Hepsiburada - EBITDA loss continues to narrow

Hepsiburada has reported September quarter financial statements and provided a trading update. The recovery has continued both at gross income and EBITDA levels. The EBITDA loss continue its trend down. The improvement in September loss readings is largely due to, in decreasing order of importance, (1) the gross contribution margin, (2) shipping and packaging expense margin, and (3) advertising expense margin. Below are the highlights.

Customer traffic and order flow. This is the second quarter Hepsiburada reports IAS29 inflation adjusted accounts. The gross merchandise value (GMV) reads TL11.0 billion, down 8.5% on the year. The share of marketplace GMV was 68.2% versus 69.7% the same period last year. Business volumes are looking good despite headwinds with the number of orders growing 26% year-on-year to reach 17.4 million. The active customers totaled 11.8 million adding 11.0% over the same period last year. The merchant base is reported at 94.3 thousand growing 41.5% year-on-year. At 145 million, the SKU count added 89% year on year.

Gross contribution margin jumps. At an inflation adjusted 8.4%, September quarter gross contribution margin posts a significant 447bp improvement on the year (+337bp sequentially). This is in part due to the repricing gap now working to Hepsiburada’s favor as we have highlighted in our comments on June quarter results. Cost repricing may lag revenue repricing under inflation accounting temporarily overstating cost of sales while understating revenues masking the true state of profit margins.

OPEX margin is down 181bp on the year. We see marked decline in advertising and shipping and packaging margins year-on-year. The outlier is the general and admin expense line, where the margin is wider both sequentially (+39bp) and on the year (+106bp). The improvement in other OPEX lines, especially in advertising, is large enough though to offset the deterioration in G&A expense margin. The total OPEX margin indeed reports a material 181bp improvement over the same quarter of 2021.

EBITDA loss has narrowed both on the quarter and year-on-year. The loss at EBITDA level has narrowed sequentially to TL454M -excluding provisioning for a shareholder settlement charge-off- for the September quarter versus TL594M reported for the June quarter and TL1,245M for the September quarter of 2021. The EBITDA margin has improved by a significant 616bp over the same quarter of 2021 or +206bp on quarter-on-quarter comparison.

Net loss follows the suit. The net loss -excluding one-off charge- has narrowed sequentially to TL387.4M (TL571.5M including one-off provisioning) for the September quarter versus TL554.1M reported for the June quarter. The loss posted for the September quarter of 2021 was TL1,511M.

Free cash flow - positive readings two quarters in a row. Free cash flow, which had turned positive during the June quarter, posted improvement both sequentially and on year-on-year comparisons: +TL331M in 3Q22 versus +TL184M in 2Q22 or -1,290M booked in 3Q21, all cash flow figures are inflation adjusted. The reversal is again due to the positive reading in operating cash flow, which has posted +TL542M as at September 2022 versus +TL397M in June and -TL1,186M in September 2021.

Hepsiburada to become profitable sooner than the street expects. The quarterly readings are encouraging. Hepsiburada could become profitable sooner than the street gives it credit for. We continue to expect EBITDA to break-even much sooner than the timeline entertained by the sell-analysts of Hepsiburada. It is not unlikely Hepsiburada will turn EBITDA positive sometime in 2023.