Ozon Earnings: a Promise Made is a Promise Kept

Ozon Holdings PLC (OZON) published its semiannual and quarterly earnings report. Ozon is the oldest Russia’s and former USSR’s online retail chain dubbed “Russian Amazon”. It operates as an internet retailer of multi-category merchandise to retail consumers. The company offers products in various categories that include electronics, home and décor products, children’s goods, fast moving consumer goods, as well as airline and railway tickets, fresh food and car parts. It also manages an online marketplace platform that enables third-party sellers to conveniently list and sell their products on its mobile apps, as well as ozon.ru and ozon.travel websites. Ozon Holdings PLC was incorporated in 1999 and headquartered in Nicosia, Cyprus.

According to the company’s report, it has been busy expanding its outlets and extending listings of products. But if we compare another Russia’s IPO newbie, the FixPrice’s (FIXP) report and the Ozon’s report, we would note the comparison is not in favor of the latter. On the operational level, everything looks even better than it was expected. Online orders soared to 40.9 million from 14.6 million in Q2 2020, accelerating growth to 180% YoY amid 80% customer base growth and high 40% returning customers’ rate. GMV (Gross Merchandise Value) rose to RUB 89.0 bln, up 94% YoY from RUB 45.8 bln. in Q2 2020, despite a high base effect of 188% YoY growth in Q2 2020.

This is where the negatives begin. Adjusted EBITDA was negative RUB 9.1 billion compared to negative RUB 1.8 billion in Q2 2020, which implies adjusted EBITDA as a percentage of GMV, incl. services up 10.3% in the second quarter of 2021, up from 3.9% in the second quarter of 2020. The negative result was due to large-scale deployed strategic investments to increase Ozon’s market share. Cash flow from operating activities amounted to negative RUB 7.7 billion compared to negative RUB 2.1 billion in Q2 2020. In principle, Ozon tries its best not only to look, but also to be aggressive, but they are ready to sacrifice a lot for the sake of becoming bona fide "Russian (or entire Eastern Hemisphere’s?) Amazon" – literally, to take off their last shirt and light the fireplace with it. Whether it will pay back or not - time will tell, but the period of the expected return on investment in the company's shares is clearly longer than the beginning of next year, which looked like its realistic goal until recently. The forecast assumes revenue of 43.1 billion rubles on negative EBITDA of -5.6 billion rubles.

At the end of the current year, revenue is expected to grow to 170 billion rubles, by the end of 2022 – to 275 billion rubles. Hence, turning to profitability coming out earlier than next year is unlikely. It would be wise to reduce the OZON’s share in the portfolios without haste to free up cash for other interesting local growth stories.