Good Investing Talks - Tarek Müller, can About You's Scayle outcompete SAP and Salesforce?

Episode Date: June 28, 2022

The About You co-CEO Tarek Müller gave us even more insights into the business. In our second interview, we discussed the path to profitability, customer cohorts, retention, marketing, and the powerful potential of Scayle.

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And now, enjoy the video. Hello audience. Hello, Tarik. It's great to have you back, Tarik. We already did an interview a few weeks ago, so for the ones who missed it, you can find it up here and enjoy our first conversation. With the second conversation to understand about you

and your mission, Tarik, better, we waited a bit because you could release all also some new news and a new guidance. So let us first take a look at the news and updates you bring with you and then look for the long term. So as I said, guidance, there's also a nice light in your presentation on the guidance. And you modified a bit this guidance. I think the new point is this break-even target. set for 2324. Maybe let's start with this and walk me a bit through this how you want to achieve

this break-even target until 23-24. It is actually not a new target. So first of all, we have published our full-year results last Tuesday. Today is Wednesday, the 1st of June at the time of the recording. And we have published our full-year results. We have a, we have a, we have a bit of a different fiscal year or fiscal year ends end of February. And let's maybe like quickly start with this. So how was our first fiscal year being public? At least we are very happy. I think also the capital market reacted happily in its own way because we published

our results on a on a day where all stocks went down, but our stocks went down less than the ones of our peers. So it's the kind of appreciation that the capital market. it gives you. So what happened last year? We grew our revenue by 48.5%, which is great because at the time of the IPO, we forecasted 40 to 50% growth. So here we ended up at the very top end of the forecasted range. In terms of EBITDA, we landed at minus 66 million, which is also better than guided at the time of the IPO. At the time of the IPO, we guided. for minus 70.

So basically the top line and bottom line was at the top end and or even better than guided. And we have achieved basically or delivered all the things that we promised, i.e. market entries in southern Europe, fast ramp up in southern and Nordics, et cetera. And then the next milestone we communicated at the time of the IPO is indeed the break-even next fiscal year. So this is not new.

it had been already communicated at the time of the IPO and we reiterated on that goal of becoming break-even next year. And on your question on how to achieve this, it's actually pretty simple. In our last fiscal year, we have had a lot of market entries. And in our fiscal year presentation, we have actually also outlined how much we have invested in Nordics and Southern Europe. it had been 102 million. So making the math, yeah, last year we were loss making by 66 million. We invested 102 million in Nordics and Southern. So, you know, all things equal, taking out the new countries that we have started,

we would have been profitable. And that is actually also one big lever towards profitability is actually no market entries because market entries are always a very cost-heavy investment. And we are investing in building up brand awareness in the first month, not towards revenue. So it is quite inefficient in terms of cost revenue relationship. It is quite efficient in terms of brand awareness. So that's a long-term investment. But if we don't do any large scale market entries, we already save a lot of money compared to

the last years where we always had big market entries. The second lever is an increased efficiency in marketing, which is, is also just a result, actually, of having more existing customers and a lesser share of new customers within our customer base. And that actually decreases our marketing spent by nature. And the third lever is a fixed cost digression. So just scaling and revenue doesn't mean that you're linearly proportionally scaling your costs as well.

So there's a digression. And those three factors, no market entries, higher marketing efficiency due to more existing customers and fixed cost aggression, we believe will bring us above the break-even line. Thanks for correcting my question. Now, maybe it's the focus of the stock market that. No, it was not totally incorrect. You know, I mean, we gave like a trillion information at the time of the IPO, yeah, I believe. I mean, back then, it was more or less a year ago.

The capital market also focused on different things. I mean, we came from a time where it was all about growth, yeah. Nobody was really looking on things like profitability. So actually, the focus also from media, from investors, the questions we got were very little around profitability back then, even though we have communicated it. So it was in the prospectus, et cetera. So I'm not surprised that you didn't see it because it was not very visible because it was not very much in the focus.

Now, obviously, one year later, the world has changed dramatically. Profitability has become a huge focus for investors. But actually, I believe it's good because we haven't had to change our strategy. We can stick to our strategy because our strategy already incorporated the break-even target next fiscal year. What kind of break-even are we talking about? Is it cash flow break-even or is it EBITA break-even? Yeah, so the communication was around EBITDA break-even. Okay.

And I mean, also I think it's important to understand. then that we are reporting three segments. So our about you commerce business is split into two segments. The Dach region being the German speaking area, the rest of Europe region being all other countries outside of German speaking area. And then our B2B segment, tech media and enabling where we are licensing out of technology and selling inventory on our website. So out of the three segments, two are already significantly profitable.

The Dach segment has generated 6.6% EBITDA margin, last fiscal year it had been profitable throughout the last years and the TME segment is also significantly profitable with with a profit margin well above 10%. So it is actually just the rest of Europe segment that is heavily loss making. So I don't think that is a, that yeah, that it's a particularly crazy assumption to get to break even next fiscal year. And it's on EBITDA level. But there's also like if he look again at the guy. guidance, you're still guiding for a lot of growth. You want to reach the target of $5 billion in 25, 26.

Maybe you can walk us through a bit where this growth wants to come from. And I also have another chart from the presentation that I found quite interesting, this one here, where you show this kind of funnel of potential future growth. Maybe can explain us a bit even like from looking at the Dach region where the growth is slowing a bit more. And how you want to grow with the existing customers, with the existing markets to the reach of $5 billion. Yeah. So indeed, our goal is to reach $5 billion as net revenue in our fiscal year 25, 26. So that ends actually, it starts 1st of March, 25 and ends February 26.

You said the slowdown of growth in Dach, I think there's also another way to look on it. I mean, Dach is already nine years old. Still, we are growing at close to 30%. Still, we are outgrowing all our competitors, even though we have significant size. And we are significantly profitable. So I think that shows that the type of business we have built actually is able to organically grow at a high profitability rate, even in a very matured state. If you now take other countries, you know, I mean, look on more or less all other countries.

I mean, our oldest non-German-speaking countries are Belgium and Netherlands, and we have started them at the end of 2017. So they're much newer. And then most of the countries we are active in, had been started in the last two years. So they have a significant growth runway in front of them. And assuming, you know, actually we already see that they are all developing better than Germany, but let's say they are developing equal to the Dach region, so German-speaking area. and German-speaking area is still growing at close to 30% in year 9. I think that really shows

how great the growth runway is. And obviously, growth per country will slow down every year. So we're always starting at, you know, triple-digit growth rates, obviously, and then at some point we go, yeah, I don't know, towards the 100%, towards the 50%,

and then as in the Dakh region, towards the 35 to 30%, but as most of the 26%, countries we are active in are so new they are rather in the you know triple-digit high double-digit growth state still so there's there's a lot of there's a lot of room for for growth do you have a rough estimate how many new customers you need to achieve this growth targets and how much growth comes out of the existing cohorts you have you will go deep into cohorts later but yeah and maybe you can also give an idea here yeah we're tracking that um i think we have not

disclosed it. I mean, one could do the math. I think out of all the data we have published and a couple of assumptions, I mean, what you can see is luckily, we have a positive net revenue retention per customer cohort that had been published in our Q for our results here. Maybe we can also show that slide. Perfect. That's the slide.

