Mad Paws Holdings Ltd - ROVR Trends Are Well Worth Watching
Mad Paws Holdings Ltd
ROVR trends are well worth watching
Rover (NASDAQ:ROVR) is Mad Paws Holdings’ closest global peer and reported its Q4 CY21 and CY21 results on March 8. There were a number of interesting observations pertinent to MPA which we discuss. The first was a record average booking value in Q4 CY21, with ROVR management estimating 60% of this relates to higher asking prices by sellers. MPA experienced similar trends in H1 FY22 with no attribution. Second is the continuing impact of COVID-19 on revenues, which are estimated at between $20m and $40m over CY22 (or 10%-25% of the CY21 base). There is no doubt MPA is experiencing the same disruption in Australia. Third is a reduction in marketing spend and customer acquisition costs, which demonstrates the ability of the business model to “dial down” marketing when necessary. MPA is in a different phase to ROVR and actually increased its spend over H1 FY22, but we forecast a “dial down” in FY24. Fourth is an observation that pre-COVID-19 customers have yet to come back on mass, with most repeat bookings attributable to newer customers. And fifth, but not least, is the highlighting of Australia as a “white space” opportunity medium-term. Given MPA’s strong market position and current valuation we see acquisition as more likely than greenfield in Australia.
Business model
MPA operates an on-line marketplace which connects service provides with pet owners, predominantly for dog hosting, dog sitting and dog visits. MPA charges a 7% booking fee to “customers” and a 20% commission on the total service fee (less the booking fee) for service providers. The group operates a negative working capital model, with payment received pre- service provision and released post-service provision. The group has had ~133k unique customers since launch in 2015 and is looking to utilise this growing database and acquire new ones to offer other pet services such as food delivery and healthcare to capture a greater share of a conservatively estimated $8.0b addressable market (now including pet healthcare).
Key ROVR “realities” for LT confidence the same for MPA
In addition to recent financial trends, ROVR management highlighted five “realities” for their long-term confidence in their business model. These are: (1) A large and growing market segment driven by increased pet ownership and the humanisation of pets; (2) A clear category leader in their space, particularly important with technology assets due to data collection; (3) High and expanding margins; (4) Limited capex requirements in achieving growth; and (5) Strong unit economics, particularly when it comes to customer acquisition costs. The same points are all applicable to the MPA business model, albeit MPA has invested into some more capital-intensive verticals.
Valuation $0.43/share diluted
Our DCF valuation for MPA was recently upgraded to $0.43/share diluted for all in-the- money options on the back of revenues synergies expected from the Pet Chemist acquisition and a rollover to the next financial year. ROVR is currently trading on a CY22 EV/Revenue of 3.1x at the mid-point of their guidance. MPA is trading on 2.9x using RaaS FY23 gross profit estimates, which adjust for the retail style businesses within the MPA portfolio. Near-term MPA share price performance therefore may be reliant on a sector re-rate, noting the ROVR share price has declined 50% since December 31, 2021.
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