between controversial poem and growing pains, what most impacted the action after the result?

SAO PAULO – Contrary to the serious official publications of companies to the Brazilian Securities and Exchange Commission (CVM) and B3, Enjoei (ENJU3) innovated last Tuesday (30) by publishing a poem in its earnings release in the fourth quarter of 2020 .

The innovation ended up generating controversy on social networks and dividing opinions. More than that, the stock’s volatility in last Wednesday’s session, with the stock falling by 7% at the day’s low, was attributed to this. The stock rose 2.39%, to R $ 11.14 at the session high, but still closed down 3.49%, to R $ 10.50.

Check out the poem released by Enjoei in its results release:

(Disclosure: Enjoei)

To understand how this company’s attitude impacted the performance of the shares and, more than that, the market’s perception of the company, Danniela Eiger, Thiago Suedt and Gustavo Senday, retail analysts at XP, did a quick “survey” among several institutional investors.

They highlighted three main comments. First, they pointed out that those who know the company and the platform were not surprised. “The company’s communication has always been informal and this is one of the points through which it is able to attract and engage the younger generations. It is part of who they are ”, point out the analysts.

Anyway, in the view of some institutional investors, it may make sense for the company to adjust communication according to the channel (investors versus consumers). This is because a concern signaled by some of them is that the form used can give the impression of less seriousness in relation to the business.

In the end, however, what matters is the numbers, with the vast majority of them understanding that the most important is the level of information provided (disclosure) and its quality.

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In fact, many of the investors point out that the company has one of the best levels of disclosure when compared to its peers, including companies such as Mercado Livre (MELI34) and Magazine Luiza (MGLU3) and that the metrics presented in the result were positive. “In this sense, the text ended up diverting attention from what really matters (the numbers)”, he highlights.

In growth phase

Regarding the numbers themselves, XP’s assessment is that they were solid once again, being 10% and 19% above the estimates for net revenue and gross profit, despite a profit before interest, taxes, depreciation and amortization (Ebitda) and net income below the estimated numbers, mainly impacted by the payment of the stock compensation plan (R $ 11.5 million), which is a non-recurring and non-cash effect. “Excluding this impact, both Ebitda and profit would have been above our estimates”, they assess.

Enjoei had a net loss of R $ 18.86 million in the fourth quarter of 2020, compared to a loss of R $ 12.83 million in the same period of 2019. In the year, Enjoei’s net loss totaled R $ 31.13 million, 50 % above the loss of R $ 20.76 million in 2019.

Gross revenue, in turn, totaled R $ 30.3 million in the fourth quarter, 55% higher compared to the same period in 2019. In 2020, totaling R $ 94.1 million, up 48%. before 2019, pulled, according to the company, by additional volumes traded on the platform, with the entry of new users through investment in performance and media marketing.

But, among the biggest positive highlights, is the strong growth in the company’s total sales volume (GMV), with an increase of 95% in the annual basis, surpassing the performance of e-commerce in the year (increase of 83%), even acting in one of the most impacted categories in the pandemic, clothing.

“The excellent result was driven by a growth in several indicators, among them, the 105% growth in the number of buyers and 74% in the number of sellers in comparison with the same period of the previous year, reaching 209 thousand and 192 thousand, respectively ”, Highlights in a report Levante Ideias de Investimentos.

XP also points out that there was a sharp increase in app downloads, which reached 5.2 million in the fourth quarter (up 418% year-on-year). In addition, there was also greater diversification of assortment, with women’s fashion representing 52% of GMV in the quarter, versus 64% in the fourth quarter of 2019 and in line with the third quarter. The biggest highlight for the performance of the Kids and Home categories. In addition, the top 15 best-selling brands accounted for 24% of sales, versus 28% in the fourth quarter of 2019.

The trend also remains positive in the seasons of new users, in addition to more information about the company’s initiatives in relation to the control of counterfeit products on the platform (Operation FALSIANY). Finally, XP also highlights the integration of new logistical partners, allowing the expansion of free shipping, which had an increase between 18% and 24% in the purchase recurrence.

On the other hand, Bradesco BBI pointed out that net sales of R $ 26 million increased 58% on an annual basis, but were slightly below the bank’s estimate of R $ 29 million due to a lower take rate (percentage of gain per operation) (24.9%) than the previous year (28.2%) and the estimated 26.4%.

In the analysis of analysts, this would be the biggest focus of investors, since it contributed to lower profits than expected – and what may also have impacted the performance of the shares.

For BBI, however, part of the difference in relation to the analysts ‘estimate is explained by the fact that management now pays much more attention to sellers’ performance and engagement (previously focused on buyers).

“This means, essentially, offering better commercial conditions by reducing the contribution of subsidy sellers to shipments. We think the intention here is to encourage sellers to add more items and sell more often, thus increasing the assortment, which means greater engagement and frequency among buyers. Therefore, Enjoei is investing in the more active involvement of salespeople, in order to create a stronger steering effect. This should lead to faster growth in future periods ”, they point out.

In the same vein, Levante emphasizes that the market sees growth as a priority for the company, “sacrificing” profitability in the short term for a faster consolidation of the brand in the market and a consequent higher profitability in the future.

“Despite the negative margins, the company shows in its result several studies of maturation of its customer base to indicate to the market the profitability of the business model, showing that despite the loss, long-term profitability remains a priority”, point out .

They point out that, along with the results, the company released a survey in which 80% of its customers see the platform as an environment for buying new parts. This information, evaluates the analysis team, gives more confidence for the company to execute its expansion strategy for a B2B business model (business to business), a traditional marketplace, to complement its P2P model, that is, people selling their used goods for other people.

With this priority for the company, BBI analysts estimate that the growth rates in the next two quarters will be fundamental to assess whether the company’s strategy was a success.

“Despite lower profits than we expected, we remain optimistic about the investment case, given the experience of Enjoei’s leading user, high frequency of purchase and presence in a category with low penetration compared to e-commerce”, they evaluate. Analysts have a purchase recommendation for the assets, with a target price of R $ 23, or a potential of 119% appreciation against the closing of last Wednesday. XP also has a purchase recommendation for the assets, with a target price of R $ 15, or a potential increase of 43%.

As Levante points out, the P2P model is not new in the Brazilian market, with companies like Mercado Livre and OLX allowing people to sell used products online. The used goods fashion market is relatively unexplored, with Enjoei as its main exponent. On the one hand, analysts estimate, the total market potential remains uncertain. On the other hand, sustainable practices of reuse and conscious consumption are global trends, especially in the fashion market, which is known for unsustainable practices.

Thus, between the controversy over the company’s communication and the assessment of the company’s search for greater growth, sacrificing profitability in the short term, the shares registered yet another low-spirited session at B3 this Thursday (1), operating close to stability. Since it debuted at B3, on November 9, the shares have advanced only 2.44% until the last Wednesday, going from R $ 10.25 to R $ 10.50, this later reaching R $ 20.90 in February 4th. However, the view of analysts remains positive for the company, keeping an eye on trends for retail and fashion consumption.

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