I have a terrible habit of buying gifts at the last minute. Once, I bought 20 gifts on Christmas Eve from a standing start. Never again.
I envy families with Kris Kringle or Secret Santa programs, where you buy only one gift for a relative, ideally with a bit more thought.
Instead, many families are burdened by an orgy of gift-giving that can be stressful, expensive, embarrassing and wasteful.
It’s not just Christmas. When my kids were younger, it seemed like every second weekend involved a birthday party and gift. It’s no wonder that Big W, The Reject Shop and other stores devote so much space to party decorations and gifts.
Thank heavens for gift cards. I bought a dozen JB Hi-Fi gift cards for nephews and nieces and other young relatives one Christmas. Barely any thought when into the purchase, but teenagers seem to prefer gift cards to spend online for games, music or movies.
Gift cards are a vast, growing business. The global gift card market will reach almost US$2.1 trillion by 2027, based on compound annual growth of about 17% from 2020 to 2027, according to Allied Market Research.
Several factors are driving this growth. Retailers and some fintech firms heavily promote gift cards. Next time you visit Woolies or Coles, look at how many gift cards are available. Gift cards are great for sales, brand awareness and customer convenience.
Corporates are increasing their use of gift cards, to reward customers or even employees in some instances. For example, a bank providing a $100 gift card if you open a credit card or an airline that incorporates gifts into its frequent-flyer programs.
The move towards a cashless society is also driving growth in gift cards. Rather than give a relative $50 in cash for their birthday, it’s easier and safer to buy a $50 gift card. Or better still, send a digital gift card to someone.
Then there’s the digitisation of business. Gift cards are a natural fit with younger consumers who buy more physical goods (clothes, shoes etc.) and digital goods (games) online. As e-commerce booms, it’s a no-brainer that digital gift cards will benefit.
Product innovation is another factor. Many people still buy plastic gift cards from stores, but with that comes the risk of card loss, fraud and theft. Australian companies, such as Prezzee, are developing a lucrative market in digital gift cards.
These cards could be highly disruptive. The potential is linking digital gift cards with software algorithms and retail product promotions.
Here, an algorithm identifies which gift cards suit a 15-year-old (is there anybody harder to buy for! ) based on their social media profile and online purchasing habits. And adds retail promotions to the digital gift card for products they might buy.
Linking digital gift cards with buy-now-pay-later providers (BNPL), a trend well underway, is another opportunity. I reckon some teenagers would love a $50 gift card that helps them buy $200 worth of clothes via a BNPL service (and pay off the rest later).
For all the potential, there are few gift-related companies on the ASX. Star gift companies, such as Prezzee or RedBalloon (a platform to gift experiences, such as hot air balloon flights) are privately owned. Here are 3 gift-related companies on ASX to consider:
1. Redbubble (RBL)
Many people use Redbubble, an online creative marketplace, to design gifts for themselves and friends. For example, a T-shirt with art from their favourite painter; a coffee mug with a brilliant illustration; or a face mask with a unique design.
Redbubble connects more than half a million independent artists with almost 7 million customers. The Melbourne-based company has become an e-commerce juggernaut.
Redbubble took a while to capture investor interest. After listing in May 2016 on the ASX through an IPO, the company’s $1.33 offered shares fell as low as 50 cents during last year’s share market sell off. They’ve since rocketed to $6.57.
I’m always wary of latching onto stocks after such substantial gains. But losing interest in a stock, based purely on past price performance, is dumb. Although gains will be slower from here, there’s a lot to like about Redbubble’s long-term prospects in the gifting market.
Redbubble has traits of exceptional companies. It is genuinely global with most of its revenue earned offshore, scalable and has high profit margins.
The business looks like it has low barriers to entry. But creating a marketplace with hundreds of thousands of artists and millions of customers worldwide is hard to replicate.
I guess consumers who want to support independent artists are likelier to use a smaller gift platform than choose a similar service via Amazon.
Like all good ideas, Redbubble solves multiple problems: extra income for artists, and unique products for consumers. The longer-term trend is younger consumers moving away from mass-produced products to niche goods they co-design.
Prime Value Asset Management’s Richard Ivers, one of this market’s best small-cap judges, recently told me that Redbubble’s forecast earnings growth could justify a higher valuation. He had the stock on an FY22 Price Earnings (PE) multiple of about 25 times (at $6.75).
That’s attractive for an online retailer expanding in a global market, and that benefits from higher spending on gifts for family, friends and oneself.
Chart 1: Redbubble
Source: ASX
2. EML Payments (EML)
I wrote about EML Payments in the Switzer Report in December 2020 (“Cashing in on a cashless society”) at $3.75 a share. EML rallied to $$4.41 and now trades at $4.03.
To recap, EML Payments offers non-reloadable gift cards, virtual cards, reloadable gift cards, mobile merchant rewards and mobile payment services. Its Gifts and Incentive (G&I) division is the largest part of the business, with $68.2 million in revenue in FY20.
The company expects continued growth as digital gift cards increase, and more people move away from physical gift cards.
EML operates in 28 countries. The US prepaid card market alone was worth almost US$400 billion last year. The European Union prepaid card market will be worth EU$371 billion by the end of 2023.
EML will make a more significant push into digital cards. Its Virtual Accounts division should also grow faster, off a lower base, as buy-now-pay-later providers use its services.
The well-run EML is trading far below its 52-week high of $5.70, achieved just before the market crash in March 2020.
Since then, the company has made good progress, and COVID-19 should quicken the move towards digital gift cards and cashless payments – trends that bode well for EML.
Chart 2: EML Payments
Source: ASX
3. Cashrewards (CRW)
The emerging fintech is in the incentives segment of the gifting market. Essentially a cashback loyalty program, Cashrewards connects companies and customers, taking a small fee along the way. The “gift” consumers receive is a tiny return of cash from purchases.
The more they shop with a retailer in the Cashrewards programs, the more cash they get back (usually a few percentage points of the transaction). It’s a bit like a frequent flyer program, except that consumers get cash back on their card, not points.
Cashrewards floated on ASX in December 2020 at $1.73 a share. After hitting $2.20 soon after listing, the shares trade at $1.69. I suspect the stock was a bit overlooked during the end-of-year float rush and as IPO fatigue set in among investors.
At its listing, Cashrewards connected more than 800,000 consumers with 1,500 merchants. It’s a valuable, fast-growing loyalty ecosystem as more people join the program, which in turn attracts more merchants and so on. That means Cashrewards clips a lot more tickets as it connects extra consumers and companies.
Loyalty incentive programs can create significant value. Qantas has shown how billion-dollar businesses can be built around points programs that influence customer behaviour (its frequent flyer points are like a de facto second Australian currency).
ANZ Bank in December announced a 19% stake in Cashrewards that was acquired during the IPO – another sign the big banks are upping their fintech bets. In January, Cashrewards appointed ANZ nominee Rob Goudswaard as a non-executive director.
As a newly listed microcap, Cashrewards suits experienced investors who are comfortable with emerging companies. Risks aside, there’s a lot to like about Cashrewards as more people and merchants using its service, boosting revenue growth.
Longer-term, I can see other merchants using cashback loyalty programs to attract customers. Rebating a small part of a transaction back to a customer has marketing appeal and provides valuable data. And in the eyes of some customers, is another form of a gift, even though they ultimately pay for rebates, points and other incentives through higher prices.
Chart 3: Cashrewards
Source: ASX
Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. It has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article consider its appropriateness and accuracy, regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at 3 February 2021.