Deep Dive: Mohawk Group
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What do they do? Mohawk acquires and develops consumer products that are sold through e-commerce sites, mainly Amazon. It has an AI tool called AIMEE that helps source deals, marketing spend, and logistics. It is essentially an FBA roll-up.
History? Mohawk was started by the three co-founders in 2014. Yaniv Sarig, one of the co-founders, is the current CEO. It went public in 2019.
Industry? Its industry is e-commerce, which is growing rapidly, but also a subset of e-commerce, FBA (fulfillment by Amazon). 3rd-party sellers are expected to grow at a 16% CAGR on Amazon and reach over $500 billion in volume by 2025. There are currently 2.5 million active sellers on Amazon and a few companies like Thrasio entering the CPG roll-up space.
Management? Yaniv Sarig owns about 5% of the company (again, current CEO). Insiders own about 37% of Mohawk, and Avory & Co owns about 4% of the outstanding shares (congratulations Sean and team!).
Valuation? The enterprise value is $661 million, EV/sales of 4, unprofitable.
Earnings? $170 million in TTM sales, growing 57% YoY, 44% gross margins, getting close to cash flow break-even.
Balance Sheet? $37 million in cash, $26 million in debt (high-interest rates on the debt). Look for a capital raise of some sort with the current run-up in the stock price.
Potential Competitive Advantages? We had e-commerce expertise, data, and efficiencies with rolling-up brands.
Potential Future Growth Opportunities? Very simple here. Acquisitions, international push, and licensing AIMEE were our future growth opportunities.
Highlights? Management, gross margin expansion, increasing efficiency with their inventory.
Lowlights? Skepticism around the algorithm, high-interest rates on loans, and artificial growth from selling PPE during COVID-19.
Disclosure: The authors and podcast guests are not financial advisors. Brett Schafer and Ryan Henderson are portfolio managers at Arch Capital. Clients of Arch Capital may hold securities discussed on this podcast.