Mohawk Group Holdings (NASDAQ: MWK)
- Mohawk Group Holdings Inc. reported a 62.3% increase in its 2020 revenue compared to 2019
- It earned a revenue of $185.7 million, and its earnings guidance show that this figure will grow by a further 88% to 105% in 2021
- This growth is thanks to the company’s acquisition strategy, which has expanded its list of brands to eleven and it is still targeting more companies
- The acquisition strategy is, however, problematic in a few ways
finished the financial year ended December 31, 2020, on a high note reporting $185.7 million in revenue, an increase of 62.3% or $71.3 million compared to a similar period in 2019, backed by an impressive fourth-quarter performance, which included improved profitability, strong growth in sales and revenue, and boosted guidance, as highlighted in a recent Motley Fool
article titled “Mohawk Just Wrapped Up a Perfect 2020
This 62.3% revenue increase marked a consistent trend year-on-year for the two most recent reporting periods, given that it reported a growth in revenue of 56.2% in 2019 compared to 2018. Notably, this upward trajectory is likely to continue as its earnings guidance for 2021 indicates that the revenue will grow by between 88% and 105%, buoyed by potential mergers and acquisitions.
“We are currently evaluating a strong pipeline of potential M&A targets that in total have trailing twelve month’s net revenue of $522 million and trailing twelve month’s EBITDA of $97 million,” said co-founder and chief executive officer Yaniv Sarig during the release of the 2020 annual report.
The acquisition strategy, which Mohawk uses only if it believes purchasing a brand is more advantageous than developing its own brands and products, has grown its portfolio to 11 brands that sell products in multiple categories and based on Yaniv’s assertions, it is unlikely to be discontinued.
In Q4 of 2020 alone, for example, Mohawk Group spent more than $100 million in cash and stock to purchase five separate e-commerce brands, including $48 million on Healing Solutions, which owns an extensive essential oils and wellness portfolio. However, the strategy has a few issues and limitations.
To shareholders, the dilution of shares is inevitable, as Mohawk usually acquires companies using cash and some of its stock. Secondly, new additions could potentially disrupt the company’s core operations and adversely affect its operating results as a result.
Thirdly, the impacts of these newly acquired companies on the company’s profitability are not immediate. And this is made clear by looking at the company’s 10-K filing with the SEC. According to the report, Mohawk reported a net loss of $63.1 million, down from $58.8 million in 2019 (https://ibn.fm/zMiqm
). This is due, in part, to how the acquisition works.
“Once it acquires a brand, the brand typically runs at a loss until its products generate enough ratings and reviews to sell organically” (https://ibn.fm/CSYSH
). This is on top of the fact that high competition on the e-commerce platforms could again reduce MWK’s chances of realizing any profits from the products and brands. Fortunately, to deal with such problems, Mohawk could rely on its proprietary AIMEE platform.
AIMEE allows MWK to identify product and market opportunities and to execute and manage online marketing strategies. Additionally, it enables the company to increase its products’ and brands’ value propositions by relying on data-driven approaches applicable throughout the entire consumer product value chain. The company believes that by scaling AIMEE, it will gain “purchasing power both at the product level and at the overall fulfillment level,” which will improve its operating results, per its 10-K filing.
Although the company’s profitability depends on a few factors that the company may not immediately control, Mohawk is focused on providing shareholder value through other avenues, including more acquisitions and the improvement of its AIMEE platform. Based on the earnings guidance, 2021 looks set to be an equally impressive year for Mohawk.
For more information, visit the company’s website at www.Mohawkgp.com
NOTE TO INVESTORS:
The latest news and updates relating to MWK are available in the company’s newsroom at https://ibn.fm/MWK
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