So here you can see something very exceptional for an e-commerce business that more less every cohort is growing every year since ever. And that actually is super unusual because usually you see a decrease in cohort spent over years. That is due to churn because people are churning out. And the remainder is basically having a stable spend. And that leads to a slight decrease in cohorts, yeah. Cohorts basically, for those who are not familiar with the concept of cohorts,

cohorts basically means you are bundling customers by the year of acquisition. So there's a 2017 cohort. These are all customers being acquired in 2017. And then you basically follow how have these cohorts developed over time. So how much have they spent in 2018, 19, and so on and so forth. So as said, usually it's a decreasing line. In our case, it's an increasing line. Why? Because we are seeing very, very little churn.

I believe that is due to our superior model of inspiration, personalization on the smartphone, building a huge lock-in effect. If you have a, you know, if you have used about you 10 times, it really becomes your best friend, kind of in terms of recommending you to the great products. That creates a huge barrier to basically churn out our system. So we have very little churn. And we have an increasing share of wallet within our customers every year. and even on cohorts that are eight years old.

Yeah, I mean, what I just said actually even holds true for people we have acquired 2014, yeah. So we have a positive net revenue retention. And when we think about growth, it comes basically out of two pockets. One pocket is increased revenue retention where actually we are always very conservative because we always believe it might stop. It had never stopped. But here we have very conservative assumptions on, increase in cohort performance.

So far every year, the reality has beaten our expectation, but that's one pocket of growth. And then the larger pocket of growth is the acquisition of new customers. Here we obviously have a number in mind how much new customers we need every month, year, whatever.

We are also tracking this on a actually daily basis, on a country basis, and that then leads to our 5 billion revenue goal. You mentioned this increasing share of wallets. So if we talk about like the total wallet of a person, an inflationary setup we currently have, maybe you can give me some more details on who are these customers, who are like who is in this cohorts, what kind of target groups are there, why are they also are willing to spend more on fashion, which might be also a price sensitive topic in the future with inflation coming up.

Let's start with who's our customer. It's roughly 75 to 80% women. And our core core target group is 25 to 35 year olds. And the extended target group is 18 to 39, 18 to 45 maybe. We have customers that are also older. We don't have theoretically, we have no customers below year 18 because you have to be 18 to order. Some might say that somebody,

some customers might lie about their age. We obviously don't know. But yeah, the average customers are, so the median customers end 20 to early 30. The increase in net revenue retention, I believe, is not due to the fact that they are spending more for fashion. I mean, maybe they do. I mean, if they start very young, you know, if we win a customer that is 20, then for sure the overall fashion consumption is increasing due to more income yeah but let's take a customer that is early 30 mid 30 i don't think that they are particularly you know that our increase in their revenue is not

driven by them spending so much more on fashion but it is more our share of wallet basically our share of the respective fashion spend of that respective customers increasing and the reason for that is um that the proposition is just very good the more you the more you use us the better the It's one reason. And you, I think the more you use us, the more you think about, like, why do I actually buy anywhere else? And the second reason is our category expansion and our overall assortment expansion. We have expanded our assortment every year, double digit percentage rate.

We have added new categories like sports, kids, you know, special sizes, premium, and so on and so forth, accessories have been, you know, strengthened, shoes have been strengthened in the past. So actually, we are also covering much more categories that had not been covered in the past. And we're also planning to further grow our assortment. There's a lot of potential to further grow our assortment. And then the third factor is exclusive products. We are having an increasing share of products you can't buy anywhere else. And it also leads to a higher share of wallet. yeah that's interesting um we have some quite interesting trends here like you have this growth where you have an idea and good tracking of it where it should come from and a quite strong

certainty about future trajectory of the growth um and we have the stock price that goes down and down and you as with your with your management team you have to decide where to allocate capital and this kind of set up, which level does the stock price get so attractive that your stock is the most attractive investment about you could do? So when do you start thinking strongly about buybacks? All that. Yeah, I'm probably the wrong person to ask. That would be more a question for my co-founder Hannes. I personally have never thought about buybacks. That's potentially something he would think about. But I don't know what I thought about it. I don't think So I mean, you know, we at least I, I, I really tried to make sure that we meet our goals and that we create, you know, basically ROI positive investments.

And the stock price is something that is very unsatisfying because as mentioned, we have met and or over-delivered all our goals. And, you know, I always thought if you deliver on the things you promise and you even over-deliver on them, and at the time of the IPO, there's always a bit of skepticism that basically discounts your stock, yeah? So you earn credibility. And then you over-deliver your numbers, then your stock price should go up. And actually, we have done that.

Yet our stock price went down by crazy, more or less. 65% or something, or 60%, I think, versus the issue price, a bit less. That is very unsatisfying, but the stock price of all our competitors globally, except of maybe one, has gone down even more. So that shows that it's not an individual problem of our individual performance, but it's a sector problem. And actually, within that global peer group, we are structurally disadvantaged, yeah, Because most of our peers are profitable.

We are not. And we know that being unprofitable at the moment is not the best. Because increased interest rates means value in the future is valued less today. So there we should have, Cedros Paribus, we should have gone down more than our profitable peers. And most of them are profitable already. And the second is the Ukraine war. So we have no exposure to Ukraine and Russia. But we are market leader in a lot of neighbor countries of the Ukraine and that had been massively affected.

So the demand in those countries has massively gone down when the war started. Luckily, it had also gone up again. But we saw a significant tip actually when the war started. So this is another reason where we should have gone down structurally more. So even though we were structurally disadvantaged by being loss-making versus peers profitable, by being more exposed to Eastern European countries than our piece, our stock went down less. So in other words, we outperformed the market,

even though we went down 60%. And I think that shows that we are on the right track. Actually, in their very own way, the capital market is appreciating what we are doing. I have to admit, I would have never thought that the macroeconomic, things have such a strong impact, a much, much stronger impact than your individual performance. Because there is no other conclusion.

We have delivered everything. We have overdelivered most of the things. We have built credibility. All investors actually tell us we're doing a great job. We've just recently won the price for having the best I are, even though we're public for one year. So I think actually we are doing an okay job at least. Yeah, that's what we hear and get from the investor community. And we're asking everyone, like, what can we do?

Everyone tells us you are already the poster child of the 2021 IPO cohort. You are already outperforming your competition. That is actually already a great achievement because you are structurally disadvantaged. But, you know, still, I found it so unsatisfying because in my life, I always try to make sure that everyone that invests alongside my things, or, you know, the things they do or I'm involved makes money. And until the time of the IPO,

I've always, always, always delivered on that. I've built before about you. I've built B2B businesses. I have, I would say, all my clients are happy. Even if things went wrong, I think we always showed that we did our very best to, you know, save the project and things went wrong very little. But I mean, an agency business sometimes and technology,

you know, sometimes things are delayed. But we had a. crazy high satisfaction rate. Every investor that invested with me has made money. And now I'm in a situation where a lot of people have lost money theoretically on the paper today. Maybe they have not sold it, but on the paper they have lost money. And this I find very, very unsatisfying.

