Appetise are a food ordering website that are
seeking to raise between 4.8 and 6.8 million dollars. While they are listing on
the ASX, they are so far only located in London, and have no connection to
Australia. In a trend that has been growing lately, they seem to have chosen to
list in Australia purely due to its lower compliance regulations and associated
costs.
seeking to raise between 4.8 and 6.8 million dollars. While they are listing on
the ASX, they are so far only located in London, and have no connection to
Australia. In a trend that has been growing lately, they seem to have chosen to
list in Australia purely due to its lower compliance regulations and associated
costs.
Background
By numbers alone, Appetise looks like one of the
worst value IPOs I have reviewed on this blog. To explain, let me give a few
simple facts presented in Appetise’s own prospectus:
worst value IPOs I have reviewed on this blog. To explain, let me give a few
simple facts presented in Appetise’s own prospectus:
After starting in 2008, Appetise was acquired for
only $230,000 in May 2016 by Long Hill, an American investment company. After
acquiring the business, Longhill poured $2,260,000 into Appetise to improve the
company’s website and increase the number of restaurants on the platform.
However, despite these investments, revenue decreased from $91,715 in FY16 to
$49,172 in FY17. This IPO now values Long Hill’s stake at $9 million, with
total market capitallization on listing between 13.8 and 15 million, more than
200 times their 2017 revenue. If the IPO is successful, this will be a 261%
return on investment over 18 months for Long Hill, despite no measurable
improvement in Appetise’s performance. If you are getting flash backs of Dick Smith right now, you’re not the only
one.
only $230,000 in May 2016 by Long Hill, an American investment company. After
acquiring the business, Longhill poured $2,260,000 into Appetise to improve the
company’s website and increase the number of restaurants on the platform.
However, despite these investments, revenue decreased from $91,715 in FY16 to
$49,172 in FY17. This IPO now values Long Hill’s stake at $9 million, with
total market capitallization on listing between 13.8 and 15 million, more than
200 times their 2017 revenue. If the IPO is successful, this will be a 261%
return on investment over 18 months for Long Hill, despite no measurable
improvement in Appetise’s performance. If you are getting flash backs of Dick Smith right now, you’re not the only
one.
Management
When Long Hill bought Appetise they did the usual
private equity thing of installing a completely new management team, getting
rid of the original founder in the process. The newly appointed CEO,
Konstantine Karampatsos, has had experience both setting up his own online
business as well as a stint at Amazon, and the CFO Richard Hately has had a
number of senior roles at both start-ups and established businesses. While the
CEO and CFO both seem like logical choices, appointing such an experienced
management team to a company of this size leads to some pretty ridiculous
statistics.
private equity thing of installing a completely new management team, getting
rid of the original founder in the process. The newly appointed CEO,
Konstantine Karampatsos, has had experience both setting up his own online
business as well as a stint at Amazon, and the CFO Richard Hately has had a
number of senior roles at both start-ups and established businesses. While the
CEO and CFO both seem like logical choices, appointing such an experienced
management team to a company of this size leads to some pretty ridiculous
statistics.
Konstantine Karampatos will have an annual salary
of $204,050, post listing, plus a bonus of $122,430. Richard Hately, the CFO,
will have a salary of $195,888, and will receive a listing bonus of $81,620.
The marketing director will receive a salary of $138,750, though no listing
bonus. All up, this is an annual cost of over $700,000 for the three highest
paid employees, for a company that had less than $50,000 in revenue last year.
Even if Appetise’s FY17 revenue increased by 1000% in FY18, it
would still not come close to covering the salary of its three most senior
executives.
of $204,050, post listing, plus a bonus of $122,430. Richard Hately, the CFO,
will have a salary of $195,888, and will receive a listing bonus of $81,620.
The marketing director will receive a salary of $138,750, though no listing
bonus. All up, this is an annual cost of over $700,000 for the three highest
paid employees, for a company that had less than $50,000 in revenue last year.
