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The second quarter 2020 earnings season has been more positive than Wall Street initially estimated. According to StreetInsider.com, 81% of companies that have reported Q2 2020 earnings have beaten estimates thus far. Technology stocks have been a key driver of earnings outperformance, while energy & brick-and-mortar-exposed retailers continue to struggle.
One specific area of technology that has seen financial results strengthen as a result of COVID-19 and shifting societal habits are e-commerce-based direct-to-consumer (D2C) companies. Two such companies just recently reported strong earnings results are Mohawk Group Holdings, Inc. MWK, and Blue Apron Holdings, Inc. APRN.
Mohawk Group is a tech-enabled consumer packaged goods company that utilizes its own proprietary machine learning platform, AIMEE, to stay on top of emerging trends within the e-commerce space. After the market close on July 30, Mohawk Group reported Q2 2020 results, which showed the tech-enabled consumer products company saw net revenues surge 97% to $59.8 million. Mohawk reported positive adjusted EBITDA of $3.4 million during the quarter, compared to an adjusted EBITDA loss of $3.7 million last year.
The company continues to see gross margins improving, as Q2 2020 saw an increase to 46.2%, compared to 38.7% last year. Furthermore, Mohawk Group launched eight new products during the second quarter, further highlighting the company’s expanding e-commerce portfolio.
“Crossing over to Adjusted EBITDA profitability is an important milestone that demonstrates the power of our platform business model,” said Yaniv Sarig, Mohawk’s co-founder and CEO. “The retail and consumer world is moving to online at a faster pace and we are well-positioned to capitalize on this shift in the long term.”
Management reiterated its strong outlook for the remainder of 2020, guiding net revenues to come in a range between $170-180 million for the year. As a result of the strong quarter, Mohawk Group now expects positive adjusted EBITDA for 2020.
Sell-Side Analyst Reaction
Mohawk Group's second-quarter results beat Wall Street’s estimates both on the top and bottom line. As a result, analysts at National Securities and Alliance Global Partners have both increased their price targets on the stock while maintaining their Buy ratings.
Alliance Global Partners Analyst Brian Kinstlinger increased his price target to $14 from $11, while National Securities Analyst Allen Klee increased his price target to $15 from $13.
“The higher multiple reflects the company’s shift to “sustainable” profitability and positive cash flow coupled with the analyst’s view that e-commerce, Amazon.com, Inc. AMZN, and therefore Mohawk will continue to benefit from the changing consumer purchasing patterns,” he wrote in a note to clients.
Mr. Klee notes that the target price is based on applying a “1.4x multiple to our enterprise value (EV) to now higher 2020E revenue,” according to his note.
Blue Apron is engaged as a direct-to-consumer meal kit service company that offers ingredient-and-recipe kits to its subscribers. The company’s goal is to streamline healthy eating and cooking habits at home. During the second quarter, Blue Apron reported net revenue of $131 million, representing year-over-year growth of 10%.
Management noted that the company saw 20,000 new customers during the quarter, as COVID-19 continues to impact the way consumers shop, even for food and basic essentials. The average revenue per customer grew to $331 or an increase of 25% year-over-year. Blue Apron reported an adjusted EBITDA of $11.1 million during the second quarter of 2020, compared to $4.5 million last year.
"Our progress with our strategic growth plan, together with the increase in demand we saw from the COVID-19 pandemic, resulted in solid and continued year over year growth in key customer metrics, including Average Revenue per Customer, which was above $300 for the first time in more than five years,” said CEO Findley Kozlowski.
The company's second-quarter results were strong and better-than-expected, but management's comments on the third quarter of 2020 proved to be a bit of cold water on an otherwise strong report. While Blue Apron does estimate net revenues to grow 13% year-over-year during Q3 2020, management notes that adjusted EBITDA losses could be as high as $8 million.
Sell-Side Analyst Reaction
Following Blue Apron’s results, Canaccord Genuity analyst Maria Ripps upgraded the company to a Buy from a Hold rating. Ripps also provided a price target of $18 for Blue Apron. This represents a potential upside of 50.38% from current levels.
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The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.
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