Yeah. And I hope we can change that. Welcome to the psychopathic world of the stock market. We're meeting Mr. Market right now who is a manic depressive. who's doing wild things is not rewarding it's the feeling that we as the market loves oil now you know he hates tech yeah mr market has changed his mind quite quite fast like he loved tech a year ago now he hates tech he hates he hates loss making growing companies he loves oil he loves you know all the shitty stuff in the world

uh that everyone believed you know we left behind us um not all the shitty i mean that you know being profitable and delivering cash you know is a good thing i uh i personally I personally always admire companies that, for example, were built bootstrapped instead of, you know, with high capital intensity. So I'm a big fan of, I'm not a, you know, believe of, you know, let's make losses forever and, you know, grow as there's no end, you know.

And as mentioned in the face when nobody cared about break-even, we communicated guys in 23, we are break-even. And then, you know, we also communicated, you know, on the other hand, in parallel, we look for more pockets of growth, you know, because I think it always needs to have two, both things. You know, you need a show that you can deliver profits with this business model. We are showing this on a country by country basis. We say, after three to five years, a country is break-even.

So the question of break-even on a group level is just the result of the age of a country. We have shown this in the Dadaach region. We have shown this in rest of Europe. We have actually also published how many countries are already break-even. The one that, you know, check kind of when has the country been started, But how is it doing? They see we are always aware right. So I believe it is super important to show that a business model makes money.

And on the other hand, I also believe it is important to show where the next pockets of growth are coming from. That's why we have, for example, launched our global shipping platform and have outlined we are already gathering data in countries beyond Europe. That's why we have started scale on our team E segment. That's why we are in constant category expansion. And that's why we have just recently published our initiative around the Metaverse of starting a marketplace for NFT fashion. That's why we have started our outlet.

You know, I think there's a lot of fantasy around where the next pockets of growth are coming from. And at the same time, we want to show that our core is profitable and can be profitable. And all of that had already been communicated at a time where nobody cared about it. And I think that also shows that this is, we are not basically coming up with a new strategy now because the capital market wants to see something else. But we are actually very aligned with what the capital market now also believes, as we believe we need to show profitability in our core, in our core we already showed, but we show profitability basically, you know, on everything we start after a certain period of time. And I'm strongly convinced that at some point we have enough credibility that the capital market understands that, you know, this is the way how we do it. We start new things. We invest into new pockets of growth quite heavily in the beginning, as for our market entry.

and then, you know, we make them profitable after a certain period of time and then in parallel, we start new things. And you also have this as another derisking thing, this 500 million euros on the bank. It's also not a bad thing to have at the moment. Talk about what is your plan to do this relatively big cash position? I think one third of the market cap is currently close or close to one third is cash. How will this develop over time? So I have to admit I don't have the exact number at hand,

so I can't confirm the 500 million now. That again is something that Hannes could say by heart, but we have a significant cash position, that's right. It is, you know, first of all, we are burning money this fiscal year. That's for sure. And being EBITDA break even doesn't necessarily mean you also cash break even. But I mean, it means you're close at least, yeah. We have not guided on our cash.

I don't want to say we won't be cash break even. I just saying that's not what we've guided for. We have not given any guidance on cash for the next fiscal year, just for this current fiscal year. And you know, that being said, I believe it's it's wise or it's rational to have cash buffer and that's what we have built at the time of the IPO. Every plan we had, you know, ended up with us having cash buffer. And also every scenario we calculated for, you know, things can go worth.

In some areas, actually, they went worse. The pandemic went longer, war, inflation. So things has worsened a lot. So we are happy that we, you know, made scenarios for bad environment. And we always ended up with having enough cash on a bank account. I think that's important. And then also it gives us flexibility if an opportunity comes across. Yeah, I believe it's always good to have to have a bit of cash at hand.

to be able to move fast if there's an opportunity. And yeah, that's the rationale behind us having raised more than we actually need at the time of the IPO. It's also not unusual. Every tech company holds cash buffers. At this point, I want to go back to the charts on cohorts. We already discussed a bit. And I think you gave already partly an answer to my question on why the customers, spend more and more every year nearly all the cohorts but maybe let's talk about this again and i'm

also interested in this i went for your shopping process and a lot of podcasts listened for the preparation of this so there's this saying that often comes up retail is detail and i want you to walk me through a bit for the customer journey and like your law for detail and maybe when you put a lot of focus on details that also allow that these customer cohorts are interested in buying more and more every year. How do you make about your great shopping experience so that customers love to buy there and spend more there? Yeah, I think, you know, people that look on e-commerce and maybe, you know, I see that a lot

on corporate groups that are offline retailers or catalog players or something that think about going online and then the first thing which they believe will be the kind of main reason for success is building USB and then they think around

what can be our USB and then they put a lot of resources on building that USB. The reality is in retail nobody gives you credits for the things everyone expects to be right

but actually these are the hardest thing to manage. So what is this? It is having the products available at the right price at the right size, at the right discounts, voucher levels, which also means no voucher, no discounts most of the times, a smooth checkout process with all the payment methods available, having the ability to choose your favorite carrier.

It is an immediate confirmation email. It is a track and trace that gives you transparency on when the parcel is coming. It is a forecast on your delivery that is actually then also being delivered on that date. It is communicating transparent and fast when something goes wrong, when something is not in stock. It is sending the right product to the customer in making sure that the product, even though it might have been returned by another customer before, is in a very good condition. It has to look new. it is you know if you then return something to refund your money as fast as possible to give you transparency where your product is to give you an answer when you ask a

question ideally via WhatsApp for example it is to send you the emails after the order process at the right time it is saying sorry if something went wrong and I could go on for ages where I can guarantee you for for none of these things for none of these things a customer tells you wow i'm so happy about you because you know you delivered your parcel on time it is what the customer expects because the customer expects the amazon experience in terms of friction-free frictionless process but that is much harder to make you know to to deliver than people think at especially at scale you know i mean think about it sometimes if it rains or the sun comes out, it changes, you know, the number of orders we get on a weekend, you know,

and we're talking here about millions of orders, yeah. I mean, we're talking about physics. It's not servers that are scaling. It is people packaging, packing stuff, you know, and you as a customer don't care whether we thought it's raining and then the sun comes out. If you order something on Sunday, you want that stuff delivered on, you know, Monday or Tuesday or whatever, or at least you want to know when it's delivered. So you don't care about these problems as a customer, but handling.

physics creates problems and friction. Handling millions of orders creates friction. Handling millions of returns creates friction. So my retail is detail. We mean what we see in our NPS, for example, we ask every customer, how happy have you been after the order? It is the baseline for the customer, kind of to get a customer on neutral level is everything goes right.

And then you are adding something to make the customer happy and create USB. in our case it's a great smartphone experience it's entertainment shopping inspirational entertainment shopping and its personalization these are usps but in our organization probably 10% are actually working on these USPs and 90% are working on the all the boring stuff I just mentioned at the beginning and I believe most companies are actually doing the boring stuff wrong and focus too much on their USPs because if you do the boring stuff wrong nobody cares about your USPs actually people are just looking at your USPs if they are sure that the borrowing stuff, you know, is managed correctly.

And that we mean with retailers detail, having any friction in the process creates massive unhappiness and creates churn. And that costs a lot of money, you know, you've usually acquired this customer at a very high price. You don't want that customer to churn out. And that's why we are always making sure, you know, to eliminate every friction, every incident that might happen along the process. And that we track really on a daily basis on an hourly, actually on a secondly basis.

