Interesting company. Here's a couple of things I noticed so at least we have some pushback on the bull thesis:
1. Any time estimates are based on % market share, I'm generally weary. It's hard to accurately capture market size (I think EUR 25b is a fair guess, but I've seen estimates ranging from EUR 21b - 30b). Also, see attached as the estimates don't seem to line up for me. Last thing, 20% growth for the next 10 years implies EUR 7b in revenue in 2025. I don't think they have a great shot at that, but that's what makes a market. Even AMZN had to drastically expand SKUs to continue to grow double digits for a decade.
2. This business model has been tried and tried. Besides the infamous pets.com, there was (and is still?) PetFlow.com (and dozens of co's I've never heard of). See the links below for a discussion. The original thesis (which was well presented imo) mentioned that folks prefer to ship 30lb bags of food. Absolutely! However, shipping those bags is what has limited the operating leverage for previous entries into the market (from what I've heard). The counter to this is the former Pets.com CEO's comments on their failure, which I thought was really interesting. I'm still not sure shipping 30lb bags of commodity products is ever going to be a fantastic business. I could also see ZooPlus creating their own line of food to boost margins as the loyal following grows. I don't know yet.
3. ZooPlus's incremental margins aren't as good as I would have expected. I'm not sure there's much operating leverage here, though I still have to spend more time looking into this. Incremental margins need to expand exponentially AND revenue needs to grow at double-digits for a decade to make the current valuation reasonable. They have great adjusted ROIC, I'm just not sure they will ever get to deploy much capital. It already looks like a great company, I'm just not sure how much gold is available at the end of the rainbow.
4. Just because PetSmart overpaid for Chewy does not mean someone will overpay for ZooPlus. I'm not sure how much higher the multiple can get without ZooPlus displaying greater operating leverage.
5. Depending on where you live, there is some very real short-term currency risk at the moment. The French elections will likely do something to the FX rate, since the race is so close (based on estimates I've seen). I suppose you could argue that the time to buy is during high uncertainty, but there are other similarly great EU-based companies that are more stable and trade at lower valuations. Unless you own 100+ positions, why ZooPlus? They will almost certainly not maintain a 80x or 100x multiple as they mature, which will be a headwind on future growth.
6. This stock has a EUR 1b market cap and EUR 72,500 $ Vol/day. The float, measured by share count, is tiny.
7. Ruane, Cuniff & Goldfarb also bet BIG on VRX.
Overall, I like the business a lot, especially after reading about the Pets.com CEO's comments. You really
have to believe all of the problems are solved with regards to the business model to see value at the current price but this will be an interesting company to follow. Cool idea.