Webjet and Adore Beauty are two online ASX shares expecting big things.
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There are some online ASX shares that are predicting big things and hope to achieve growth over the coming years.
Businesses that operate with online business models may be able to achieve relatively high operating profit margins and grow fairly quickly.
The way COVID-19 has impacted certain industries is very different to other sectors. But these two online ASX shares are expecting to generate a lot more profit in the coming years.
Adore Beauty Group Ltd (ASX: ABY)
Adore Beauty is a leading e-commerce business that sells almost 11,000 products from around 260 brands.
The company recently reported that its FY21 revenue was $179.3 million, an increase of 48% year on year. Active customers grew 39% to 818,000, with returning customer growth of 64%. Annual revenue per active customer increased 7% to $219.
Adore Beauty also revealed growing profit margins. The gross profit margin increased by 1.2 percentage points to 33.1%. Earnings before interest, tax, depreciation and amortisation (EBITDA) went up 53% to $7.6 million.
The online ASX share also said that FY22 has started strongly, with year to date revenue up another 26% over last year. Ongoing COVID-19 lockdowns are boosting new customer growth and returning customer spending.
Management of the company said:
Adore Beauty is executing a clear and robust growth strategy to cement its online market leadership position, and is well positioned to capture market share in a large and growing market benefiting from structural tailwinds.
The company expects to maintain an EBITDA margin of between 2% to 4% in the shorter-term whilst it re-invests to achieve growth. Over the longer-term it’s expecting to see scale benefits with increasing operating leverage, leading to the EBITDA margin growing.
Going into its report, Adore Beauty was rated as a buy by UBS, with a price target of $5.60.
Webjet Limited (ASX: WEB)
The ASX travel share is still feeling the effects of COVID-19 with travel and its total transaction volume (TTV) heavily reduced. Indeed, the nine months in Webjet’s FY21 saw TTV of $453 million, down from $3 billion in FY20.
However, the online ASX share points to several areas that it’s positive about for the future. Cost reduction initiatives are underway in all of its businesses, which are expected to deliver 20% lower costs across the company once the business returns to scale.
Management pointed to the Webjet online travel agency business where profitability continues to improve, demonstrating the scalability of the business model. Its market share continues to increase and the FY21 second half margin was above 30%.
WebBeds, Webjet’s business to business subsidiary, is committed to emerging as the number one global business to business provider. Webjet says it’s taking advantage of new revenue opportunities here as well as transformation initiatives that are on track to reduce costs by at least 20% when back at scale. It’s now targeting ‘8/3/5’. That means Webjet wants revenue to be 8% of TTV, costs to be 3% and the EBITDA margin to be 5% of TTV. That translates to an EBITDA margin on revenue of 62.5%.
The broker UBS rates Webjet as a buy, with a price target of $5.90.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Adore Beauty Group Limited. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.