Even if Appetise’s FY17 revenue increased by 1000% in FY18, it
would still not come close to covering the salary of its three most senior
executives.
This is a perfect demonstration of why a public
listing at such an early stage is a terrible idea. A $50,000 revenue company
should be being run out of a garage or basement somewhere by a few dedicated
founders on the smell of an oily rag, not burning through cash on highly paid
executives.
listing at such an early stage is a terrible idea. A $50,000 revenue company
should be being run out of a garage or basement somewhere by a few dedicated
founders on the smell of an oily rag, not burning through cash on highly paid
executives.
This cost has real consequences too. Under their
proposed allocation of funds, with a minimum $4.8 million raise, Appetise will
spend $1.55 million on executive and head office expenses, vs only $2.15
million on marketing. Given that their primary goal over the next few years is
to raise their profile, this seems like a ridiculous allocation of capital.
proposed allocation of funds, with a minimum $4.8 million raise, Appetise will
spend $1.55 million on executive and head office expenses, vs only $2.15
million on marketing. Given that their primary goal over the next few years is
to raise their profile, this seems like a ridiculous allocation of capital.
As Appetise is currently only operating in England,
the closest I could get to testing Apetise’s product was spending some time
clicking through their website. Overall, it was a pretty underwhelming experience.
There are three large tabs that block a significant part of the page, which
makes scrolling through options difficult, and the colour scheme and overall
design feels a little basic.
the closest I could get to testing Apetise’s product was spending some time
clicking through their website. Overall, it was a pretty underwhelming experience.
There are three large tabs that block a significant part of the page, which
makes scrolling through options difficult, and the colour scheme and overall
design feels a little basic.
On the positive side, they seem to have invested
some time into making the mobile experience work well; if anything the site
actually seems to work and look better on a mobile phone. It is also worth
mentioning that while the prospectus mentions that the business has a national
footprint on numerous occasions, their coverage in London is pretty minimal,
and at this stage they seem to be focused solely on the city of Birmingham.
some time into making the mobile experience work well; if anything the site
actually seems to work and look better on a mobile phone. It is also worth
mentioning that while the prospectus mentions that the business has a national
footprint on numerous occasions, their coverage in London is pretty minimal,
and at this stage they seem to be focused solely on the city of Birmingham.
The company’s social media presence is similarly
disappointing. The prospectus talks a lot about social media engagement through
their loyalty scheme, where users can get credit by sharing Appetise on their
social network but so far they have failed to get much traction in this area.
The Appetise Facebook page seems to only post bad food puns, and each post gets
around 2 to 7 likes on average
disappointing. The prospectus talks a lot about social media engagement through
their loyalty scheme, where users can get credit by sharing Appetise on their
social network but so far they have failed to get much traction in this area.
The Appetise Facebook page seems to only post bad food puns, and each post gets
around 2 to 7 likes on average
(I also noticed that a company director and their
marketing executive are two of their most common Facebook fans.) Compare this
to Menulog’s page, an Australian food ordering and delivery service, where
you’ll see content featuring available restaurants, slightly funnier puns, and
as a result much higher engagement with customers. While Facebook posts might
seem like a trivial thing to be hung up on in a company review, one of the key
things that will affect Appetise’s success is how easily they can build an
online following. The fact that so far they have demonstrated little nous in
this area is definitely a cause for concern.
marketing executive are two of their most common Facebook fans.) Compare this
to Menulog’s page, an Australian food ordering and delivery service, where
you’ll see content featuring available restaurants, slightly funnier puns, and
as a result much higher engagement with customers. While Facebook posts might
seem like a trivial thing to be hung up on in a company review, one of the key
things that will affect Appetise’s success is how easily they can build an
online following. The fact that so far they have demonstrated little nous in
this area is definitely a cause for concern.
