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Links 🔗
THG Website
Recent FT article on the THG decline
Hello everyone, after numerous personal emergencies (one involving me falling of a bike and losing some teeth), I am back. Let’s pick up where we left off and continue our 2 part series on tech companies doing poorly after highly valued IPOs. If you haven’t read part one, the link is at the bottom of this article. In part 2, we take a look at online retail giant The Hut Group (THG)
THG
THG was founded in 2004 as a white label retail website provider. They would design website templates where retailers could market and sell their products. This was considered to be a unicorn business as online retail was just taking off. THG truly leveraged the power of online retail to bring predominantly British brands to consumers all over the world through its e-commerce platforms. As THG grew bigger they started acquiring the brands they were working with and built up a massive portfolio which includes MyProtein, LookFantastic and in-house manufacturing arm THG Labs. In September 2020, the company broke records when they went public, being touted as the largest IPO on the London Stock Exchange in 7 years. Initial valuations suggested that the company was worth 5.4 billion at 500p per share. The first few months of floating went well with shares jumping 25%. However by September 2021, the share price would plummet 60%, wiping billions of the value of the company. Fast forward about 6 months later to now, the share price has dropped to a measly 120p per share. Nearly 75% of its original value.
What went wrong?
So, how did a fast growing tech company end up losing all its value? There are 3 main problems: Profitability, Governance and Market Valuation Profitability is obvious, despite various acquisitions and high revenues the business just isn’t turning a profit. Investors are getting jittery and they want their return and when it didn’t materialise they had a massive sell off. Combined with the impact of pump and dump investors, this left THG high and dry. Secondly, the CEO of the company until very recently held executive power over the group due to his lion's share of the company. This means that he could basically overrule many decisions and hold a dictatorship like governance over the company. Investors did not like it as it didn't fit the mould (his name is Matthew Moulding btw.) and eventually got him to sell his ‘golden share’, reducing his executive power. However many have already lost faith and decided to sell. Lastly, over valuation. The market overvalued what the business was worth. In my opinion, they expected a US like reaction to the IPO where investors are more likely to accept growth with marginal profits compared to the UK. The hype of a unicorn tech company floating on the LSE got the better of everyone and as they say the higher you climb the harder you fall.
Of course all this analysis and reasoning is based on my teeny tiny brain which admittedly knows nothing about finance but I do know this hype sells but if you don’t convert the hype you will be left high and dry in the long run.
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