Allegro Earnings: Allegro Continues to Fire on All Cylinders Despite Challenging Macroenvironment

While wide-moat Allegro ALE narrowly missed our estimates during the second quarter, we find ourselves encouraged by the firm’s resilience against a challenging macroeconomic backdrop and with ongoing progress in its Czechia launch, Allegro Pay expansion, delivery optimization, and its nascent ads platform. On balance, the earnings miss and time value offset, and we leave our PLN 37 fair value estimate unchanged.

More concretely, Allegro’s PLN 2.40 billion in revenue and PLN 119 million in net income fell slightly shy of our PLN 2.44 billion and PLN 132 million respective estimates, driven by worse-than-expected first-party sales in the firm’s international operations as Allegro adjusts that segment’s inventory, and by a larger-than-expected segment loss (PLN 106 million) as the firm invested heavily in marketing ahead of its third-party marketplace platform launch on July 31. Progress has taken hold more quickly than we’d anticipated, with 20,000 Allegro sellers now offering some 150 million products on the allegro.cz platform. Between strong initial cross border sales and a quicker wind-down of the unprofitable first-party business, we continue to expect that segment to be profitable on an adjusted EBITDA basis by 2026, despite meaningful projected sales declines (down 32%-34% in the third quarter of 2023).

We’re encouraged by traction in Allegro Pay, with 11.9% of platform sales now tied to the segment’s buy-now-pay-later offerings that drive substantial incremental gross merchandise volume. The firm has also made substantial strides in its Smart! fulfillment operations, with 85% of products fulfilled in 48 hours or better and with a swelling network of parcel lockers helping drive the mix of expensive courier deliveries down 6 points from a year ago. Finally, 34% annual growth in the high-margin ads business helped drive Polish segment adjusted EBITDA margin up 184 basis points annually to 34.5%, underpinning a positive market reaction (shares rose 5%-6%).