Jim Armitage: The hysteria's started again – AO World has been hugely overhyped
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Thursday 27 February 2014
It's not clear when the tears of joy will turn to sorrow for those who backed AO World's float yesterday, but rest assured, they'll come. I'm sure the online washing machines and fridges retailer is a decent business, and I'd happily buy founder John Roberts a pint up in his native Bolton to celebrate his winnings (Camra's Bolton pub of the year contest was being held last night). But this valuation is dotcom hysteria all over again.
Some perspective: even at its opening price yesterday morning, AO was valued at 72 times next year's underlying profit. That compares with Ocado's 35 times – which I've always thought was overpriced – and Asos's 49 times.
For all my doubts about Ocado, it has at least got some hefty infrastructure in place now and the Morrisons tie-up could well pave the way for others. AO fans say it is already further advanced down that road, running white goods websites for the likes of Asda, Next and B&Q. That's true, but surely not to the tune of doubling Ocado's share price-to-earnings multiple.
As for Asos, it has created a decent niche for itself as a business with a clearly defined and loyal customer base and exclusive products over which it has complete control. Can AO say the same? Patently not, yet it finds itself far more highly valued, relative to earnings, by the stock market.
As for Dixons, now ridiculously worth just £200m more than AO, it can do an Annie Get Your Gun with its suppliers: anything AO can do we can do better. As well as offering online retail, Dixons can do click-and-collect and display its suppliers' products properly in its stores, with salesmen talking customers through the difference between a Miele and a Beko. That's got to be valuable to manufacturers and worth preferential terms.
Sports Direct has found to its fury and cost that some powerful suppliers care rather deeply about how their products are presented in store and are refusing to supply it certain lines. Adidas wants its Chelsea strips displayed dramatically to justify the price, not hung up on the rail between Bolton Wanderers and Man U, so it has decided not to sell them through Mike Ashley's bargain basement. Similarly, one day Smeg might wake up to the realisation that its handsome retro fridges – priced at just under a grand, by the way – look ridiculous on the AO website.
As for AO's work running websites for other retailers, can't Dixons do the same?
Congratulations should go to the bankers and PR machine who've been selling the AO float, but for me, the spin cycle on this one has been set way too high.
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