Topic: Last Friday, Marley Spoon's (MSG) close peer HelloFresh (HFG) released a weaker-than-expected outlook for FY24 and withdrew its FY25 (mid-term) targets on the back of particularly challenging end markets, triggering a 40-50% sell-off of the stock. Importantly, the weak end market sentiment should be fully reflected in our and market expectations for MSG.

What happened in detail: HFG had issued its midterm (FY25) targets of € 10bn in revenue and € 1bn in operating earnings during a time in which consumer sentiment generally and the meal kit market particularly were still upbeat with strong growth, apparently failing to temper consensus' expectations regarding the Group’s ability to deliver on these goals in the presently challenging macroeconomic environment. As a result, withdrawing the midterm targets altogether along with a muted FY24 guidance of € 7.75-8.20bn in revenue (2-8% yoy) and adj. EBITDA of € 350-400m (between -11% and -22% yoy) caught investors flat-footed. Investing heavily in performance marketing and brand maintenance, the company cited higher customer acquisition costs as the main driver for lower prospective adj. EBITDA along with increased expenses for production capacity and ramp-up of two newly added fulfilment centres.

What this means for MSG and our estimates: In our view, this is no incremental negative news for Marley Spoon as our current top and bottom line estimates already reflect a challenging end market environment. To a considerable extent, the negative expectations regarding the meal kit market in FY24 have already been priced in MSG’s stock after the company posted a revenue decline of -18% in FY23, leading investors to adjust their forward expectations accordingly.

We currently expect MSG’s organic sales to grow by 5.2% – and thus at the midpoint of HFG’s guided FY24 revenue growth – to reach € 346m, aided by a lower revenue base and a rectified voucher strategy which has already improved marketing efficiency and early cohort retention rates since Q4’23 and should likely help to lift subscriber quality, order frequency as well as basket size, going forward. In line with HFG’s statement regarding the beginning recovery of the meal kit market, active subscribers are seen to grow by 3% yoy to 195k after having dropped by 24% from 249k in FY22 to 189k in FY23.

Marley Spoon Group remains attractively priced trading at only 0.32x EV/Sales 2024e, leading us to reiterate our BUY rating with an unchanged PT of € 8.00 based on DCF.