Market
Online food ordering is an industry with massive
growth potential, and this is probably the main reason Long Hill felt they could
get away with the prospectus valuation they have gone for. Appetise has a
different model to the likes of Menulog or Deliveroo though, as Appetise does
not take part in deliveries, instead, restaurants featured on the Appetise
platform need to deliver the food themselves. The idea is this will allow them
to scale more easily and not get bogged down with logistical complexities.
While I don’t doubt this approach might work in the short term, (and Just Eat,
a successful UK company with the same model as Appetise has proven that it can)
in the long run an Uber Eats type model of flexible contractors, that can be
sent wherever there is demand seems much more efficient. As websites like Uber
Eats become more popular and economies of scale start to kick in, I feel there
would be an incentive for restaurants to fire their delivery drivers and move
from an Appetise type platform to an Uber Eats one.
Appetise
makes the argument that their patform is currently cheaper, as Uber Eats charge
delivery fees to customers, but just like with Uber, you
would assume that these charges will eventually decrease as the site grows in
popularity.
growth potential, and this is probably the main reason Long Hill felt they could
get away with the prospectus valuation they have gone for. Appetise has a
different model to the likes of Menulog or Deliveroo though, as Appetise does
not take part in deliveries, instead, restaurants featured on the Appetise
platform need to deliver the food themselves. The idea is this will allow them
to scale more easily and not get bogged down with logistical complexities.
While I don’t doubt this approach might work in the short term, (and Just Eat,
a successful UK company with the same model as Appetise has proven that it can)
in the long run an Uber Eats type model of flexible contractors, that can be
sent wherever there is demand seems much more efficient. As websites like Uber
Eats become more popular and economies of scale start to kick in, I feel there
would be an incentive for restaurants to fire their delivery drivers and move
from an Appetise type platform to an Uber Eats one.
Appetise
makes the argument that their patform is currently cheaper, as Uber Eats charge
delivery fees to customers, but just like with Uber, you
would assume that these charges will eventually decrease as the site grows in
popularity.
Verdict
Appetise’s response to a lot of what
I’ve said here would be that the company is uniquely placed to experience
explosive growth in the near future. They have a workable website platform, and
their only major competitor in the UK Just Eat has demonstrated that there is
money to be made in this market. While a $50,00 revenue company with a board of
directors looks ridiculous now, if in 12 months’ time their revenue is closer
to $1,000,000 no one will be complaining. The problem I have with this argument
though is it requires a lot of faith with not much evidence. If Appetise is
really uniquely placed to grow so quickly, why not hold off on the prospectus
for a few months so they can demonstrate this? Appetise runs on a March end
financial year, so their first half FY18 figures should be available now. Once
again, the cynic in me thinks that if revenue was actually growing, these
figures would be included in the prospectus.
Even in a growing industry you
need to be ahead of the curve and have a clear point of differentiation to
succeed, and after reading the Appetise prospectus and looking over their
website I simply don’t see this for Appetise. In one of the easier decisions I’ve had
to make with this blog so far, I will not be investing in the Appetise IPO.
I’ve said here would be that the company is uniquely placed to experience
explosive growth in the near future. They have a workable website platform, and
their only major competitor in the UK Just Eat has demonstrated that there is
money to be made in this market. While a $50,00 revenue company with a board of
directors looks ridiculous now, if in 12 months’ time their revenue is closer
to $1,000,000 no one will be complaining. The problem I have with this argument
though is it requires a lot of faith with not much evidence. If Appetise is
really uniquely placed to grow so quickly, why not hold off on the prospectus
for a few months so they can demonstrate this? Appetise runs on a March end
financial year, so their first half FY18 figures should be available now. Once
again, the cynic in me thinks that if revenue was actually growing, these
figures would be included in the prospectus.
Even in a growing industry you
need to be ahead of the curve and have a clear point of differentiation to
succeed, and after reading the Appetise prospectus and looking over their
website I simply don’t see this for Appetise. In one of the easier decisions I’ve had
to make with this blog so far, I will not be investing in the Appetise IPO.
Source: http://theiporeview.blogspot.com/2017/10/appetise.html
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