has outlined ambitious growth targets, believing there is life after covid for meal kit delivery

-Marley Spoon has enormous addressable market
-Expansion into new categories, geographies
-Investment in technology and fulfilment
-Positive broker views

By Greg Peel

When the pandemic hit last year and Australia went into lockdown, the restaurant industry underwent an upheaval. Unable to open their doors, restaurants turned to home delivery. Many hired their own delivery people, but many also secured delivery services such as Uber Eats and Deliveroo.

For most consumers it was nevertheless a case of cooking at home, hence supermarket online shopping and delivery services soared.

Marley Spoon’s ((MMM)) food delivery service sits in between buying restaurant-prepared meals and buying ingredients from a supermarket. The company delivers the ingredients for the household to prepare, following the recipe provided.

Some restaurants also decided to provide such meal kits and recipes, but these were mostly your higher-end types fearful of their food losing its peak quality during delivery.

Marley Spoon is a Berlin-based company operating in countries across Europe, and in the US and Australia, that listed on the ASX in mid-2016 and basically flopped. From an opening price of around $1.30, the shares traded at 26c at the beginning of February 2020.

In early August last year the share price hit $3.48 before the ups and downs of on again/off again state lockdowns left Marley Spoon at around $2.40 currently.

On Tuesday the company hosted an investor day, outlining growth targets out to 2030 that could be construed as rather ambitious. A EUR1bn 2025 target and a EUR5bn 2030 target imply a compound annual growth rate in revenue of 30%, by Canaccord Genuity’s calculation. To reach the targets, management outlined four growth drivers.

The world is your oyster (sauce)

The first is to increase growth in the base business.

Canaccord points out the total addressable market for food delivery across Marley Spoon’s geographies is estimated to be worth US$7trn. Currently, online penetration is below 4%. From its seven fulfilment centres across Europe/US/Australia the company could service 190m households, and currently has 252,000 households subscribed, or 0.1% of market share.

The broker notes more than 90% of Marley Spoon’s revenue is derived from recurring customers, with more than 60% having ordered more than six times.

The second goal is to increase growth in servicing and basket size. Marley Spoon operates a second brand, Dinnerly, which offers cheaper meals and simpler recipes. While 85% of Marley Spoon customers are over 35, 70% of Dinnerly customers are under 45, Canaccord notes.

The third goal is to expand into adjacent categories, for example ready-made meals (as opposed to cook-yourself).

Finally and most obviously, Marley Spoon wants to expand into new geographies.

A 2030 target of EUR5bn compares with Wilsons’ prior forecast of EUR1.3bn. The broker notes management suggested its target could be achieved simply through expected growth in total addressable market, before the abovementioned other plans.

One-Year Wonder?

The obvious question here, asked in regard to all covid-benefiting stocks in 2020, is has Marley Spoon, and home food delivery in general, now had its time in the sun? Management does not believe so, suggesting covid has brought a structural shift in consumer behaviour that will support the growth of meal kit delivery services beyond the pandemic.

It can certainly be argued that covid has forced consumers to try new things, and online shopping in general has opened up a whole new world for many, while positive food delivery experiences no doubt will encourage consumers to continue to use such services.

Where Marley Spoon stands out over pre-prepared meal delivery is that it sources its own produce (locally), so it’s not paying any third parties, and there is no wastage at the company’s end, unlike restaurants which need to cover all menu offerings that may not all prove popular.

The company is also committed to building new fulfilment centres and digital platforms over 2021, investing EUR22m. Marley Spoon has only recently hit positive cash flow, and has excess liquidity on its balance sheet. This will support planned investment in manufacturing technology, and in the short term, a new facility in California that will increase weekly production capacity by three times.

Such intended investment, to build a strong base to support future scale ambitions, is seen by Wilsons as a positive.

Canaccord believes the opportunity set is large given the grocery channel shift has only just begun (online penetration less than 4%). There are significant barriers to new entrants to achieve such scale, and Canaccord highlights a superior direct-to-customer business model.

We note nonetheless that Marley Spoon is not the only meal kit delivery service on the block.

CLSA warns that to gain investor confidence, Marley Spoon will need to maintain elevated revenue growth and positive operating cash flow outside the covid environment.

CLSA has a Buy rating and $3.75 target price. Wilsons has an Overweight rating and $3.85 target. Canaccord Genuity has a Buy rating and $4.30 target.

None has made any changes in the wake of the investor day presentation.

No FNArena database brokers cover the stock.

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