Basically, we try to find out are there any frictions in our process. Then let's look at some parts of this process or the system you have built. How do you make sure that you have a great inventory with a great selection at hand? How is this inventory process working? So we have three inventory sources. one is the traditional model of wholesale. It actually means we have a buying department. The buying department goes to a brand,

let's say Tommy Hilfiger, and then looks on a collection usually nine months in advance and then says, okay, I want to have thousands of this t-shirt, 500 of that t-shirt, yeah. And then we are paying Tommy Hilfiger nine months later. We get it delivered.

It's on our own stock risk. It's in our own warehouse on our balance sheet. If we don't sell it, it's our problem. And we have full margin. That's the wholesale model. And then there's Marketplace and Marketplace, or 3P, as it's called in our reporting platform, there are a couple of words for that. ThreeP split into two models. There's the direct shipping model where actually the supplier usually has an e-com warehouse,

pushes the product data to our website, says, guys, I have like hundreds of this T-shirt here. we display it if the customer orders that t-shirt we route the order to the supplier and the supplier sends it directly to the customer in a not about you parcel with about your delivery um a note etc so the customer actually doesn't see that it's a it's coming from the supplier it feels like a second warehouse and then there's a second model within three p and that it's called fulfillment buy and that actually means the supplier is putting stock in our warehouse but But on their stock risk, not on our stock risk. So the supplier is using our fulfillment actually as a service.

So they are putting the T-shirt in our warehouse. We charge them for warehouse space. It's their stock risk. They can pull it out whenever they want. And so on and so forth. And if the order comes in, we are doing the fulfillment basically on behalf of our supplier. legally, it's a bit different. I'm kind of explaining the process now,

not the legal process, but like the process, how it's working. And then basically, yeah, we send it to the customer out of our own warehouse, even though it was on the stock risk of our, of our supplier in the beginning. So these are the three stock sources.

And with these three, three stock sources, we try to build a perfect assortment. So that means the short tail where we are sure we're going to sell it. You know, we're going to sell hundreds, thousands, of these products, we buy them in wholesale because we know stock risk is no risk.

We very well know how much we will sell and we have full margin on that. On the mid tail, this comes also products that want to be pushed by the supplier where maybe we have not the same confidence on the potential of the product as the

supplier. The supplier believes, you know, this is going to be great or this is a category I want to invest in. I want to have maximum visibility, maximum customer experience. Then they put these products our warehouse but they hold stock risk and then on the long tail that is being covered through our drop shipping model where the supplier keeps the product in their warehouse and we're just routing the the order through and that is how our assortment is built and that this works

quite well you can also see in our numbers you know roughly 25% of our assortment is actually in our warehouse bought and wholesale but the 25% are generated. roughly 75% of our revenue. So here you see it's the short tail that's turning fast. And then the other way around, these are not the exact numbers now, but to give you a rough idea, roughly 75% of our assortment comes in 3P, either fulfillment by our direct shipping,

generating roughly 25% of the revenue. Again, these are not the exact numbers. They are changing seasonally. But just the rough concept of 1P3P. in this 3P system how do you ensure that the quality stays high like is there a tight onboarding process for a supplier and also do you have then churn that sometimes it doesn't work that well with yeah there's a tight tight onboarding process but more importantly there's a rigidly tracking yeah so we ask for the track and trace data we want to know whether the customer received their parcel when we told the customer that he or she will receive the parcel. We let our partners sign in SLA, service level agreement on how fast they have to deliver, how many mistakes they are allowed to do, and so on and so forth.

And if they don't deliver on these KPIs, they are being thrown out. How are the supply chain problems? We are currently talking a lot about affecting you at the moment and how much track is this on you? Yeah, we have moderate supply chain issues, but there are ones, or there are supply chain issues. We have also, for the ones that are super interested in that, or maybe we can also show the slide 14 in our full year presentation, where we have outlined basically how much have we ordered and would have expected to be delivered and how much has been delivered. So the delivery ratio is being shown actually. And here you see that we are seeing supply chain issues and delayed deliveries. Yet it is not crazily significant.

And it's actually concentrated on a few categories. So it's especially footwear and sports where we see a significant impact. We see moderate impact on fast fashion apparel kits and accessories. We see a low impact on regular apparel underwear and swimwear. So it is manageable, I would say. Another part of this system we are trying to describe here is the number of 11.5 million active customers you have, but you also have this 135, 135 million users per month. We already talked a bit about active customers and the target groups you're addressing.

So maybe let's talk a bit about the relationship with. with this user sessions. Why are there so many sessions with this only 11 million active customers? How are people using your app? How are they interacting with about you? Yeah, the average active customer, or the average customers visiting us every second or third day. So we have very high frequency of visits.

People are also browsing around basically the same reason why you would visit, I don't know, Instagram or TikTok or some kind of stuff. It's, you know, in former times probably people have, you know, read a fashion magazine. So it's pretty much, you know, similar usage sometimes people are showing. I just anecdotally, maybe I was sitting in the waiting room of a dentist. And, you know, at least in Germany, you always have these magazines on the table. And I mean, I remember 10 years ago, you, you know, you went to the waiting room of a doctor and you found these, you know, free magazines and then you read the make, everyone was holding a magazine there.

And now you can really see a difference, you know, the very old people still grab a magazine. The young people pull out their smartphone. And I saw a young lady entering the waiting room. She looked on the magazine table, checked out what magazines are. are available, sat down, took her smartphone out and opened the about you up, and was literally randomly scrolling around. So here, I think we had a, you know, we had a perfect competitive situation, yeah, because it was a free fashion magazine.

These are usually people in fashion magazines there. So it was for free. It was there. It was available. It would have been even faster to grab the magazine. and yet she took she preferred about you and you know if even in that situation people prefer about you in a normal situation where the fashion magazine would need to be bought cost money you know obviously I think there's even more reasons to use about you when you're bored and you want to get entertained

in the fashion context and that is actually yeah one reason for our very high user and visit frequency, which is a very good thing because we keep being top of mind for our community because they're using us on such a regular basis. And then another reason for high sessions is the market entries. In the faces of the market entries, for us, it's not so much about converting the customer directly in the beginning of already mentioned this funnel. So we are very much in the beginning of a country launch, we are not so much around we need to acquire as many customers as possible.

we are much more around we need to fill the funnel as we need to pack the funnel as much as possible because we know if someone is now a funnel the user will convert at some point yeah and for us it's always the best if the user checks out our website even if they don't buy anything but the chance of them buying something six months 12 months maybe two years later is very high if they have visited our website once yeah and that's why we we always try to fill the funnel with people being aware of our brand, considering our brand, visiting our website, because they will convert at some point. And that leads to a lot of, that leads to high sessions in, in, in, in, in, in, in, in, in, in, in, in, in, in, in, where countries are quite new. So,

maybe then explain a bit how you're filling this funnel. What is the, the things you do to fill the funnel? Yeah, it is, it is, it is mostly, you know, marketing, campaigns and marketing stunts. So when we are launching a new country, we always shut down our website before. So the website is usually already online for like six months or so. We call it the soft launch phase where we are optimizing all the processes, et cetera, making sure everything run smoothly. Then we are shutting down our website for one week.

