Zalando’s Revenue Stalls and Profit Hit in 2022, but Long-Term Growth Intact As Shares Still Cheap

We don’t expect to make a material change to our EUR 65 fair value estimate for no-moat Zalando ZAL as we incorporate full-year 2022 results into our models. Despite more than doubling from last year’s lows, shares still present value, trading in 5-star territory at an almost 40% discount to our fair value estimate.

Revenue was largely in line with our estimate, at the lower end of company guidance and practically flat from the previous year, gross merchandise value was 1% lower than we expected and up 3.2% from 2021 levels. Adjusted operating profit was also lower than our estimate and at the bottom range of the company’s guidance at EUR 184.6 million, 1.8% margin, down from 4.5% in 2021. Although the company was cautious in its outlook for 2023 growth of 1% to 7% and revenue from negative 1% to 4%, so far, we retain our forecast for double-digit revenue growth resumption in 2023 after a speed bump in 2022 (the company delivered more than 20% growth in all of the previous years of listed history, bar 2023). This is consistent with our assumption that structural growth of online apparel penetration in Europe is intact, supported by consumer demographic trends and company investments and factors in an easier comparison base from 2022. That said, with the economic environment and consumer sentiment remaining uncertain, there may be downside to our near-term forecast. Over the midterm management expects the firm to return to double-digit growth and reach a mid-single-digit margin, which is consistent with our assumptions.

Despite slower growth in 2022, Zalando’s active customer count continued to grow reaching over 51 million, up 5.7%, reaching over 10% of the addressable European population and 23% in the top five markets, strengthening the value proposition of the platform for brands, supporting traces of the network effect. Cost controls put in place had results in the second half, but significantly lower demand versus initial projections still hit profitability.