Expanding Delivery, Checkout And Lending Will Build Future Success

Key Takeaways

• HepsiJet's expanded delivery services and successful Hepsipay integration drive revenue and improve margins through higher off-platform volume and financial service transactions.
  
• Strategic partnerships, including a stake transition to Kaspi and collaboration with Warner Bros., enhance customer engagement and operational efficiency, boosting long-term growth.
  
• Economic challenges, boycotts, and rising costs could hinder revenue growth and profitability, while shifts in operations may affect future earnings.

Catalysts

D-Market Elektronik Hizmetler ve Ticaret A.S.

• Expansion of HepsiJet's delivery services, emphasizing increased off-platform volume by 89% year-on-year, which drives up revenue through higher delivery service income.
  
• Growth in Hepsipay's one-click checkout integration, reaching 140 key accounts. This can increase transaction volume and user adoption, boosting overall earnings and potentially improving net margins through higher-margin financial services.
  
• Strategic partnership with Warner Bros. Discovery to enhance Hepsiburada's loyalty program, aiming to boost customer retention and transaction frequency, thereby driving increased revenues and potentially higher net margins due to recurring customer engagement.
  
• Transition of a controlling stake to Kaspi, a leading payments and marketplace ecosystem in Kazakhstan, which could bring synergies and innovations that enhance Hepsiburada's product offerings and operational efficiency, positively impacting long-term revenue growth and margin enhancement.
  
• Significant growth in lending solutions, with total lending volume reaching TRY 16.2 billion in 2024, up 2.6x from 2023. This diversification into financial services is likely to boost earnings and improve net margins through higher-margin financial products.

D-Market Elektronik Hizmetler ve Ticaret Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming D-Market Elektronik Hizmetler ve Ticaret's revenue will grow by 36.0% annually over the next 3 years.
• Analysts are not forecasting that D-Market Elektronik Hizmetler ve Ticaret will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate D-Market Elektronik Hizmetler ve Ticaret's profit margin will increase from -7.0% to the average US Multiline Retail industry of 8.1% in 3 years.
• If D-Market Elektronik Hizmetler ve Ticaret's profit margin were to converge on the industry average, you could expect earnings to reach TRY 18.1 billion (and earnings per share of TRY 40.25) by about May 2029, up from -TRY 6.2 billion today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 5.8x on those 2029 earnings, up from -7.4x today. This future PE is lower than the current PE for the US Multiline Retail industry at 20.9x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.69%, as per the Simply Wall St company report.

Risks

• Macroeconomic headwinds at the start of 2025 are pressuring consumer purchasing power, which could negatively impact revenue growth.
  
• The ongoing boycotts against shopping activities have constrained marketing and sales performance, potentially reducing revenue.
  
• Increased payroll, shipping, and packaging expenses, as well as higher operating expenses, could pressure net margins despite improved gross contribution.
  
• A decrease in free cash flow due to a reduction in net cash from operating activities and increased CapEx could limit future investment opportunities, impacting earnings.
  
• The shift to marketplace operations (3P) and away from 1P operations may lead to lower profit margins if not managed effectively, impacting overall earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $3.31 for D-Market Elektronik Hizmetler ve Ticaret based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $4.0, and the most bearish reporting a price target of just $2.95.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be TRY223.5 billion, earnings will come to TRY18.1 billion, and it would be trading on a PE ratio of 5.8x, assuming you use a discount rate of 15.7%.
• Given the current share price of $2.84, the analyst price target of $3.31 is 14.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.