The company has experienced remarkable growth since 2014, going from HK$79 million to HK$672 million, a 56% compounded annual growth rate. Gross profit margin and operating margins have declined, as a larger share of revenue is represented by lower margin e-commerce activities, but operating income still grew by a CAGR of 42% over the 5-year period.
Approximately 33% of revenue comes from United States, 30% is from China and the rest from other countries around the world. The company has 21 million fans across WeChat, Instagram, Facebook, Weibo and other social media. Their sites attract 12 million unique visitors per month with over 70 million pageviews.
Hypebeast.com was launched by Kevin Ma in 2005 as a side project, as he had intense passion for sneakers and fashion and wanted to put some information out there. Here are several interviews with the founder:
He has stated several times that he has a long-term view and wants to build a durable and sustainable business. They usually try many different things on a small scale, keep what works and shut down businesses that don't. That's how they came up with the creative agency idea and e-commerce site. The growth in e-commerce was initially slow, as they signed only a few dozen brands, but once they learned the game the business took off and now they offer merchandise from more than 300 selected brands.
Many media companies have tried to establish e-commerce sites but have failed in recent years (Conde Nast is an example). Hypebeast has done a very good job at monetizing their pageviews and driving users to HBX.com. Total e-commerce revenues for 2019 were HK$238 million or US$30 million, which is a drop in the ocean of online retail sales. There is huge potential for expansion.
The company has launched creative agency services in China in March 2019, and is planning to open a physical fashion store in New York in 2020 (they already have one store in Hong Kong). Also e-commerce activities are growing at a brisk pace and the company wants to target Latin America next.
I think the founder and Hypebeast team have done a tremendous job and built a really enviable business and they will probably be a much larger company a few years from now.
- Other retail giants like Amazon, JD, Pinduoduo or Alibaba could start attacking their niche and drive margins down
- Trade war between US and China is still ongoing, tariffs on clothes imported into US might be increased at any point
- Their fashion sites might have a limited audience of streetwear enthusiasts, which will make it harder to attract mainstream fashion visitors or shoppers
- Creative agency business is likely going to be lumpy, they might get larger or smaller contracts across several years
- Future growth depends mainly on launching new online media platforms and driving more visitors to their sites
I like the business and the founder seems to be very passionate about it, he owns 75% of the company and bought 2 million shares recently on the open market. They are growing fast and while the valuation multiples seem a bit higher, if they deliver the stock will look like a huge bargain in a few years. They can grow in many areas including offline shops, e-commerce, creative agency, advertising and by launching new sites. I have put 6% of my portfolio in Hypebeast a price of 0.99 and I'm using a stop loss as always.