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Moonpig‘s (LSE:MOON) a FTSE 250 company I’m familiar with, but I’ve never given the stock more than a passing glance — until now.
What caught my eye was the average share price target among City brokers. It sits 49% above the current level of 202p. In theory then, it’s trading well below what these experts think it could possibly reach over the next 12 months.
So can Moonpig stock really fly next year?
Data advantage
After digging into this company, I’m actually quite bullish. It’s the UK’s leading online card and gift retailer, with a very strong brand (no doubt helped by those strangely catchy ‘MOOOOON-PIG-DOT-COM’ ads). It also owns Dutch gifting brand Greetz.
At the end of October, the company had 12.1m active customers. And over 90% of orders come from repeat customers, showing it enjoys loyalty.
This is helped by its Moonpig Plus subscription service, which offers discounted cards and perks for £9.99 a year. Add in Greetz Plus and total subscribers hit 1.02m in October, a sharp 36% jump on the year before.
This subscription service adds a recurring revenue stream, as well as encouraging customers to spend more. I reckon there’s a large opportunity to add millions more subscribers in future as it expands into new markets such as Ireland, Australia and the US.
Half-year revenue increased 6.7% to £168.6m, with the Moonpig brand growing at 9.4%. The retailer also boasts attractive margins (an adjusted EBITDA margin of 26.7%).
Adjusted earnings per share (EPS) jumped 13.1%, boosted by “growth in trading, operating leverage and the impact of share buybacks“.
Interestingly, renowned growth investor Baillie Gifford named the stock among its best three UK ideas in September. It said Moonpig has over 100m “special occasions on their platform, so they will nudge users at just the right moment to make it quite personal and relevant for everyone that uses the platform… more data gives it more opportunities to engage with its customers“.
At last, Moonpig’s seeing success with generative AI, with lots of customers creating AI-generated stickers. I just tried this in the app for a Christmas card. I created an image of Santa’s sleigh being pulled by capybaras (my daughter’s favourite animal).
Finally, the company’s started paying a dividend, with the forward-looking yield around 2%.
We have built a resilient, cash‑generative and profitable platform with a clear strategy, a highly engaged, loyal and growing customer base and a data advantage that continues to compound year after year.
CEO Nickyl Raithatha.
The stock
Admittedly, there are a couple of things I’m less bullish about. One is the company’s Experiences business (which offers spa breaks, meals, live events, etc). It continues to display weakness, with first-half revenue declining 8.9%. Meanwhile, growth at Greetz in the Netherlands is likewise underwhelming.
Also, Raithatha’s stepping down as CEO after seven years at the helm. While experienced Auto Trader CFO Catherine Faiers will be taking over, it still adds a bit of uncertainty moving forward.
On balance though, I think the positives outweigh the negatives. The stock’s trading at just 11 times next year’s forecast earnings. At this price, I think Moonpig’s worth checking out.
The majority of greetings cards are still bought in stores, suggesting the UK company has a long potential growth runway ahead.
