MyDeal.com.au – the leading online marketplace for discounted goods (electronics, furniture, appliances) in Australia. They’re a marketplace joining buyers and sellers, so they enjoy the network effect that comes with this business model. Since they don’t actually buy the goods they sell, their only expenses are in running the platform, leading to high FCF margins. They experienced high growth when COVID hit, but the shift to online shopping is definitely here to stay.
Wish – one of the most unloved IPOs of 2020, and has drawn more criticism than any other tech stock for a long time. Many investors believe that selling low-quality goods is a pointless endeavour, but that’s because they can afford to shop through Amazon and other means instead. Wish allows people with lower incomes to enjoy online shopping, and they do this by offering rock-bottom prices for goods in exchange for; lower quality, and longer delivery times. It allows people of any income status to experience the joy of buying needless items online, and achieves so by essentially connecting consumers from the US and Europe with manufacturers in China. Again, it’s a marketplace, so it enjoys network effects and high FCF margins. The stock hasn’t shot up post IPO because investors can’t appreciate the benefits of this marketplace to those of lower incomes, because most investors simply aren’t in the lower income category. At $20 a share, this stock is very cheap.
Farfetch – an online marketplace for high-end luxury fashion. Brands sell their items on Farfetch, and Farfetch takes a cut of all the transactions they process. They’re a marketplace, so they don’t own any of the product sold, they simply maintain their platform and enjoy the network effects that come with being a marketplace. At levels of $50+ a share, it is very expensive.
The RealReal – an online marketplace for second-hand luxury fashion. People who own luxury goods (mainly clothing) can send their product in to the RealReal who will authenticate it as being real rather than fake, and will post it on their marketplace. The RealReal takes a big cut of the sale (35%) for their efforts in; authenticating and selling the product. They solve a real problem for people trying to sell their luxury goods, as these goods hold their value very well but can’t sell the product for its full value on eBay as people aren’t willing to pay full-price there as there are many fakes in circulation. By going through the RealReal people can sell their luxury items for their full value with no headache, while the RealReal benefits from the network effects working in their marketplace.
Poshmark – the leading peer-to-peer platform for the buying and selling of secondhand clothing. As recycled fashion becomes more acceptable among young people as they try to combat their environmental impact, the network effects on Poshmarks marketplace leaves them in the best position to dominate this space. The fashion market is massive, and Poshmark takes a very healthy 18% cut of every transaction on their platform. The more buying and selling, the better for them. They’re still a small company at the moment, compared to the opportunity ahead. Investors are worried that the economic reopening will mean shopping online ends abruptly, but a platform like this will thrive regardless of lock-downs as finding great second-hand clothing requires an online platform offering nationwide reach, and options.
Vivid Seats – an online marketplace for reselling tickets to live events. People need a trustworthy platform to re-sell tickets through to avoid being scammed, and Vivid Seats is neck-and-neck with Stubhub as the market-leader in this place. The company has gone public via SPAC with Horizon Acquisition Corp (HZAC) and the valuation is very appealing as the company has clearly been pummeled by the pandemic. At a $10 stock price the company is on a FCF multiple of just 15x – based on 2019’s numbers – meaning that when live events inevitably re-open, and arguably return with massive demand compared to 2019 – Vivid Seats will look like a bargain as its one of the last re-opening plays that hasn’t reached excessive valuations.
Angi Homeservices – this company is trying to turn tradesman work into an Uber-like experience in the US. No negotiating, no phone calls – just get on their app, pick the person you want (with the price already listed), book a time for them to come around and do the job, and you’re all set. In return, Angi takes a cut of all the transactions processed on their platform. Network effects are at play here for this market-leader, as more tradespeople will be attracted by more customers and vice-versa. Tradespeople like it because it gives them business without any effort into advertising, and customers like it because it takes all the headache out of organising a hands-on home job. For the last decade tradespeople haven’t needed any help getting work as the whole industry was under-staffed, but that’s changing as of late and work is getting more competitive here. At less than $20 a share, this company is very reasonably valued for a tech marketplace.
HiPages – running the same business model as Angi Homeservices, except its for Australia.
Felix Group – an Australian marketplace connecting contract tradespeople with employers working on big construction projects who need quick access to qualified staff.