In this week, we are doing teaser campaigns. And on the website, there's just a countdown, not more, and you can insert your email address. And then we are doing a teaser campaign, not mentioning who we are. we're just saying the neighbors will talk about you and then about you as a logo fund or the campus will be curious about you or the Amsterdam will go crazy about you and then always communicate the starting at the 10th of October or whatever. So we create a huge curiosity for one week and then on the day of our launch, the date we have communicated, we are releasing who we are, the most inspiring a person in fashion

online shop in Europe. And then we are doing four weeks of crazy marketing, all kinds of events, marketing campaigns, social media stunts, and so on and so forth. But it's all not around, you know, buy fashionette about you. It's more really about get inspired, visit us, explore, you know, be free, express yourself with fashion. It's brand communication. And that creates a lot of awareness and a lot of people actually visiting our website and

just check it out. And this is how we are actually filling the funnel. We try to make sure that people are brand aware. and yeah, then because we know that if they know us already in a positive context, performance marketing will make sure that we convert them at some point in the next two years. And what is the result? The result is on this slide 10 you have shown. So here we are outlining the Nordics and Southern Europe with a total population of roughly 200 million people.

out of these 200 million roughly 80 million are in our core target group and roughly 20 million are aware of us just 1.6 million have already bought at about you i mean 1.6 is actually quite quite a large number i would say after you know a couple of months but that also means you know out of the people that know us um you know 18.4 million have not bought at about you yet and even 8 million are already saying in market research, I consider about you. So they are pretty close to buying. So this is huge potential to convert in the next years to come. With the data from Dach to which level could you bring, this 1.6 million, roughly?

I mean, we have countries where we have a penetration of 50% already. This is not the Dach region now because we have a higher penetration. We have higher penetration rates in some countries outside of the dark region. But the penetration rate within our target group, I believe, can, you know, can go up to 50% actually, at least, you know, I'm not sure about the penetration rate of Zalando. But at the end of the day, you know, I always say, if someone asked me who's our target group, you know, literally, theoretically, it's everyone that's not running around naked. You know, how many people do you know that are running around naked? I don't know a lot. So actually everyone can be our customer.

Also, people that are outside of our age group, within our age group, you know, I love our business model for, you know, for that. You know, literally everyone can be our customer. And I mean, how often do you have a business model where literally everyone will find something? I mean, we have customers that are 60 years old and we know that it's not a fake age. We know that they're real age, you know. They also find stuff on about you because also age doesn't play such a big role anymore so actually saying that out of the 200 million population just 80 million our core target

group is kind of a market research thing you know i actually believe our target group is 200 million yeah but okay let's say it's the 80 million and then from that 80 million our theoretical reachable penetration should be 100% uh because why should anybody buy anywhere else we have every brand we have so we have every style with every brand we have every size you know plenty that there we have a smooth delivery we it is hassle free It is free shipping, you know, you can pay on invoice, you can return within a hundred days. So if you are, you know, stupid and lazy, you know, you have 99 days to decide whether you want to keep that or not. And then, you know, send it back for free. You have not paid any money.

I mean, what speaks against us, yeah, is the question. And we have a lot of products you don't find anywhere else, which are very cool and compelling. So I would say, you know, the goal should be 100% penetration rate. Obviously, that's a theoretical goal. You never reached that. But I don't know a reason why we shouldn't, you know, try to get. as close to the 100% as possible. And as mentioned, we have countries where we are already at 50% penetration rate.

50% of the broader target group 16 to 49. In this case, female, yeah. So women 16 to 49. There are countries where we have a penetration rate of 50%. To access these customers, what role do influencers play for you? A big role. It's a big part of our marketing. strategy, working together with influencers.

We actually started that quite early when the word influencers didn't even exist because we found out that the number one question under Instagram posts and Facebook post back then for the very old people who would still remember Facebook. So the number one question below posts was usually where did you get this dress from or what kind of dress is it and so on and so forth. So in the very beginning, actually, influencer marketing for us started as a service Because we told the people with a lot of followers, with no word for it, we told them, hey, guys, look, we have a cool idea for you. You can order for free at about you.

And then every time someone asks, you know, where's this product from? You can always answer it's from about you because everything I wear is from about you. So that's actually pretty cool in the beginning because the influencer was like, wow, cool. I can order for free. We were like, yeah. And, you know, the followers of these. Influencers knew everything they wear from about you. So this is how it started, actually, 2014.

Very quickly, we found out this is an amazing marketing channel and, you know, structured it. So by structured it, I mean, we build a tool. We crawled all social media channels. We are looking for new influencers a daily basis with technology. And we're filling out a database with new influences, new and upcoming influencers. and we are doing more than 2,500 corporations by now every month with influences across 26 countries. Besides influencers,

walk me also a bit through your marketing system and how you make customer acquisition very efficient and like what other partners you're using at customers. Yeah, so maybe start with the marketing steering. So how do we think about kind of where to spend money? So in the first year of a country, really all about filling the funnel. But afterwards, it is performance marketing,

and it is steered on the question on how much does the customer cost us and how much is the customer lifetime value over period X. And then the question is really kind of on an acquired customer, how long does it take to become break even with that customer, and what is the ROI after, let's say, two years, three years, four years, and so on and so for. So actually, this is how we steer the question on where to spend the next euro. In reality, it actually says, okay, we have a channel, let's take Google AdWords, yeah, Google Ads. We know there's a keyword, let's say dresses. And we know, you know, the next euro we spend there

because we always think on a marginal level and the last euro and the next euro we try to calculate. So the next year we spend, we know we're going to, require a customer, that customer costs us, I know, 30 euro. And that customer will most likely have, I don't know, 12 euro, let's say 10 euro profit per transaction. So that means after the acquisition, obviously customer has had one transaction. We are down at 20 euro, yeah. So 30 euro acquisition, 10 euro first transaction.

And that in other words, means we need an additional two transactions until we hit break even. And then we try to progress, okay, how long will this take, you know, including churn probability, probability? And then let's say the result is 14 months, yeah. And then the question is, and that is always the question we, you know, ask ourselves on a daily basis, what is our investment horizon, you know, is 14 months still okay or not? And we also try to calculate what is the ROI after two years, three years, four years,

you know, and then we know maybe okay, after two years, we have a positive profit contribution deducting the acquisition cost and reactivation costs of, let's say, plus six euro, yeah? So then you can calculate six euro divided by 30 euro. This was your initial customer acquisition costs and divided by the time. And then you actually end up at an IRA. It's very much what an investor would do as well, you know. It is calculating basically the return on investment in period and time period X.

for an additional euro spent. And ultimately, we think about IRR. We think about what is our target return that we're looking for on the money we spent. And that is also being steered on a country-by-country basis. So in new countries, we obviously have a larger investment horizon. We are saying, okay, we want to invest more on grabbing market share. So in new countries, it's also about kind of land grabbing, basically. In new countries, the break-even period is longer and the IRA expectation is lower.

And the more mature the country gets, the IRR expectation increases because we want to increase profitability on that country. This is basically how we steal. And then, really, the job of our performance marketing team is to find channels to spend money efficiently, yeah. It's very much, we are very much thinking like a PE or VC or investor or whatever, you know, where do we find, you know, they would say assets, we say customers that have a positive ROI, yeah, and above target IRA, basically.

And there we actually test, test everything every day and question everything every day to find, to find new sources. So it's not like Tarek is waking up one morning and saying, oh, we have to do more marketing. It's a clear system you have in place there. Yeah, it is very less cool than people think. It is actually not Tarek sitting in front of an apple tree waiting until the apple falls down and then says influencer marketing. It's like with my great visionary mind, I realized influencer marketing is the thing. It is not like that.

