Camplify Holding - A Quick Look
INTRODUCTION
Camplify holding is an Australian marketplace business. It can be best described as “AirBnB for camper vans.”
The company is in a hypergrowth stage, with a high cash burn. Revenues have gone from A$2m in FY19, to A$16m in FY22, and the company sports a cool -41% EBITDA margin.
Despite the high cash burn, there’s potential here. The company has a high market share in Australia and New Zealand, and owners are unlikely to dual or multi-list their vans. Dominant marketplace businesses tend to be very profitable, with margins approaching 70%1; the network effect dynamic means the incumbent has to spend far less on suppliers and customers. Camplify also has enough cash to last about 2-3 years, which should be plenty of time to get to profitability, given its growth rate.
With shares trading at 4x revenue, and the company still in a hyper growth phase (FY22.06 revenue growth almost hit triple digits, I thought it was worth a look. If Camplify continued to grow at similar rates and hit anything close to dominant marketplace margins, today’s prices will look stupidly cheap in just a few years.
Unfortunately, I ran into a few issues outlined below.
KEY ISSUE 1: Gross Margin and “Productive Revenue”
Camplify generates revenue in a few different ways2:
Hire: charges 15% to renters, and between 5-11% to owners3.
Premium membership: owners can pay $76-198 per month for additional marketing services, reduced commission and full insurance.
Insurance: Camplify charges camper van owners to insure against potential damages during the period.
Van sales
FY22.06 Revenue and EBITDA breakdown is as follows:
Other Revenue, totalling 5.7m is entirely insurance revenue4.
Other segment includes 2.9m of van sales + 2.2m of insurance revenue.
Given that insurance and van sales make up a significant % of revenue, it’s important to figure out what gross margins these come at. Unfortunately, the news is not great.
Camplify provides a COGS breakdown in their FY22 Finals Presentations Deck, copied below.
Note
Premium membership fees and van sales come at low, 0 to single digit gross margins.
For FY22, Camplify actually lost money at the gross profit level on their insurance revenue.
As a result, Camplify has experienced quite a steep decline in its gross margin over the last year, excluding Van sales.
Now, Camplify claims that this is because their insurance premium rose sharply as repair costs went up, and that they will pass it through - but it’s clear that other than Hire revenue, the rest of the sources have low to 0 gross margins.
KEY ISSUE 2: Growth Composition
The second thing that jumped out at me was the huge difference between booking volume growth and revenue growth. See below for Australia, as an example:
This is due to an increase in average booking value, coming from a combination of price per day increase and guests booking longer stays.
At first glance, this is great news and is indicative of why marketplace models are great. However, consider the following:
Booking length growth will stop at some point. There are only so many nights someone will go on vacation for.
Taking % of transaction value also means that it will be impacted by any price reduction. It’s unclear how much of the current pricing is being impacted by supply/demand dynamics, for example.
I think both of these are important considerations when looking at potential 5 year growth CAGRs. If you’re betting on the 60% hire revenue growth continuing, you’re betting on continued growth in average booking value as well.
In fact - when we look at absolute volume growth, there was a sharp deceleration in FY22.
For FY21, the company grew bookings volume by 17.2k transactions. This slowed to 9.2k transactions for FY22.
Camplify also added ~3.2k campers to its platform in FY21, and added 3.8k in FY22. Excluding the New Zealand acquisitions, the company only added 2.9k camper vans onto the platform.
KEY ISSUE 3: Marketing Scale - or lack thereof
One of the key features of a marketplace business is its operating leverage. In particular, its marketing cost - spending required to acquire both demand and supply - should decline as it grows, due to the network effect making it the de facto place where both parties can transact easily.
For FY21, this seemed to be happening for Camplify. Revenue was up 3x, Gross profit up 2.5x and marketing costs declined from 52% of gross profit to 28%.
But for FY22, this seems to have gone backwards: Revenue was up 2x, Gross profit up 46% and marketing load was back up to 51% of gross profit5.
Now, this could just be a single year blip - Camplify is still a young, small company, with a huge part of the market still to onboard, even in Australia. Nevertheless, it’s not the most encouraging thing to see a big slowdown in volume growth while seeing a big increase in marketing costs.
CONCLUSION
To summarize:
Valuation is a lot higher than it seems at first glance, because ~40%+ of revenue is a very low gross margin (single digit % at best)
Growth is very high, but it’s hugely helped by growth in average booking value. Volume growth has slowed considerably from last year.
Operating leverage has gone “the wrong way” for FY22.
With this in mind - what could the future look like? Below is a highly stylized model.
Key Assumptions
Revenue growth for the next 2 years continues to benefit from increasing booking value growth. Underlying volume growth remains at 30%.
Gross profit margin on hire revenue remains flat at 80%.
Marketing load declines from 40% currently down to 20% as the company scales.
Employee expense growth moderates, and other OPEX spending flatlines.
Based on this, we get A$8m of adjusted profit in year 56. Even if it traded at a 15x multiple, it'll only get to ~A$120m in market cap, only about 20% higher than where it is today.
Based on this, I’m taking a pass on Camplify.
Check out: REA, Rightmove, Autotrader UK, Scout24, Hemnet, and Adevinta.
There’s also some GPS rental revenue but it’s so small I didn’t bother including it.
5% to premium members, 7% to those that are self-insured, and 11% to all others.
It’s unclear to me why insurance revenue is split into 3 segments, with 40% of it being in the “other” segment.
I use % of gross profit here as using revenue is misleading due to a bunch of very low margin revenue, as discussed. However, even using revenue, the conclusion is the same. Marketing expense goes from 36%R to 17%R to 24%R.
Note that I’m being quite generous with other expenses here - CAPEX beyond D&A, Merchant fees, which are included in finance costs for some reason…
Good Bear case. Thanks. The other side of the coin is camplify is still very small and buildings its network effect, in fact investing into its car owners, marketing to establish a network effect marketplace. Insurance does make a large expense on the owners side, but there is zero reason why these expenses should not be transferred to the owners side esp when scale is reached. In fact, I think the gross profit will be > 50%, and we will likely see this in the future. Re transaction growth, they are more limited by Car availability than by demand, which is a great index of success for emerging marketplace. Its all about cost go get a new car for now which is dropping fast. It is not hard to imagine a scale where getting an incremental car goes fully organic, which changes the whole math here and is not taken into account. Then, the fact is this market is at its very beginning. Since RV ownership is very expensive, it is almost certainty peer to peer trusted platform can help offset the cost and even offer an opportunity to generate income renting fleet at double digit yields, and we already see budding businesses established on the platform (even before managed services). at less than 1% of the market, before the NZ intl traveler, not to speak of the possibility to become a more dominant player in the EU, I think growth in transaction is going to increase. Then, one has to take into account that like other marketplaces, the take rate is not fully develped. I can think of many initiatives to provide more service for a small fee, which will all translate to a better gross profit. And that is pre M&A. So to conclude, while you raise a fair bear case, I think in this type of emerging platform deeper work has to be done. It may not be the right investment at this time, but things could change very fast.