Lyft – rival to Uber in the US. This space is cut-throat competitive and no one has yet turned a profit. They don’t really have a moat either, as people don’t care what platform they use to order their lift from. Not a fan of this space.
Etsy – the market-leader for home-made goods in the US. Etsy runs the platform, connecting buyers and sellers and taking a cut of all the transactions processed through their site. Stock has soared due to COVID, as more people shopped online and there was a huge influx of people looking for home-made masks. This boost in sales is likely temporary, so avoid until the stock falls far from its current levels of $160.
1st Dibs – this is the Etsy of antiques. The big lesson from Etsy’s rise to a $24B valuation, is that the network effects of marketplaces allow them to dominate even the nichest markets. 1stDibs gives people access to antique goods from around the world in one place, meaning you can source antiques of a particular culture without having to travel the world to find it. Further, as the pandemic permanently shifted society to a partial work-from-home model, it inspired people to improve their homes – something which 1stDibs stands to benefit from. It has huge potential ahead of it with only 70k active buyers, which even though it’s for the wealthier amongst us, is only a fraction of what’s achievable.
Zillow – the realestate.com.au for the US. They’re the market-leader in online home listings (buying or renting) in the US which is a hugely profitable business model, as realestate.com.au enjoy FCF margins of nearly 40% – although Zillow hasn’t exhibited this yet as they are still investing in growing even more.
OpenDoor – hugely hyped hugely expensive company which essentially does house-flipping and acts as an online real-estate agent. People looking to sell their house have two options; post it on OpenDoor’s website (charged 3% commission), or sell it instantly to OpenDoor directly (7% commission). OpenDoor then owns the house, and tries to improve it before selling it themselves for a higher price. They have very narrow margins (gross margin of 7%), and you can’t use sales multiples here as they have very high sales numbers due to the fact that they’re selling houses (which have a high price-tag) albeit with very low profitability levels. This is one to avoid until it comes a lot lower.
Fiverr – an online marketplace for the gig economy. People who need some job done (logo creation, website building, software building, coding) can post their job onto the platform and gig workers on the platform will bid a price for which they’re willing to do the job. Fiverr takes a cut of all the transactions processed on its platform. The stock soared in 2020 due to COVID, so is very expensive at levels of $100+. However, as the gig economy develops, Fiverr stands to benefit alongside Upwork.
Freelancer – another online marketplace for the gig economy doing a very similar thing to Fiverr. Freelancer has a larger user base than Fiverr, yet due to the less appealing and functional platform of Freelancer, didn’t do as well as Fiverr during the pandemic (Fiverr grew 80% while Freelancer grew 15%). However, Freelancer is a much cheaper stock and should still grow as the gig economy develops.
Zip Recruiter – an online marketplace for mainstream job search. They are the market-leader in the US for job listings – connecting employers with prospective employees. They collect data in a clever way – by getting employers to rank the potential candidates they find on the platform. Zip then collects this data and feeds it into their AI to learn – this leads to a network effect whereby more data leads to better recommendations which attracts more employers to use the platform, which leads to more data. They also have a network effect on the users side whereby more employees using the platform for job searches attracts more employers as customers as they look for the widest audience as it gives them the best chance to find their best candidates. Being the market-leader in this space means Zip will benefit strongest from these network effects. Recent IPOs aren’t usually a good idea, but at a sales multiple of 5x (at a stock price of $20) – this is very reasonable.
Udemy – an online marketplace for education whereby educators can post their own online course, and users can pay to access it. Udemy provides the educators with all the tools they need to make their course on the platform, and they provide users with the platform on which they can access them. For their efforts, like any marketplace, they take a cut of all the transactions on their platform. Like many marketplaces, they benefit from network effects – more educators means more courses which attracts more users, and more users attracts more educators to make their course on the Udemy platform.
Lottery.com – an online marketplace that connects lottery providers with consumers – lottery.com hosts all the lotteries taking place at any given time, and users can browse the options and buy their tickets through the platform – taking a cut of the transaction for bringing the buyer and seller together. This is hugely beneficial in an industry which is very fragmented (in the US). How profitable can this be? Last quarter they had 50% operating income margins, that’s while growing 200% year-on-year – so while still investing heavily for growth, they managed such juicy profit margins.