It is really us testing out every kind of stuff. we find, then looking at Tarek, looking at axles the whole night, trying to see patterns, and then trying to find things that have a positive arrow iron can be scaled. And then usually it's ex post rationalization where you tell a great fancy story around the things you do, but the reality is really, it's test and learn and analyze and scale, and that's what we do on a daily basis. And then post rationalize and put it into a nice story that you can tell. But the reality is in our marketing, I would say we have like maybe, let's say, 20% people I would consider as creative.

And, you know, 80% that are, you know, either project manager executing stuff or the majority is actually data people looking in exiles, not at Apple Trees. You call yourself a fashion platform. In this element of your business or your business model you describe as a fashion platform. Where does your business get better every day? Like, where is your mode expanding in this sense? So is there a certain flywheel you're kicking with more data, for instance? Yeah, I think so. So the personalization gets better every day because it's technologically optimized

and we have more data, that's for sure. Entertainment inspiration. I also hope it gets better because we learn how things are working. We're also extending our assortment. The larger we get, obviously, the more access we have to brands. The larger we get, the more exclusive products we can launch. The larger we get, the more clients we win in our, for our technology solution scale. So there are a lot of advantages in being large.

We also get better conditions. Obviously, the larger you are, the better your negotiation position gets to your suppliers. so you become more profitable. We also see the larger you are, the more likely it is that people recommend you because people tend to recommend household brands, i.e. brands that everyone knows, you know, it's easier to recommend a brand

where I don't need to explain you what they are actually doing. So if you ask me, you know, where can I buy fashion? I tell you about you. It is better to, I mean, it's easier to recommend about you if I can assume you already know about you, then if you ask me where can I wear fashion and say yeah look there's this new fashion platform it's called about you you know they are selling fashion it's very personalized it makes the

recommendation very tough yeah so the higher brand awareness is the easier the recommendation gets and the more viral you you go basically yeah but i mean to be also fully honest i mean there's no there are not these networking effects like a social network yeah which i believe is actually good because that's also the reason why it is not a I mean I'm not sure whether it's good but I mean for a fact it's this business model has less networking effect that's also why we believe it's not going to be a monopolistic market like a search or social network where the network effects are so strong that nobody else can actually exist but on the other hand we also see huge advantages of being scaled up so we also don't believe that it will be, it will remain as fragmented as it is today. But our hypothesis is that this market will evolve to an oligopoly of, let's say, I don't

know, five players, five large-scale players making the majority of the market. Because there are scaling advantages, but there are less networking effects than with a social network. And that means fragmented won't work out. Monopoly probably won't be possible. So it will be an oligpole. You had this nice chart in your last presentation, not like a reasoned one, but it gives an idea about the scaling of profit contributions from new customers. Are the reasons you described just now the same reasons that these charts look more attractive with your scale or are there also other reasons behind this?

Yeah, that chart basically shows the development of, on the left-hand side, the revenue per population or per citizen, basically on the right-hand side, the net contribution margin. So after all variable costs, i.e. after marketing, logistics and so on so on. So what you can see here is with every new customer, with every new country cluster, we have scaled the revenue per inhabitant faster. And on the right-hand side, you see, we did all of that. at a much higher capital efficiency with every new country class that we started. So there are two reasons for that. First reason is

our overall platform is getting better and better. So back then, 2014, when we started the Dach region, I mean, we had very little assortment. It was all kind of a bit shitty. And now, you know, it is a great product, great assortment, great personalization, great inspiration, great entertainment,

great smartphone, and great everything. Great prices, great, great, great overall experience. Yeah. So the platform is getting better and better. And that obviously makes it more efficient to scale and you can scale faster. The second reason is a competitive reason, especially in Central and Eastern Europe. These are the two more recent lines here on that chart. The chart is already one year old.

So at that time, we have not been in Southern and Nordics. There was very little competition. So we could grow very, very fast. Probably as fast as Salando grew in, you know, a lot of, European countries at the time, they, you know, expanded into other countries. The Dach region is the most competitive region in the world, had already been competitive back then in 28. And, you know, now in a lot of countries, Dach and foreign, for example, Bina, Belgium and

the Netherlands is also quite competitive. And CEE had been less competitive. So we managed to grow much faster there, actually. And, you know, if we look at Nordics and Southern, they are also around, you know, the Belgium-Netherlands line, sometimes a bit better. So this is basically the line for a platform is better than a Dach region. Competitive situation is, you know, as it is in most matured western countries. That's interesting.

Coming back to the platform concept, like how do you play the platforms? There are different platform models out there. If you think about Amazon that also use the data, they get to push, their products and their brands, are you more neutral like Switzerland? What is what is the way I should understand the idea of a platform for about you? Yeah, so we are having own label products with about your label and edited, but these are fairly small. And our strategy and all label is more around incubating exclusive brands and collections

together with influencers. and there it's not so much around the question on what worked so we are not copying the best sellers of any brands but it's really more about what does the influencer like yeah um like to wear and we are kind of the individual tailor of the influencer maybe um so we use data for for so we it all starts with the question on what does the influencer want what is the influencer wearing and then obviously we also use data on, you know, what colors, what shapes, what sizes, what quantities, et cetera, yeah, to order to make it right. Yeah, but our strategy is not around copying our suppliers.

I think that would be a very stupid strategy. For us, it's important, and we have basically three mission statements. We have one vision statement becoming the global number one in fashion, online fashion, and then we have three mission statements versus digitizing the online fashion stroll for the Gen Y and Z. and the second one is creating incremental revenues for our fashion brand partners. So that already shows that we are very much committed to making sure that our partners make money when we make money and not to scam or, you know, to basically try to, I don't know, kill our partners by copying them or something like that.

I think that is a very short-term strategy to fuck up your partners. yeah um and i strongly believe as i have mentioned in the in my statement before i strongly believe in long-term value creation i strongly believe in reputation i strongly believe in finding the right partners and you know making sure you're always working with the best people and the best companies and that also means you know live and let live basically and not you know fuck up your partners by copying whatever they did right um so this would never be our strategy because it goes against our basically moral understanding of doing business. That's interesting to hear.

With moral, we also have to think a bit about sustainability because I think in the markets you're present, you also need to be sustainable to win. How sustainable do you think about fashion about you? And like, where do you also want to get better? Yeah, we do think that the whole topic around sustainability or ESG, as the capital market likes to call it, is a very important topic. And not because the capital market asks for it. I mean, the capital market asks for it, but we also believe it is really important.

It is important because we believe that, you know, companies at a certain size have responsibility. and yeah i mean we are living on one planet and in one society and i i don't think it's i don't think it's good to to not take the responsibility that you have as a big company yeah with a big impact so we are embracing our responsibility and i also believe that in the long-term companies that really don't care about this topic will have problems i believe in the beginning will have problems to fight employees and in the second place, customers. At the moment, also customers do care about it, but they're actually a bit louder in their voice and the media coverage than probably their customer behavior, yeah, but also today you're

missing customers if you don't care about the topic, but I think in the future it will be even more. But today, for sure, you're missing young employees because they want to work in an environment where they have the feeling it is taking care of the, you know, It is embracing the responsibility the respective company has. That being said, what are we doing? We just recently published our ESG report for the ones that are interested on our IR website.

