Company Reports

We continue to view wide-moat Allegro's current price as an attractive entry point for investors seeking high-quality exposure to e-commerce. While we've trimmed our fair value estimate to PLN 44.50 from PLN 46 after digesting earnings—largely attributable to weak results out of the firm's international segment and slower growth in its profitable advertising business than we'd hoped (albeit still up 30% annually), our reaction is less punitive than that of the market, which sent shares spiraling downward 8%-9%. We'd urge investors to consider the company as a play on the attractive Polish online commerce market in which it maintains dominant (mid-40s) market share (our estimates) with an international segment that represents a small drag on an otherwise sterling business.

Allegro is the largest online marketplace in Central and Eastern Europe, or CEE, providing high-quality, affordable products to a growing regional consumer class. With 45%-50% share of the Polish e-commerce market, by our estimates, Allegro's key priorities tie to defending its commanding position in Poland, institutionalizing internal processes to drive capital-efficient growth, and expanding its third-party marketplace footprint into adjacent CEE countries.

A dour consumer spending outlook suggests that the e-commerce industry is in for a challenging 2024-25, with top-line growth set to slow again in 2024 before a gradual return to 10%-plus annual growth by 2028. Despite the pressure, we continue to see investable opportunities for long-term investors, with wide-moat Allegro and narrow-moat Chewy representing our top picks. Overall, our thesis regarding online marketplaces remains intact: the largest, competitively advantaged players should continue to consolidate market share, with deeper expansion into advertising, financial services, and fulfillment set to strengthen their competitive edge. Our forecasts call for the average online marketplace in our coverage to expand take rate by 240 basis points between 2023-28, aligning with this view.

Wide-moat Allegro reported strong quarterly results, with PLN 2.48 billion in revenue beating our PLN 2.44 billion estimate as transaction-driven growth in Poland remains strong (up 10% annually) despite stout macroeconomic pressure in the country and across Central and Eastern Europe. Management's second-quarter guidance suggests an acceleration of current growth rates, with the firm's 150 million global merchants providing compelling value for its nearly 20 million customers in Poland, the Czech Republic, and now Slovakia. While losses in the international business remained wide (PLN 121 million EBITDA loss), significant progress toward growing the more profitable third-party business and limiting the scope of investment to 20% of Polish segment EBITDA implies that these losses should prove palatable to investors. Looking forward, we're encouraged by progress in advertising (25.7% growth at an astounding 92% EBITDA flow-through) and fintech (PLN 30.1 million in quarterly loan origination profit) businesses. Both align closely with our overarching online marketplace thesis: large players are best poised to expand into adjacent services, unlocking substantial potential for incremental economic value creation while solidifying their competitive position. We raised our fair value estimate for Allegro 27% to PLN 46 from PLN 36, leaving shares looking slightly cheap.

Allegro is the largest online marketplace in Central and Eastern Europe, or CEE, providing high-quality, affordable products to a growing regional consumer class. With 45%-50% share of the Polish e-commerce market, by our estimates, Allegro's key priorities tie to defending its commanding position in Poland, institutionalizing internal processes to drive capital-efficient growth, and expanding its third-party marketplace footprint into adjacent CEE countries.

Wide-moat Allegro reported solid fourth-quarter results, and would have comfortably topped our profit forecast if not for taking another impairment in its international segment. We're encouraged by guidance for low-double-digit medium-term growth in gross merchandise volume, or GMV, in its profitable Polish market. This suggests that the online commerce stalwart should be able to defend its 45%-50% market share and roughly 35% adjusted EBITDA margin in the country despite macroeconomic pressure and intensifying competitive pressure. As we digest the results, we've raised our fair value estimate to PLN 36 per share from PLN 34. Shares look attractive at current prices.

Allegro is the largest online marketplace in Central and Eastern Europe, or CEE, providing high-quality, affordable products to a growing regional consumer class. With 45%-50% share of the Polish e-commerce market, by our estimates, Allegro's key priorities tie to defending its commanding position in Poland, institutionalizing internal processes to drive capital-efficient growth, and expanding its third-party marketplace footprint into adjacent CEE countries.

We're lowering our fair value estimate for wide-moat Allegro to PLN 34 from PLN 37 after digesting third-quarter results, with solid figures in Poland outweighed by sluggish progress in the firm's international markets. Our revision is consistent with the market's reaction, which sent shares spiraling 7%-8% intraday.

Allegro is the largest online marketplace in Central and Eastern Europe, or CEE, providing high quality, affordable products to a growing regional consumer class. With 45%-50% share of the Polish e-commerce market, by our estimates, Allegro's key priorities tie to defending its commanding position in Poland, institutionalizing internal processes to drive capital-efficient growth, and expanding its third-party marketplace footprint into adjacent CEE countries.

While wide-moat Allegro narrowly missed our estimates during the second quarter, we find ourselves encouraged by the firm's resilience against a challenging macroeconomic backdrop and with ongoing progress in its Czechia launch, Allegro Pay expansion, delivery optimization, and its nascent ads platform. On balance, the earnings miss and time value offset, and we leave our PLN 37 fair value estimate unchanged.

Allegro is the largest online marketplace in Central and Eastern Europe, or CEE, providing high quality, affordable products to a growing regional consumer class. With 45%-50% share of the Polish e-commerce market, by our estimates, Allegro's key priorities tie to defending its commanding position in Poland, institutionalizing internal processes to drive capital-efficient growth, and expanding its third-party marketplace footprint into adjacent CEE countries.

Allegro is the largest online marketplace in Central and Eastern Europe, or CEE, providing high quality, affordable products to a growing regional consumer class. With 45%-50% share of Polish e-commerce, by our estimates, Allegro's key priorities tie to defending its commanding position in the Polish market, institutionalizing internal processes to drive capital-efficient growth, and expanding its third-party marketplace footprint into adjacent CEE countries.

We're launching coverage of Allegro with a wide moat rating and PLN 37 fair value estimate, leaving shares trading at a 12% discount to our intrinsic valuation. The Polish holding company is well-positioned to capitalize on e-commerce growth in Central and Eastern Europe, or CEE, also boasting exposure to the Czech Republic, Croatia, Slovakia, Slovenia, and Hungary following its Mall Group acquisition, which was consummated during the first quarter of 2022. We foresee a robust, long-term growth runway, with our forecasts calling for a 12% 10-year sales CAGR, driven by 11% annual growth in gross merchandise volume and modest take rate expansion. While the firm faces competition from large, multinational competitors like wide-moat Amazon and wide-moat Alibaba in its home market, we believe that investments in its Prime-like loyalty program, Smart!, managed fulfillment, an improved buyer protection program, and auxiliary financial services will prove sufficient to defend its home turf--a view corroborated by ongoing web traffic outperformance relative to Amazon and the exit of no-moat Sea Limited from the Polish market.