What’s going on with the Moonpig share price?

It’s been a mixed year for IPOs on the London Market. While some have gone swimmingly, others have failed to deliver. Today, I’m turning my attention back to a company I was somewhat sceptical about when it first arrived on the scene in February: online greetings card purveyor Moonpig (LSE: MOON).  Despite rocketing in value back then, the share price is down by over 13% today. What’s going on?

Revenue rockets

Today’s results for the full-year to the end of April were certainly nothing for holders to complain about. 

Having despatched over 50 million orders, Moonpig’s revenue rose 113% year-on-year to a little over £368m. According to the company, this was due to growth in new customers and people making more frequent purchases as a result of multiple Covid-19 lockdowns. I certainly count myself within the latter category. 

The good news continues. Adjusted earnings came in at just over £92m — at the top end of guidance issued by the company in February. Pre-tax profit came in only 3% higher than last year but this was due to costs associated with the IPO. 

All this sounds pretty positive. So, why is the Moonpig share price crashing back to earth today? It appears to be down to the company’s outlook. 

To the moon… and back

Despite the new financial year starting “moderately ahead of expectations” thanks to the delay in Boris Johnson’s road map out of lockdown, Moonpig said that it had noticed the number of orders on its site starting to normalise, albeit from “elevated levels“. Importantly, it thinks this drop will continue.

Ultimately, the company expects the frequency of orders to steady around 5% higher than pre-pandemic levels. As a result of this, Moonpig thinks this financial year’s revenue will fall to somewhere between £250m and £260m. That’s clearly a big step down from last year’s headline number. 

Another thing that may be spooking investors is news that management will “continue to prioritise additional investments in marketing and market share capture” rather than focusing on short-term profit. 

Where’s the moat?

There are things I like about Moonpig. In addition to boasting the sort of margins you’d expect from a pureplay online operator, the company’s “unique gifting dataset” should indeed allow it to personalise experiences for customers as management claims.

Speaking as a customer, however, I’m not sure that I would ever buy anything other than cards from the company. It may be adding hugely popular brands like Lego to its range, but a simple online search shows that I can get the same products far cheaper elsewhere. In other words, Moonpig is a convenience play. If I’m organised, I won’t need it. As a potential investor, that would trouble me.

I’m also struggling to find an economic moat here. FTSE 250 peer WH Smith has rival Funky Pigeon in its greetings card arsenal. What would keep me loyal to Moonpig? And will we still be sending greetings cards in, say, 2031 anyway?

No for me… yet

As investments go, I’m torn. While the fall in the Moonpig share price back to near its initial offer price makes it more attractive, I’m not totally convinced the company will grow market share as easily as it thinks.

With this in mind, I wouldn’t feel comfortable buying yet. Expectations have been reduced, but the shares could drift for a while.