1️⃣ Post COVID Impact 📉
With the first vaccines for COVID, The valuation of marketplace started to slip down. In 2021-2022, rising recession fears and interest rates led to reduced consumer spending, causing a significant drop in marketplace growth rates, multiples, and share prices.
2️⃣ Efficiency's Paramount Role 💡
The report emphasizes efficiency—melding profitability with growth—as crucial for higher valuations. It's not just about growth; it's about sustainable, profitable growth. Companies that score >40 on the Rule of 40 tend to outperform their peers. The Rule of 40 assumes that if you add up Revenue Growth % and EBITDA margin % you should get to 40. The closer you are the better price share growth and multiples.
3️⃣ Software's Revenue Boost 🖥️
Incorporating high-margin, recurring software products can be a game-changer, enhancing customer retention and expanding gross margins significantly. Instacart could not get to where it is today if not changing the model and pursuing new revenue steams (e.g. from subscription, enterprise platform and advertising fees primarily paid by brand partners). This revenue constituted for 29% of total in 2022... and you can imagine what margin does it have
4️⃣ Viral Growth's Necessity 📈
Embracing viral marketing and product-led growth can reduce dependency on expensive advertising, creating a more resilient and cost-effective business model. Battery Ventures follows here another Magic number. This time its a result of deduction Last 12 Months Sales & Marketing % from Revenue Growth. This metric is used to show how much growth is driven by organic – or efficient – growth vs. paid-for, marketing-driven growth. Duolingo and Pinduoduo has +27 and Wish staggering -103. You can imagine who is winning and who is loosing
5️⃣ AI's Transformative Edge 🤖
Integrating generative AI is critical for marketplace evolution, offering transformative changes and a competitive advantage in the market. AI automation will allow marketplace businesses to expand the pool of supply in unprecedented ways.
What do you think needs to happen for marketplaces to regain investor trust and valuations
