We want to talk about two small-cap companies operating in the e-commerce segment because they have a few things in common, Aterian, Inc. (NASDAQ: ATER) and Naked Brands Group Limited (NASDAQ: NAKD).
Naked designs, retails, and sells women’s and men’s intimates apparel and swimwear products primarily in the United States. It offers intimate, sleepwear and loungewear, swimwear and accessories, and costume products under the licensed Frederick’s of Hollywood brand. The company sells its products online through www.fredericks.com. The company generated FYE 1-21-21 revenues of $80M.
Apparel sold through e-commerce is hugely popular. According to Statista, apparel is the largest consumer e-commerce market segment, and its global size is estimated at US $752.5 billion for 2020. The market is expected to grow further at 9.1% per year and reach a total market size of US $1.164,7 billion ($1.16T) by the end of 2025. The e-commerce Apparel segment includes Clothing, Shoes and Bags & Accessories which are sold via a digital channel, e.g., desktop computer or mobile device, to an end user.
Naked Brand made a regulatory filing on Aug. 20 announcing that it had entered into a preliminary merger agreement. There’s not much information currently available about the upcoming partnership or acquisition arrangement. The company has not disclosed what company it plans to merge with. Details about the upcoming M&A deal are scarce. We will follow this story as it develops.
Aterian, is a technology-enabled consumer products platform. The company’s cloud-based platform, Artificial Intelligence Marketplace E-commerce Engine (AIMEE™), leverages machine learning, natural language processing and data analytics to streamline the management of products at scale across the world’s largest online marketplaces, including Amazon, Shopify, and Walmart. Aterian has thousands of SKUs across 14 owned and operated brands, including home and kitchen appliances, health and wellness, beauty, and consumer electronics.
On August 9th, the company released its Q2 financial results. Below are some of the highlights:
Net revenue grew 14% year over year to $68.2 million.
Operating income improved to $4.5 million.
Operating expenses decreased to $28.3 million.
Gross margin improved to 48.0%.
Cash balance to $61.9 million.
19 new products launched in the second quarter.
Aterian has been impacted by interruptions in their supply chain and unpredictable transportation costs. They report spikes in container shipping rates of 500%. Yaniv Sarig, Co-Founder and Chief Executive Officer, commented, (Acquisitions pending) “On the M&A front, we remain excited about the immense opportunity once current supply chain conditions become predictable again. While we had several deals in later stages of our process, we chose to not move forward primarily due to concerns relating to current freight cost impacts on the targets’ future performance.”
We said above that these two companies had things in common beyond the fact they are engaged in e-commerce. Both companies have seen their share price drop significantly this year. Aterian was trading at $43.45/share in February and is at $6.08 today despite solid revenue growth. Naked was trading at $1.65/share in February and has dipped to the current price of $.67 despite a pending merger.
Growing revenues or a pending merger are oftentimes a catalyst for the value of a company but that hasn’t been the case for these two companies. We looked at the short sales position for both companies and per shortsqueeze.com, Naked was 5.82% of the float, Aterian was at 41.17% of the float. While the Naked 5.82% is not too high, the 41.17% short position in Aterian stock is extremely high.
Both companies are the topic of discussion on Sub Reddit sites. Reddit seems to be the newest platform where investors not only get information, but they also interact with one another to perform many points of view and due diligence. Naked is being talked about as a meme stock with price appreciation potential, while Aterian is being discussed as having the potential for a short squeeze. In the Friday, August 27th trading session, Aterian shares gained 47%.
When companies become widely discussed on Reddit anything can happen. We do not advocate any positions, long or short, in the valuation of any companies or their stock, we are a news and media organization. It could be interesting to watch these two companies to see what develops.
Interested in Joining the Discussion on Reddit? Visit: R/breakoutstocks
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