On your bikes for his newly listed growth stock

BikeExchange is the latest platform that connects people with one thing they all have in common: a love for bikes. The platform is chock-full of road bikes, mountain bikes, e-bikes, kid’s bikes, wheels, clothing, lights, and wheels. Pretty much anything that is remotely bike-related, this platform has it. It’s even an online friend-dating marketplace of bicycle enthusiasts, who can arrange to meet up for tours and trips.

BikeExchange recently listed on the ASX, after raising $20 million at 26 cents a share, valuing the company at $76.9 million. The listing was in February: at time of writing, the company (ASX: BEX) is trading back at 26 cents, having fallen from a high of 32 cents.

At first glance, the company looks and behaves like a start-up, yet it has been around for 13 years and is far from a start-up. Back then the company was called RPro Holdings, and it has since grown its network to become the largest cycling marketplace in the world. Yes, in the world. The reason for its expansion is the beauty of its business model.

The online model ensures that the company never holds any physical inventory, nor does it require ongoing investments to continue the platform’s operational activities. The platform merely connects consumers with retailers in a way that makes the experience for the consumer convenient, super-easy and transparent. The business is based on a subscription model that generates recurring revenue. The types of revenue are:

• Retailers and manufacturer subscription;
• E-commerce commissions generated by transactions on the platform; and
• Media sales from classified listings, feature upgrades, and ancillary services.

With 1,500 brands, 1,450 retailers and more than 600,000 products globally, the platform is looking at an audience of about 29.1 million consumers a year. We think it’s a robust business model built on organic growth: from very humble beginnings, BikeExchange has become a leading global marketplace for all things bikes.

Establishing a business with two target markets isn’t an easy task. Both consumers and retailers must reside on the online platform concurrently for there to be that “network effect” and effective service. Building an online platform takes time and patience and a lot of hard work. And all of the backbreaking labour was done by RPro Holdings, the original company, that created a database and grew it organically. It contained the perfect mix of consumers and retailers, making it easy for BikeExchange to utilise. This is the company’s competitive advantage.

The proceeds from the listing will be used to fund growth. The company says: “The funds raised from our initial public offering will be invested in growth initiatives, such as strategies to convert existing sales leads on our site to eCommerce transactions, increasing the retailer, brand accounts and key partnerships on-site, and improving the customer experience through technology and products.”

Having recently listed, the pressure to earn sky-high numbers will start to filter through as the company starts to do well. As it stands the company is not profitable. But that’s OK; most tech platforms are unprofitable until two to three years into their listed lives. BEX posted a loss of $2.9 million in FY20, an improvement from a loss of $4.5 million in the year prior.

Outlook

Although it’s very early days, as a listed company, BEX shares are doing well, and the company has managed to survive the pandemic without too much damage. As society moves to renewables and carbon-based petrol engines disappear, the perception and uptake of riding a bike may well become more attractive.

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.