COVID-19 has fundamentally impacted many aspects of society. Consumer habits have rapidly changed in 2020 as a result of lockdowns, quarantines, and trying to navigate the new pandemic-induced climate.
Consumers are overwhelmingly turning to online shopping throughout this year. According to data from Digital Commerce 360, 36% of consumers shop online weekly since the pandemic hit. Prior to COVID-19, 28% of consumers were making e-commerce purchased weekly.
Perhaps the most eye-opening stats from the recent survey was the fact that 90% of consumers that participated said they prefer home delivery over a store visit. Only 28% of those surveyed said they plan to increase in-person shopping between August 2020 and February 2021.
Amazon.com, Inc. (NASDAQ: AMZN) is a cornerstone of the e-commerce world. Just wrapping up its two-day Prime Day sale, the e-commerce giant estimates it generated $10 billion during its October 13-14, 2020 event.
Companies that operate and rely on digital activity have largely fared better than their brick-and-mortar counterparts. In fact, we have seen valuations skyrocket for companies tied to digital and non-contact activities.
One private company that just reached the $1 billion “unicorn” status was Thras.io, one of the largest acquirers of Amazon businesses. For companies that operate in similar verticals, like Mohawk Group Holdings, Inc. (NASDAQ: MWK), Thras.io’s recent capital raise and new valuation serve as a potential validation.
Thras.io is among the world’s largest acquirers of third-party Amazon businesses. Since its founding in July 2018, Thras.io has acquired over 50 Amazon businesses, which has produced pro forma revenue of $300 million from a catalog of over 6,000 products.
The company seeks to acquire niche, third-party Amazon sellers that have expanded and evolved into a multimillion-dollar business. As these Amazon businesses see success, many individuals and smaller businesses face more complex and capital-intensive operational environments, which prompts them to seek a successful exit.
Once Thras.io acquires the Amazon business, it “then onboards, optimizes, and operates this suite of brands, expanding their reach through marketing, search, product development, and supply chain management, leading to substantial financial and operating growth,” according to the company.
In July 2020, Thras.io raised $260 million in a Series C funding round, at a pre-money valuation of $1 billion. According to the company, the latest funding round makes Thras.io “the fastest U.S. company ever to reach profitable unicorn status.” The funding round was led by a world-renowned private equity group, Advent International, which has assets under management of $49 billion, as of March 31, 2020.
“People ask how we’ve been able to grow so quickly,” said co-CEO and co-founder Carlos Cashman. “It’s pretty simple: We build relationships with sellers and others in the Fulfilled by Amazon ecosystem. We’re a resource to sellers to help them grow, and we’re here to acquire their business and give them a well-deserved payout when the time is right. We pay well in any economic climate and share the financial gains from growing their brands post-acquisition. So far, we’ve paid sellers more than $100 million.”
Mohawk Group vs. Thras.io: How They Compare
Much like Thras.io, Mohawk Group Holdings has experienced a strong surge in growth since the start of 2020, thanks in part to the growing shift towards online shopping. As a technology-enabled consumer-packaged-goods company, Mohawk Group combines machine learning and artificial intelligence to help discover and act on emerging consumer trends.
Mohawk Group’s proprietary AI platform, AIMEE, is a key differentiator from Thras.io. Not only does AIMEE serve as a key tool to understand and position for emerging consumer trends, but it can also be licensed out as a Software-as-a-Service (SaaS) offering to other companies looking for data insights.
This gives Mohawk Group the duality of being a technology and consumer-packaged-goods company. For Thras.io, the focus is seemingly almost entirely on consumer-packaged goods. While impressive, Mohawk Group offers better diversification into another high-growth market, SaaS.
Another key advantage that Mohawk Group has over Thras.io is that its AIMEE platform allows the company to acquire and add new products without increasing headcount and associated costs. Conversely, Thras.io is tasked with adding employees as they continue to acquire new businesses. Mohawk Group’s AIMEE allows them to scale more efficiently than Thras.io.
Mohawk Group Acquisition Strategy Heating Up
In August 2020, Mohawk Group Holdings acquired its latest Amazon business, Truweo, which operates in the health and wellness vertical. Over the past trailing twelve months, Truweo has generated revenue of $14 million and an operating income of $6.5 million.
Mohawk Group Holdings paid $16.4 million for Truweo. This means that Mohawk Group was able to purchase a multimillion-dollar Amazon business at only 2.5x multiple to Truweo’s trailing twelve-month operating income.
The acquisition is a big deal for a couple of reasons. First, it helps add to Mohawk Group’s bottom line and helped lead to an increased 2020 outlook. For the full year 2020, management estimates net revenue to come in between $175 million and $185 million. This compares to an estimated range of $170 million to $180 million prior to the acquisition. Furthermore, management noted that it expected a positive adjusted EBITDA for the full year 2020.
Secondly, Mohawk Group just showed off its deal-making capabilities, which featured acquiring a successful, multimillion-dollar Amazon business at a cheap 2.5x multiple. Management’s acquisition strategy is another important aspect of the growth story.
Respected Institutional Investors Continue to Back Mohawk Group and Thras.io
Both Mohawk Group Holdings and Thras.io have caught the attention of highly-respected institutional investors, as a result of their impressive growth. Through the first half of 2020, Mohawk Group saw eight new institutional investors initiate positions.
The largest new institutional shareholder for Mohawk was billionaire Jim Simons’ Renaissance Technologies hedge fund, who picked up 174,900 shares of MWK. Other notable new institutional investors for MWK include National Asset Management, Inc., Millennium Management, LLC, Geode Capital Management, LLC, and Virtu Financial, LLC.
The world’s largest asset manager, BlackRock, built upon its initial MWK position by increasing its stake over 133% at the end of June 2020. BlackRock owns 27,960 shares of MWK, as of the latest 13F filings.
Thras.io’s investor base is a little more opaque due to being a private company, but we know Advent International is a key investor after leading the Series C round. Other notable investors in Thras.io include Upper90, PEAK6 Investments, LLC, Harlan Capital Partners, LLC, and RiverPark Ventures.
Overall, Mohawk Group investors have a lot to be optimistic about. Thras.io’s recent capital raise and achieved unicorn status can be seen as validation of Mohawk Group’s business and growth plans. However, Mohawk Group’s proprietary AI platform seemingly gives it an edge over Thras.io, as AIMEE can help locate emerging consumer trends and be licensed out as a SaaS offering. With Mohawk Group’s budding acquisition strategy, proprietary technology, institutional investor support, and strong management team, Thras.io’s success could be a sampling for what’s to come for Mohawk Group.
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