US investor Jim Feuille stays bullish on Zebit’s ecommerce prospects
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Ecommerce play Zebit (ASX:ZBT) hit the ASX boards last October, after raising $35m from investors at $1.58 per share.
With an online shopping platform that stocks around 90,000 products, the US-based company runs an integrated model which also includes pay-by-instalment options for its customer base.
Zebit’s full-year results last week showed the company beat its prospectus forecasts across a number of metrics including revenue and bad debt provisions.
The company reported revenue of $US87.65m (up 2.5pc), with gross profit of $US23m and an operating loss of $3.7m. Bad debts fell to $9.19m, from $14.78m in 2019.
ZBT shares bounced off recent lows beneath $1, but the stock has so far failed to climb above its IPO price since listing.
To discuss the company’s outlook, Stockhead caught up with Jim Feuille, a partner at US-based tech venture firm Crosslink Capital.
With its pay-by-instalment function, Zebit is often compared to the red-hot cohort of BNPL stocks.
An early investor in both Zebit and Sezzle (ASX:SZL), Feuille likes both models but said there a few differentiating factors.
He highlighted that Zebit’s comparatively slower start may be attributed to a relative lack of understanding of the market opportunity, compared to how fast ASX investors picked up the potential of BNPL.
A key feature of Zebit’s payment solution is that it makes the service available to lower income demographics who otherwise wouldn’t meet the criteria imposed by US credit providers, Feuille said.
“The population of middle and lower income earners in the US who are underbanked and can’t access fair lending services is huge,” he said.
Around 80m US consumers fit the demographic, which Feuille said is targeted by predatory lending services such as high-interest pay-day loans and expensive rent-to-own measures.
“So to me it’s a combination of a mission that’s very appealing to solve major social problems, and to do it with an economic model that works for investors, he said.
Feuille joined Crosslink in 2002 where his remit is primarily early-stage tech investments, with a recent focus on fintech accompanying the growth in that sector.
Early investments that resulted in IPO exits for Crosslink include Ancestry.com (IPO 2009, acquired by Permira Advisors 2012 for $1.6B) and Pandora (IPO 2011).
While Zebit has been described as an ecommerce play with a BNPL solution, Feuille said the company doesn’t compete directly in what’s now a crowded space.
It also operates adjacent to the big ecommerce players such as Amazon, he said.
“Zebit’s consumers can’t buy on Amazon because typically they don’t have a credit card. So from an ecommerce perspective they (Zebit) don’t really compete with Amazon. They compete with bricks and mortar outlets like Walmart where customers can pay in-store.”
And breaking down the numbers in the red-hot BNPL space, Feuille said Zebit’s gross margins (including bad debts) as a percentage of gross merchandise value (GMV) stack up favourably.
“If you’re looking at gross margins after bad debt, divided by GMV, you will see that Zebit generates three to four times the gross margin dollars for every dollar of GMV. So it’s also a lot more profitable at the unit level than other companies,” he said.
While Aussie investors have yet to latch onto the Zebit model, Feuille said it’s “really powerful if you take the time to understand it”.
“If you look at the income statement it looks like thin margins. But the way the cash flow works, accounts receivable can be financed internally and the velocity of capital turns over several times per year, which results in a very high IRR (internal rate of return),” he said.
Like other tech initiatives, the next step for investors is to get the fly-wheel spinning in scale.
“To build the product there’s costs — R&D, sales and marketing, lots of staff headcount which is expensive,” Feuille said.
But in his view, the company is “just now getting to scale. At scale, the IRRs are enormous and they have no competitors.”