KIKOY

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

Kikoy is an online retail platform in China that focuses on selling branded apparel, accessories and other goods primarily through its mobile app, while also operating brick and mortar stores.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

KIKOY operates as a multi-channel fashion retailer in China, blending an online presence with a physical footprint. The company generates the vast majority of its revenue from its mobile app, leveraging the convenience and reach of the platform in the Chinese market. They have also started opening retail stores to showcase more products and serve a different type of customer who prefers to shop in person.

Revenue Distribution: KIKOY’s primary revenue stream comes from its online platform, which caters to a broader audience in diverse parts of China. This highlights their digital first strategy which is optimized for the vast majority of consumers.
Industry Trends: The Chinese retail landscape is dynamic, with strong growth in online sales, yet a sustained interest in high quality retail experiences. There is a growing trend in consumers wanting to buy brand-name products through trusted intermediaries, rather than through local players with questionable products.
Competitive Landscape: KIKOY operates in a very competitive market that includes global giants like Alibaba, Taobao and JD, plus other local players that specialize in one type of product or another. As such, they compete with a mix of huge marketplaces and smaller players with a more focused strategy.
Key Differentiators: The key difference with KIKOY versus the major online marketplaces, is that it does not produce its own products but instead operates as a retailer and brand aggregator. Instead of going through a large chain of suppliers, it focuses on finding direct deals with well-established brands and uses its brand reputation and infrastructure to provide value to the consumer.

Financial Analysis

KIKOY’s financial performance is still relatively limited due to limited operations and data available for comparison. Nonetheless, there are a few aspects that can be analyzed.

Profitability & Margins: Gross profit margins have been good, with low expenses to make the online platform perform well. However, there is considerable spending in marketing to bring awareness and new customers to the brand. Thus, while profit margins on the products themselves may be great, it’s hard to say if the marketing spend is sustainable and if this will translate to the bottom line. There is also mention of a plan to grow sales through a new premium delivery service that will increase overall costs. However, based on what’s in the data, it’s not possible to provide detailed insights on current profit margins.
Revenue Growth: The company’s revenue has grown significantly over recent quarters. This was made possible by both organic growth and several acquisitions. Management says that “the first-class supply chain has led to a consistent high growth in revenues”. The company seems to grow at a relatively high pace which is in line with a company of its type. The acquisitions, however, make it harder to analyse organic growth and underlying trends.
Financial Flexibility: KIKOY holds over 70% of its assets in cash and cash equivalents. Given that it has significant investment needs to power growth and acquisitions, this shows the capability to do so. Also, based on its balance sheet, there are few liabilities to speak of. Therefore, the company has a very good position to invest in its growth plans.
Debt Analysis: KIKOY’s current debt profile is minimal, consisting of a small amount of short-term debt. The company’s management has noted that they prefer a balance-sheet model that allows to minimize debt. While limited debt can be beneficial, more debt may also increase returns in a company that can operate in a stable, predictable environment.

Moat Assessment: 2 / 5

KIKOY has some elements that might point to the existence of a small moat, but does not have strong differentiation from the competition. Thus it currently can not be described as a wide moat company.

Brands (potential for a narrow moat): The company aggregates and sells products from other well known brands. By partnering with them it hopes to provide a level of quality and trustworthiness that is missing from smaller retailers. Also, by having a variety of brands, it allows more consumers to have a broader selection of goods that might better fit their specific needs.
However, brands can quickly become old or out of fashion. The company has no control over the brand image of the product and does not participate in design or innovation, so it can only focus on selling. The brands are not proprietary to the company, it just sells the products that others design and market.
Distribution Network (potential for a narrow moat): Having physical stores provides a method for customers to see the products in person and for the company to acquire new users. However, these stores are not a significant part of its revenue stream and might represent an unnecessary burden or operational risk. Also, other businesses can replicate this part of the value chain relatively easily, without it being too difficult or expensive.
Technology and Innovation (no moat): The company is heavily reliant on a mobile app for its operations. It’s unclear from the documentation that it has any proprietary tech or innovations to prevent similar apps to be developed by competitors.
Customer Switching Costs (no moat): The company’s target customers can easily switch to other suppliers. Given the competition and other similar offerings it is very difficult to provide reasons for customers to come back again and again.
Scale (no moat): The company is only able to benefit from scale through its distribution network, which is mostly local and of a limited size compared to major players like Alibaba. It has yet to reach the size needed to leverage scale advantages. Given the points above, KIKOY is only able to generate a small moat through its access to high quality brands and its growing distribution network. The moat does not currently seem very strong or durable.

Risk Assessment

Several risks threaten KIKOY, from both the company itself and macro-economic headwinds. These risks need to be continuously monitored.

Competitive Pressures: The retail sector is intensely competitive. Other players in China’s market, like major ecommerce platforms, offer a large variety of goods with a large brand recognition. Furthermore, other specialized retailers can also provide comparable products for a similar or cheaper price, and may become more attractive to users in the near future.
Acquisition Execution: KIKOY has been aggressively acquiring other businesses to facilitate its growth. This may prove problematic in the future as acquisitions may not pan out the way the company is expecting them to. Furthermore, it has yet to be shown that the company has the capabilities to successfully integrate these companies.
Customer Acquisition Cost: Much of KIKOY’s growth is through the mobile app, and while its reach is great it comes at a price. The company’s future profitability depends largely on being able to keep acquisition costs under control, while continuing to get new users to join and buy from them. It may not be the case in the long run that such costs can be kept at their current levels. The recent push for a new “premium delivery service” also brings concern that it may have a negative impact on profitability.
Technological Disruption: Given its focus on technology, the company is extremely vulnerable to disruptions. There are no indications that the technology is proprietary or unique, or that the company is ahead of the curve in terms of innovation or technological progress. Any major change in e-commerce trends or customer preferences may severely impact its business and require large additional spending on infrastructure.

Understandability: 3 / 5

KIKOY is relatively easy to understand at a high level. It primarily functions as an online retailer and does not develop its own products, which makes it easier to understand than companies that rely on innovation and technology development. However, the company’s complex structure of owning a mix of subsidiaries, joint ventures, and partnerships make it more complicated to understand, especially from a financial point of view. It requires some effort to understand, but it isn’t overly complex. The company also lacks sufficient data regarding its overall financials, and this may lead to a somewhat distorted vision of the company’s real profitability.

Balance Sheet Health: 4 / 5

KIKOY has a pretty solid balance sheet, with 70% of assets kept in cash. This provides a very good base of operations, and the financial freedom to grow and invest. As a result of that, its liabilities are very low. The company is not in danger of bankruptcy, as far as this data is showing, and its liquidity and solvency are good.