Purple Innovation Inc

Purple Innovation Inc (NASDAQ: PRPL) is a comfort innovation company which designs, manufactures and sells a range of comfort technology offerings, including mattresses, pillows, cushions, sheets, bed platforms, and other products.

Key highlights 

• Higher guidance for Q1 2021 and FY 2021: For 2021, the Company expects a higher revenue, which is likely to be in the range of USD 840 - 880 million, an increase of 30% to 36% over 2020, and adjusted EBITDA to be between USD 90 - 100 million. For Q1 2021, revenue would be in the range of USD 160 - 170 million, an increase of 31% to 39% over the first quarter of 2020 and adjusted EBITDA between USD 11 - USD 14 million.

• Rise in market share: On the back of coveted and innovative products, internal manufacturing capabilities, and omni-channel distribution strategy combined with effective marketing and promotional programs, the company has doubled its share of the U.S. premium mattress market over the past two years.

• Increasing capacity:In July 2020, the company entered a lease for a new facility in McDonough, Georgia, with plans to grow its manufacturing footprints and serve its customers in the eastern U.S. Recently, the group began its operations in the new facility, which would ramp up to the planned capacity of four Mattress Max machines. The group also added four showrooms in 2020, making a total of nine showroom locations in cities across the U.S. Furthermore, it anticipates opening more showrooms throughout 2021, which would further boost the revenue.

• Healthy cash and cash equivalents position:As of December 31, 2020, the Company had cash and cash equivalents of USD 123.0 million compared to USD 33.5 million as of December 31, 2019. The increase was driven by USD 81.3 million generated by cash flow from operations and USD 48.4 million from warrants' exercise and options.

Financial overview of FY 2020

Source: Company

• Net revenue increased 51.4% to USD 648.5 million as compared to USD 428.4 million. Direct-to-Consumer (DTC) revenue increased 83%; while wholesale revenue increased slightly, reflecting COVID-19 related retail partner store closures.
• On the back of improved cost of sales, the company posted improvement in Gross margin, which increased 290 basis points to 47.0% as compared to 44.1%.
• Operating income stood at USD 71.2 million, against USD 16.2 million in the previous corresponding period.
• The company reported net income of USD 10.8 million, against a loss of USD 12.3 million in 2019. 

Risks associated with investment

The ongoing COVID-19 pandemic and responses have adversely affected and may continue to adversely affect aspects of business, including, among other things, supply chain, workforce, and operations. 

Valuation Methodology (Illustrative): EV to Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

Despite the many challenges in 2020, the Company successfully posted healthy numbers and turned into profits. Moreover, FY 2021 is off to a solid start. The Company believes that it is well-positioned to build on its recent accomplishments and intend to continue investing in capacity expansion, innovation and company showrooms to further expand its market share. We believe that the Company’s solid liquidity would help in achieving all these parameters. Furthermore, for FY 2021, the Company expects revenue to be in the range of USD 840 - 880 million, an increase of 30% to 36% over 2020 and adjusted EBITDA to be between USD 90 - 100 million is appreciable. Therefore, based on the above rationale and valuation, we suggest a “Speculative Buy” recommendation at the closing price of USD 32.34 on March 18, 2021. We have considered Amazon.com Inc, Home Depot Inc, RH, etc. as the peer group for the comparison.

1-Year Price Chart (as on March 18, 2021). Source: Refinitiv (Thomson Reuters)

FinTech Acquisition Corp. V

FinTech Acquisition Corp. V (NASDAQ: FTCV) is a blank-check company formed for the purpose of acquiring or merging with one or more businesses.

Key Highlights:

• Merger with eToro Group Ltd.: On March 16, 2021, the company reported its merger with eToro Group Ltd. at an enterprise valuation of ~USD 9.6 billion. eToro Group Ltd. offers a digital platform that provides investors with multi-asset investment options and also provides a choice to purchase or sell financial security from the platform. The company generates its revenue from the spread, which is the difference between the buy and sell price of a particular financial asset.

• Transaction details: The above transaction is estimated at implied equity value of ~USD 10.4 billion, which includes commitments of USD 650 million common share private placement from leading investors including ION Investment Group, Softbank Vision Fund 2, Third Point LLC, Fidelity Management & Research Company LLC, and Wellington Management. Meanwhile, FinTech Acquisition Corp. V paid cash proceed of USD 250 million. However, eToro’s equity holders would remain as the largest shareholders with ~91% of the ownership of the combined entity.

Financial Highlights for FY20:  

• eToro Group Ltd. reported a strong operational performance, wherein FY20 net revenue grew to USD 544 million, as compared to USD 252 million in FY19. The group reported a solid growth from equities, representing ~44% in FY20 revenue, increased from ~34% in FY19. Moreover, the number of registered users increase to 18.7 million in January 2021, grew from 17.5 million in 2020 and 12.3 million in 2019, respectively.
• The corporation witnessed a surge in the marketing cost (USD 229 million v/s USD 120 million in FY19) and a higher total operation expense (USD 220 million v/s USD 121 million in FY19). EBITDA was recorded at USD 95 million, significantly higher than USD 11 million in the previous year.              

Financial Snapshot (FY16 to FY20) (Source: Company Report) 

Risks: Funding of the upcoming operations along with rising input costs remains a major concern for the company. Moreover, price volatility within the cryptocurrency segment might hinder the overall traction and might dampen the revenue as well.

Stock Recommendation: Due to the recent acquisition news, the stock of FTCV appreciated ~17% in the last week while fell ~5% on an intraday basis. In 2019, eToro Group launched crypto and social trading across the U.S. and received approval from FINRA for a broker dealer license, which is a key positive looking at the current scenario of cryptocurrency. On the flipside, funding of its upcoming operations along with rising input costs remains a major concern for the company. Moreover, price volatility within the cryptocurrency segment might hinder the overall traction and might dampen the revenue as well. Hence, considering the aforesaid facts, we prefer to remain on the sidelines and give an ‘Avoid’ recommendation on the stock at the current closing price of USD 12.22 on March 18, 2021.

1-Year Price Chart (as on March 18, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.