You can check it out. And then we have also updated our company presentation alongside our full-year presentation. And there we also have a chap down ESG. So we have basically three areas of activity. We call it planned people and progress. planet is mainly, I think to highlight maybe three topics around planet that's being carbon neutral since one and a half years already, trying to lower the carbon emissions of the orders we are of our operations, basically, and then offsetting the remaining carbon footprint

that we generate, but also, you know, decreasing waste, increasing share of recyclable material and so on and so forth. Second area within Planet is increasing the share of sustainably or more sustainably produced products within our revenue mix. In our last fiscal year, 22% of the revenue we have generated worth with products that are considered more sustainable. And products are considered as more sustainable

if they meet any of our sustainability criteria that are more less standardized in the industry. So that depends on, certain certificates you need to you need to have and this share is constantly increasing and the third area is circularity so pushing secondhand products we are selling second hand products on our website we have more than 400,000 products and the secondhand area on our website we are running this as a not-for-profit unit we are we are about to introduce a service where with the return process you can also give back products and that are lying around in your wardrobe we sell them

on your behalf we pass you all your earnings minus the variable costs So really pushing the topic around circularity with the goal of making sure that the usage of a product basically is being increased. These are the three topics around planet, then around people. It's around creating transparency, but then our supplier base. It's about gender equality. It's about data standards and so on and so forth. It's about diversity and inclusion, obviously. And then in progress, we bundle topics around organizational questions on, you know, progress basically means how can we as a company make sure

we create impact and you know push on that topic and that is around you know having ambitious targets setting standards embrace frameworks track everything having sea level oversight establishing strong partnerships yeah so these are the the areas of activity i mean our ESG report has i don't know 100 pages or so so there's much more i just try to highlight the most important ones which i consider is the most important maybe give me a bit more detail on this the second hand option you're trying to roll out and why is it a nonprofit organization or nonprofit part of the business yeah so we think about secondhand in two ways first it's about selling second hand products and making sure people understand that as an alternative to new hand

or first hand you can also buy second hand and in our case actually second hand is being sold with free shipping free returns same payment methods same delivery speed so basically the same proposition as in first hand and also the second hand products are quality proven they are washed so you know it really feels like first hand and you know i try to buy one quarter of my of the things i buy about you i try to do and i actually buy second hand um so here you can really see i mean i'm always very happy with the quality of the second hand products um so that is one aspect of circularity And the second aspect is a lot of people have actually basically dead assets in their wardrobe, kind of, yeah? So products they never wear.

And then, you know, what do you do with it? You know, most people don't know what to do with it. I mean, it's not cool to throw it away because it doesn't get recycled then. There are, they have, they have been recycled containers in the past. In most countries, they are now not existing anymore. You can obviously go to go to the flea market. but that's a lot of effort. You can use these secondhand services like Vintet.

That's a big, big effort. So most people actually don't know what to do with these clothes. And we want to give them a service. So we say, look, by it about you, in the checkout process, you take a checkbox saying, I want to give back stuff. And then you get two extra bags in your parcel. One is for donations and one is for reselling. Then you can decide, you know, do you want to resell the stuff or do you want to donate that stuff?

if you put it in a donation box we try to donate it by try i mean sometimes you can't even donate stuff then recycle it at least uh or you know liquidate it basically um so we try to you know make use of the products in the best way possible which is the donation usually or the recycling and on the resell back we resell it on your behalf in our second hand section and pass you all the earnings minus the variable costs why are we doing this as a not-for-profit um service because i I believe it's the right thing to do to push that topic. And I actually see it as a service. Why?

Because let's assume you want to buy your jogging pants. And then there are two retailers. One says, both say, look, it costs 50 euro. But we say it costs 50 euro. And by the way, if you wear it and at some point you don't like it anymore, we also take it back. We sell it on your behalf. So basically, if you buy it at a. about you, it doesn't lose the value completely.

And I believe actually that's a pretty strong proposition. Because ultimately, that's also unfortunately in that market. We are selling to 90%. We are selling the same stuff as our competitor, not 90, but let's say 50%. Yeah, overlap with our competition. So a lot of times we are in a situation where we are selling the same product at the same price. But about you has this value at service of saying, I take it back.

By the way, we also take back products that have been bought anywhere else. So theoretically, you can also buy it anywhere else and then resell it over our platform. But I believe actually customers do appreciate that service. And I think a lot of customers will actually buy it about you. And the second reason is actually it keeps money within our ecosystem. So if you do the reselling part over our platform, so you, send us your Hugo Boss shirt

where you resell it for you and we say look Tillman we have 30 euro for you now and we say look we sold it for 40 euro and then you know here's our cost

cost base it costs nine euro logistics and all the kind of stuff payment and so on so far so there are 31 euro left we will tell you we can transfer you to 31 euro or you can get

a euro voucher of 35 euro to spend it on about you. I believe a lot of people actually will take the money and immediately spend it on about you again. So it basically keeps money in the ecosystem as well. And that being said, I believe that is one of these beautiful examples where ESG goals go hand in hand with things that actually also really make sense for the customer and are positive for our business. If you think about the ecosystem and the ways to monetize it, you have this platform.

And there, if you look at other online e-commerce businesses, there are other options like targeted advertising, more selling of third party stuff. Is there anything you think with further scale, like reaching the 5 billion you have as a target that there might be material streams of interesting revenues that come over time for about you. There are already a couple of interesting revenue streams that have been developed in the past. So media is one where we are selling our partner, you know, selling media inventory and

advertisement inventory on our website. We are already doing that. I think last time we reported that segment, it was even more than 2% of our revenue, of our commerce revenue that we are generating just with marketing. It is fulfillment services as described in the beginning of where I described the three stock sources, one was fulfillment by about you, where we basically do fulfillment services on behalf of our merchants. So obviously we do a margin on that.

At some point, it might also make sense to sell data to our suppliers, not customer data, but insights. Insights can be, hey, we know that the color blue will be increasingly interesting next season or yellow will be less interesting because we can find out this data within our within the data we have at hand, because we know that there is a certain customer group that actually is a fashion forward kind of. So we know that whatever the certain customer group is doing,

the majority of the masses will do next year. We already see that in our data. So we actually could give the fashion industry great insights on what will be trend next year. And that is in a, you know, 450 billion fashion industry, just Europe and, you know, trillion, multi-trillion dollar industry worldwide, that is a pretty, you know, pretty valuable information to know, you know, what will be trending next year. So this could also be, you know, a revenue stream that we have not even touched today.

And then there are also kind of services for our customers that have not yet been established. So we have just recently published that we are opening an outlet, an online outlet, yeah. If you look on the numbers of Zalando, the Zalando launch is highly profitable, doing, I think, 11% of their overall revenue. It's a business model we haven't even started yet. It's 11% or 12, I don't know, it's above 10% of their revenue.

Very interesting, extra pocket of growth and profits. And also it makes you liquidation process a bit more efficient. We have not yet started a curation service, similar to Stitch Fix or Outfittery or Zalando Zalong. So also a nice extra value ad for our customers to make them even happier. And there are a lot of other fields where we can imagine building up new profit streams within about you equal to this whole selling inventory on our website for a film and thing and also extra services for our customers to generate extra revenue and profit streams.

for example, this outlet idea and some other things here. So we are not close to what we imagine about you will be as a business model and ecosystem in a couple of years' time. And also great optionality is scale, your software and service platform. Maybe let's spend the last minutes on scale. What is scale? And is it a waste product of your fashion activities? So first of all, what is scale?

