AI Feed And European Expansion Will Redefine E-Commerce Markets

Key Takeaways

• Expansion in personalization, new markets, and marketplace partnerships positions Zalando for sustained growth and higher-margin revenue streams.
  
• Integration and efficiency initiatives in logistics and operations are set to drive margin improvement and increased profitability over time.
  
• Ongoing margin pressures, muted consumer demand, increased competition, and high investment needs threaten Zalando's profitability, growth potential, and geographic diversification.

Catalysts

Operates an online platform for fashion and lifestyle products in Europe.

• The rollout of Zalando's new AI-powered discovery feed and continued investment in personalized, curated shopping experiences are expected to increase user engagement, shopping frequency, and ultimately drive higher average order value and revenue per customer, leveraging broader consumer migration to mobile/online and personalization.
  
• The acquisition and integration of ABOUT YOU, along with synergy realization in logistics, B2B/B2C cross-selling, and payments, should yield significant cost efficiencies and scale benefits from 2026-2029, improving net margins and group earnings.
  
• Rapid growth and expansion of the Partner Program (marketplace model), including Shopify partnerships and increased brand participation, is shifting revenue mix toward higher-margin commission and service revenues, structurally supporting increases in net margins and EBIT.
  
• Expansion into additional European markets, both with core offerings and loyalty programs, is growing Zalando's total addressable market and user base, and as e-commerce adoption in Europe continues to rise, this positions Zalando for sustained, long-term top-line growth.
  
• Increased operational efficiencies in logistics (including through proprietary Zalando Fulfillment Solutions), automation, and software-driven B2B solutions are expected to reduce per-unit costs, supporting margin expansion and improved profitability as scale increases.

Zalando Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Zalando's revenue will grow by 11.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.5% today to 3.6% in 3 years time.
• Analysts expect earnings to reach €545.4 million (and earnings per share of €2.02) by about September 2028, up from €270.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €645.5 million in earnings, and the most bearish expecting €350.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.1x on those 2028 earnings, down from 22.9x today. This future PE is greater than the current PE for the GB Specialty Retail industry at 20.4x.
• Analysts expect the number of shares outstanding to decline by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.56%, as per the Simply Wall St company report.

Zalando Future Earnings Per Share Growth

Risks

• Consumer demand remains muted and price sensitive across Europe, with no expected improvement in the macro environment; this sustained weakness can suppress revenue growth and limit expansion opportunities in Zalando's core markets.
  
• Gross margin pressure persists, driven by increased investment in strategic growth initiatives like the loyalty program, a mix shift to lower-margin segments (B2B, lounge/sports/beauty), and ongoing high return rates across online fashion, all of which may constrain net margins and profit growth.
  
• Dependence on the European market leaves Zalando vulnerable to region-specific economic downturns, possible market saturation, and lower per-customer spend growth, which limits revenue diversification and increases earnings volatility.
  
• Significant, continuous investments in logistics infrastructure, technology, and integration (including the ABOUT YOU acquisition) may result in higher capex and opex outpacing revenue growth, thereby pressuring future net margins and free cash flow.
  
• Intensifying industry competition from online marketplaces (e.g., Amazon, Shein) and new consumer touchpoints (social commerce, live shopping) is likely to drive up customer acquisition costs and push down prices, threatening both market share and long-term revenue growth.

Valuation

• The analysts have a consensus price target of €36.846 for Zalando based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €47.0, and the most bearish reporting a price target of just €23.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €15.3 billion, earnings will come to €545.4 million, and it would be trading on a PE ratio of 21.1x, assuming you use a discount rate of 6.6%.
• Given the current share price of €23.93, the analyst price target of €36.85 is 35.1% higher.
• 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.