The online household appliances retailer, AO World is a mediocre business, with a business similar to Dixon Carphone. Unlike Dixons, it has severely underperformed in the last eight years. Here are the summary of my findings:

A. In the last 8 years it made an aggregate net loss of £9m;

B. 33% of its gross proceeds went to various financial institutions, which is a high percentage to list in the LSE;

C. Their IPO prospectus promoted it as being a profitable entity with net income of £6m in 2013. Afterwards, AO world has made aggregate losses totalling £18m since then.  

D. AO World’s share price jumped by 40% to £4.15/share on the first day of trading, valuing it at £2bn. Now, it trades on £1.73/share.

E. It has impressive sales growth of 28% CAGR for 8 years which surprises me why the business can’t make a profit;

F. Before anyone speculates that AO World has an aggressive expansion, it spends a total of £28m since 2008. In 2016, AO World’s capex amounts to £6m, but sales are more than £500m!  

ASOS is capex heavy than AO World, but manage to turnover a profit. In 2011, ASOS’s sales were £339m, it made £10m in net profit and reinvest £25m in capital expenditure. The difference here lies in ASOS has its own clothing line, as well as selling famous brands.

A more detailed version is found HERE.

The release of its interim results saw some improvement in the company’s operations.

Sales increase of 23% is the norm. The “adjusted” EBITDA of £1.5m is a better performance than year £4.5m loss. Below is the rest of the assessment.  

 

Interpreting AO World’s interim results

 

Looking at the financials, the major key points from AO World are these:

1. AO World made a net profit of £200k, compared to a net loss of £6m last year. The net profit came from a gain of £4.3m due to changes in FX intra-group loans.

However, you should give credit to AO World in narrowing the operating loss to £2.8m from £8.9m.

 

2. The online retailer is still a cash burner.  AO World saw a decrease in net cash position from £29.6m to £21.3m, a year ago. The upside is securing revolving credit facilities of £30m in June for 5 years…

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