An online eCommerce marketplace, AHAlife Holdings Limited (ASX: AHL) owns and operates a proprietary platform for premium design and lifestyle goods. Headquartered in New York, the company has been listed on the Australian Securities Exchange (ASX) since July 2015. AHL’s platform encompasses Kaufmann-Mercantile.com and AHAlife.com. AHL’s business model is a direct drop-ship model between the designer and the customer.
There are three pillars of AHL Group - Craftsmanship (focussing on beautiful, modern and timeless design), Community (showcasing the world’s best designers and makers and share their stories) and Conscious Living (encouraging a more thoughtful and intentional lifestyle).
Market Opportunity for AHL
The continuous growth of the global online market for luxury personal goods at a very strong rate offers a huge market opportunity for AHL. As per company, the value of sales in the interior design services industry has increased 5.1 per cent from 2016 to 2018 and is anticipated to grow another 8.4 per cent between 2018 and 2020. The (ASID) American Society of Interior Designers’ 2019 Outlook and State of Interior Design Report has projected the value of sales in the interior design services industry to reach US$14.73 billion in 2019 and $15.93 billion in 2020.
A Great Success - Acquisition of Design Milk
The company completed the acquisition of Design Milk assets in February this year for a total upfront consideration of US$0.77 million. Out of the total consideration, US$0.50 million was to be paid in cash and US$0.27 million was to be paid in options in AHAlife. Besides this, a deferred consideration of US$1.13 million was also to be made with US$0.50 million cash payment during next half year from the date of completion, and US$0.63 million to be paid across three tranches of options in AHAlife.
Founded in 2006 by Jaime Derringer, Design Milk is a world-renowned and award-winning digital media platform that brings the latest news in interior design, fashion, art, technology, architecture, decor and furniture around the world to its engaged and large audience.
The management team of AHL excitedly welcomes Design Milk founder Jaime Derringer as Chief Creative Officer. She is a thought leader in the modern design world who speaks regularly at major industry events, further supporting Design Milk as an authority in the field. She has brought in about two decades of experience in the design and media industries by joining as the Chief Creative Officer.
The acquisition complemented the AHL pillars of Craftmanship, Community, and Conscious Living and provided an exciting opportunity for Design Milk to expand its reach through additional design-focused channels, websites, and services.
Source: Company’s Presentation (28th February 2019)
Why AHL Acquired Design Milk?
The revenue of AHL is primarily driven by SEM, email and promotional offers through the company’s affiliate partnerships. This involves a substantial investment in customer acquisition. The acquisition costs increased for the company as these channels have become highly competitive. Engaging with the global Design Milk community helped AHL gain a high content re-engagement, pre-engaged demographic, lower acquisition costs and reduced promotional pressure.
As per the company, Design Milk is highly complementary to AHL, giving it further opportunities to create new lifestyle-curated websites and engage with an audience of 7.2 million aggregate followers across multiple social media platforms.
Launch of Two New Design Milk Websites
The company informed about the launch of two new lifestyle curated websites - Design Milk Travels (travel and exploration) and Design Milk Everyday (modern design objects for daily life) on 30th April 2019. AHL stated that both these websites would feature brands and makers that coordinate with the Design Milk ideology of celebrating accessible and fun modern design. The sites sit along with the Design Milk social media accounts and would deliver curated content to a large audience of 7.2 million followers and the existing Design Milk website, reported AHL.
AHL achieved its highest ever contribution margin of 26 per cent in March 2019. The company is very excited with the introduction of the two websites and expects to see a substantial growth in revenue.
The company released its financial results for the half-year ending 31st December 2018 on 28th February 2019. AHL made strong progress towards its path to profitability during the half year with a significant reduction in its cash burn. This was indicated with a 15 per cent or US $0.4 million fall in overheads during the half-year relative to the prior corresponding period. The company also witnessed significant cost reductions while successfully moving headquarters to Columbus, Ohio in September 2018.
AHL’s gross margin improved to 40.6 per cent in H1 FY19 from 39.8 per cent in H1 FY18. Also, the average order value rose from US$185 in H1 FY18 to US$217 during the first half of 2019. An improvement in offer rates was witnessed during the period to 17.7 per cent from 20.9 per cent in H1 FY18. The expenses of the company reduced in H1 FY19 with the total expenses declining to US$1.7 million and employee benefit expenses falling 11 per cent to US$766k on pcp.
The revenue of the company was impacted because of the aggressive adjustments to improve the core AHL business model, including focusing on higher profitability sales and reduction in offer rate. While impacting sales, these adjustments restaged the business and resulted in an 8pps increase in gross margin. The company declared a robust cash and cash equivalents at hand of US$2,261,132 at 31st December 2018.
AHL’s FY20 Outlook
AHL has provided the following expectations for FY20:
- The contribution rate is expected to remain higher than the historical averages.
- Improvement in AHL’s shared service efficiency to accelerate scale as the company introduces additional websites to the AHL platform.
- Establishment of a recurring revenue model through additional advertising and subscription-based services.
- Better utilization of Artificial Intelligence (AI) to create a highly targeted, personalized e-commerce experience.
- Expand the company’s community touch points through new events and pop-up retail.
AHL is currently trading at AUD 0.007 on 9 July 2019 (as at 1:03 PM AEST). The stock has generated a return of 33.33 per cent and 14.29 per cent in the one month and five days, respectively.
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