Scale is scale.com. It is written with A.Y for about you. Scale.com. It is our B2B brand. We call it a commerce engine where we are licensing out our technology as a software as a service model to third party brands and retailers. So what does this mean? Let's say you are a brand.

Let's say you are as Oliver, a recent win of us. one of the largest German fashion brands, or Marco Polo, for example, then obviously you are running your own online shop. And this online shop needs technology. In the past, usually if you were an enterprise segment, so you generated more than 50 million revenue or even more than 100 million revenue, as most of our clients do, then you usually went to SAP or Salesforce to get your commerce software.

Now, as a P and Salesforce, commerce solutions are quite outdated. And we have built a competition to that with scale. So we are delivering an enterprise technology to B2C companies in the e-commerce space, mostly fashion and lifestyle brands and retailers. And it's a software as a service model, so it's pretty easy. We maintain it. We further develop it. and it's pretty easy for the customer to implement

and to run their own online shop based on that. It's white label, so the customer ordering on Marco Prude, for example, doesn't see anything about scale or about you or anything. It's a white label separate instance technology-wise, and it's pretty cool. We are already running more than 100 shops next to about you on our technology.

And in our full year results for the first time, we have actually outlined how much revenue we are doing with scale because so far, scale has always been a sub segment within TME, tech media and enabling. There's also the selling inventory on our website in that. There's also parts of the fulfillment margin we have in there, in the overall TME, and there's also scale.

And scale is basically this separate external business that we are running. So let's assume about you would go away tomorrow, then scale could still exist, yeah, because it's a separate business. And for the first time, we have actually disclosed how much revenue and profit we are doing. And in our last fiscal year, so in our last fiscal year, fiscal year 21, we have generated 66.7 million in revenue. And we grew with 90%.

And the profitability was outstanding. It had been profitable from day one, this business model. And last fiscal year, we have generated 25 million in EBITDA. That means a profit margin. or EBITDA margin of 38%. Why is this outstanding? For those who are not familiar with tech businesses or software businesses, the investors usually, if they want to assess whether a business is good or not,

in a very kind of fast rule of thumb way, they usually speak about the rule of 40. The rule of 40 basically is pretty simple. It means you're adding the relative growth with the relative profit margin. In our case, the growth last year was 90%, revenue growth, and our EBITDA margin was 38%. So you are adding these two numbers. And if the result is above 40, you are a great company. If it's above 100, you are a crazily outstanding company

and people throw money at you. In our case, let's do the calculation, 90% top line growth, 38% EBDA, you know, adding these. two numbers gets us to 128 yeah above 40 you are considered as a great company above hundred you're considered as what the fuck i'm going to you know chase this company to let let me invest no matter what in that company we're at 128 so this is outstanding for a technology business and it really shows kind of the the potential we believe scale has as a business um Because it is highly growing, highly profitable, and it is actually a business with crazy lock-in effect.

So if you have a customer that actually uses your technology, we always sign four-year contracts, five-year contracts, and it's very unlikely that even after five years, they change the technology. Technology you usually change after seven years, ten years, because it's a very crucial part of your infrastructure. So that means if you have a customer actually and you're generating so-called ARR and your recurring revenue, then it's very likely that you'll keep that customer over years. That's why it's, you know, software as a service businesses are considered as the new real estate, basically. So let's take this five years and the potential. And I want to ask, where do you see the potential for a scale in five years? You have this guidance of $5 billion.

And I, as I looked at scale, I thought about it as a 500 million business in like 20, 27, 26 around this. Am I wrong with my thinking or am I diverting a lot from your thinking with what do you think is the potential for scale? Hey, Tillman here. I'm sure you're curious about the answer to this question. But this answer is exclusive to the members of my community Good Investing Plus. Good Investing Plus is a place where we help each other to get better as investor day by day. If you are an ambitious, long-term-oriented investor that likes to share, please apply for Good Investing Plus. Just go to Good minusinvesting.net slash plus.

You can also find this link into show notes. I'm waiting for your application. And without further ado, let's go back to the conversation. You're running a bit out of time, so maybe let me try to do two quick follow-up questions. in your guidance of the 5 billion for 2027 is there already a significant revenue part for TME or do you is it just fashion business we have not disclosed any breakdown of our revenues of that 5 million target 5 billion target and about the customers the last slide I have how can you make sure there's a lot of fashion customers and multifashion customers you already have relations with. How can you access the market outside of like the fashion ecosystem where you already embedded? So first of all, it's just a selection of our customers. Actually, a lot of customers have been recently won and or have not agreed us disclosing it at that time

towards the capital market and or are still in implementation. So we have a lot more customers than the logos you see here, but actually looking at the logos, these are great, you know, there are great names on this already. As you can see, the two top boxes are fashion D2C. So these are the brands, fashion multi-brands, these are retailers. And then there's multi-category. These guys are selling, you know, a lot of stuff, usually mostly not fashion. And then there's lifestyle selling some kind of other things.

This can be beauty, home living, furniture, toys, soccer, optician, and so on and so forth. And we see actually that obviously in the beginning, we have had a lot of inbound leads from the fashion space because they knew us. But we are seeing that actually our win rates in other categories outside of fashion are more or less equally high. The lead times are a bit longer. The sales cycles are bit longer because they don't know us that good. We don't have these good intros and access to C-level as we have for our fashion brands,

obviously. But we are very successful in selling our software to people outside of the fashion space. And this is also where we see a lot of potential. to grow. But also in fashion, you know, we are not covering, we're not even covering a friction of the fashion market yet with our software. The majority is still in the hand of SAP and Salesforce, being the market leader for enterprise shop software. Maybe just a quick answer. So the revenues in scale is licensing and you also get a certain share of the revenues or the GMB of the shops that run on scale. And it's just,

the latter. We are charging on a take rate basis on the GMV of our customers. Great. So if they grow, we grow if they shrink, we shrink. That also explains that the growth in the last quarter

might not be that strong because we had a certain blip in e-commerce. Yes, exactly. The deep down in the numbers investors saw that in our fiscal Q4, which is December, January, February, we saw a bit less growth in that. And that is also partly because especially Gen Feb, actually more or less every e-commerce player has decrease in revenue,

except of us. We have grown. But if you're running a take rate business, actually, if your customers are having less revenue, then you also have less revenue. We still grew a lot, yeah, but these were then new customers added. This is an exceptional situation. I think in the first half of this calendar year 2022,

most e-commerce players actually decreasing. So that's bad for our business. But I would say after that, I'm 100% sure the average customer in the next year will always grow. So charging on a take rate basis is a much better business than having a stable license fee in, I would say, 99% of the normal quarters. And now we have two unusual quarters with calendar Q1 and Q2 where e-commerce is actually decreasing. Then at the end of our interview, I just have to. thank you for your time and the great insights into about you and thank you very much for coming on and thank you very much for the audience to listen to us to know many thanks for having me

it was a pleasure again as in every video also here is the disclaimer you can find a link to the disclaimer below in the show notes the disclaimer says always do your own work what we're doing here is no recommendation and no advice so please always do your own work thank you very much