Direct-to-consumer Shift Will Erode Margins Though Emerging Markets Offer Hope

Key Takeaways

• Direct-to-consumer moves by luxury brands and ongoing supplier reliance threaten Cettire's access to inventory, squeezing margins and limiting revenue growth.
  
• Regulatory pressures, shifting consumer sentiment, and increased promotions are set to erode margins, dampen brand loyalty, and restrict long-term market potential.
  
• Strong expansion in emerging markets, technology-driven efficiency, and rising customer loyalty position Cettire for sustainable, scalable long-term growth in a favorable industry environment.

Catalysts

Engages in the online luxury goods retailing business in Australia, the United States, and internationally.

• The accelerating shift by luxury brands towards direct-to-consumer strategies threatens to bypass aggregators like Cettire entirely over the next several years, which could sharply reduce Cettire's access to both high-demand luxury inventory and shrinking its share of gross merchandise value, ultimately constraining revenue growth and pressuring long-term earnings.
  
• Heightened regulatory scrutiny on online marketplaces-centered on product authenticity, data privacy, and cross-border commerce-is set to drive up compliance costs and operational risk for Cettire, creating persistent drag on net margins and increasing the likelihood of costly disruptions or fines.
  
• The intensification of promotional activity industry-wide, combined with ongoing economic pressures on aspirational luxury consumers, is likely to erode average selling prices, reduce brand loyalty, and weaken Cettire's pricing power, leading to sustained margin compression and unpredictable revenue streams.
  
• The company's continued heavy reliance on third-party inventory holders exposes it to ongoing risks around margin volatility and unstable supply, leaving it vulnerable should supplier relationships deteriorate or global luxury inventory availability tighten, restricting future revenue and gross margin consistency.
  
• The rising influence of consumer environmental consciousness and anti-fast-fashion sentiment, especially among key Millennial and Gen-Z cohorts, may cause a long-term decline in customer acquisition and retention for online luxury resellers, threatening Cettire's addressable market size, repeat purchase rates, and top-line growth.

Cettire Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Cettire compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Cettire's revenue will grow by 4.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 0.3% today to 0.8% in 3 years time.
• The bearish analysts expect earnings to reach A$7.6 million (and earnings per share of A$0.02) by about July 2028, up from A$2.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.3x on those 2028 earnings, down from 50.6x today. This future PE is lower than the current PE for the AU Specialty Retail industry at 23.5x.
• Analysts expect the number of shares outstanding to decline by 0.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.62%, as per the Simply Wall St company report.

Cettire Future Earnings Per Share Growth

Risks

• The accelerating growth and diversification of Cettire's revenue in emerging markets-where gross revenue grew by 32% and now represents 37% of overall sales-suggests the company has significant room for expansion and top-line growth as it penetrates large, affluent markets in Asia and the Middle East, which could substantially boost revenue and earnings in the coming years.
  
• Cettire's technology investment in AI and data-driven personalization, as well as its scalable, proprietary tech stack, positions the company to improve customer experience and operational efficiency, which can increase average order values, drive higher customer retention, and support margin expansion and higher customer lifetime values.
  
• The business model is capital-light, with automation, a low fixed cost structure, negative working capital, and a self-funding, zero-debt balance sheet, all of which provide flexibility to withstand market cycles and invest in future growth, supporting stable or improving net margins and solid cash generation.
  
• Increasing loyalty and engagement from an expanding customer base, demonstrated by a 21% growth in active customers, a 29% growth in repeat purchase sales, and a rising percentage of revenue from repeat customers, underpins sustainable, long-term revenue growth and earnings resilience.
  
• Signs of stabilization and anticipated recovery in the global luxury market, combined with secular shifts to online shopping and a growing affluent middle class worldwide, indicate a long-term tailwind for Cettire's addressable market, likely supporting higher gross transaction values and increased shareholder value over time.

Valuation

• The assumed bearish price target for Cettire is A$0.2, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Cettire's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$1.18, and the most bearish reporting a price target of just A$0.2.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be A$893.0 million, earnings will come to A$7.6 million, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 7.6%.
• Given the current share price of A$0.32, the bearish analyst price target of A$0.2 is 60.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.