AO World Plunges as Fading IPO Publicity Weighs on GrowthJillian Ward
AO World Plc said full-year sales and earnings will be lower than anticipated as publicity linked to last year’s initial public offering fades, sending shares of the U.K. online appliance seller plunging.
Results for the financial year ending March 31 will be “slightly below market expectations,” the Bolton, England-based company said in a statement Wednesday. The stock, sold almost exactly a year ago at a time when investors were clamoring for online retailing stocks, fell as much as 47 percent to 150 pence, compared with the 285 pence IPO price.
The severity of the share price reaction shows how the company’s valuation has been based on its growth potential. With the IPO-related publicity of a year ago fading, AO World now faces challenges such as how to deal with the growth of Black Friday promotions and the loss of a logistics contract.
“This is a big blow to management credibility,” said Nick Bubb, an independent retail analyst in London.
The shares were down 30 percent at 196.9 pence as of 11:09 a.m. in London, reducing the company’s market value by about 350 million pounds to 834 million pounds ($1.3 billion).
Explaining the slowdown, AO World said it now recognizes that some of the revenue growth it experienced a year ago was due to the extra publicity resulting from the IPO.
“With hindsight most things look clear and obvious, but at the end of the day we are a fast-moving company,” Chief Executive Officer John Roberts said in a phone interview. “It isn’t always easy in the moment to attribute exactly what is driving elements of the growth, it just is part of life.”
Roberts, who with a 26.4 percent stake in the company is AO World’s biggest shareholder, described the slowdown as “a light miss, not a sales collapse,” adding that growth is still of a level that “most retailers would die for.”
Revenue for the U.K. operations in the current financial year will be 470 million pounds to 475 million pounds, AO World said today. That compares with total sales of 384.9 million pounds in the previous 12 months. Adjusted earnings before interest, tax, depreciation and amortization will be about 16.5 million pounds, the retailer said.
The company said results have been hurt by the effects of Black Friday promotions, which condensed revenue into a shorter period.
“I don’t believe that there are any incremental sales generated by Black Friday, all it does is move the sales around,” Roberts said. “Big spikes in sales are not particularly healthy or efficient for retailers. We invested hugely in delivering to make sure that the new customers that were experiencing AO got an outstanding level of service.”
The loss of a logistics contract and costs related to changes in driver legislation are also weighing on the company and will continue to do so in the next financial year, AO said.