Red flags

Dishonest management

Management incentivised to increase the share price not the business value

They're not a growth company, they're a roll-up

Management

Constant immaterial announcements were made (I haven't looked too closely lately) several times per week. One or 2 small customer acquisitions, CEO doing a podcast - you don't need announcements for these things. It's purely the CEO hyping up the company to cash in on his performance rights (more on this below).

CEO calls the company a SaaS company. Page 6 of the annual report refers to WineDepot, DW8s main revenue stream as SaaS. How much revenue was generated through SaaS sales? Answer zero (thanks reddogaustin). They're a logistics company (thanks TechBunny).

Revenue growth is not organic. If the business model/product is so great why do they have to acquire other companies for growth?

Company pays advertisers to promote the company. As a SH I wouldn't want my money going towards pumping the SP, I'd want it going towards improving the business.

Why is the CEO doing this? As Charlie Munger would say look at the incentives.

Page 9 of the 2020 AR shows the terms to the CEOs performance rights. The first condition is fairly easy to achieve and the second is not one that aligns to long-term shareholders. For 50M perf rights he needs the share price to hit $0.015 for 3 months and for an additional 50 perf rights he needs it to hit $0.25 and stay there for 3 months.

That explains why he's pumping the company and releasing immaterial ASX announcements constantly.

Additionally, you can see a statement was released claiming WineDepot shipped almost 25,000 cases in December up over %1,000 month on month. The problem is it's actually year on year and this was accomplished (if my memory is correct) through an acquisition - something they fail to highlight.

Josh Baker pointed out the first point in the following :

https://twitter.com/.../status/1348400587541409792/photo/1

Zach Abraham of Bulwark Capital Management said it best:

"The minute I hear executives focused on stock price my ears always perk up. You can't serve two masters. Are you focused on your business or are you focused on the price of the equity?"

Looking at page 49 of the 2019 Annual Report - 20 Largest Shareholders

If you follow the less reputable FB stock tipping pages you'll see at least one familiar name who, along with his friends, shamelessly plugged this company for months. This was at a time when their shares/options were trading at $0.005 per share. Unfortunately, naive retail investors buying on the hype of FB groups are left holding the bag.

Thanks to TechBunny, Reddogaustin and Josh Baker for their insights that contributed to this post.

Dearest TechBunny, I thought about rhyme ... and then the fear set in. A haiku at best maybe hahaha.

Page 6 of the Annual Report, refers to WineDepot, DW8s main revenue stream as SaaS. Deep dive into the Notes 8 and 9 of the report and there are no software sales or software licencing as part of the revenue streams.

Outcome. RhymeBunny is correct, and this Doggo is wrong - The board are being liberal (ie misleading) with the term SaaS as it is sexy and attracts cash. Another reason this stock is caveat emptor.

[edited after forum discussion and further evaluation]

Apologies to fine fellow reddo

But I don't think this is SaaS, On No!

Logistics is part of its wine selling game

and facebook pumpers of this stock, have no shame!

The AFR has an article today about DW8 doing another acquisition, and funding it via CR and share issue.

DW8 is a very young company, having started from seed money in May 2019. Having done 4x CR, and this being the third acquisition since seeding, DW8 continues to exhibit the uncertainty of a young SaaS company in a retail industry (distributing wine and alcoholic beverages).

Will it go on to be a success story? Or continue to raise money from investors on continuing promises?

Note to future-self – Remember that I like SaaS, but avoid competitive retail investing or ventures that are easy to copy. This one is not for me.

HIGHLIGHTS:

•  WINEDEPOT ships 25,311 cases in March up over 550% MoM
•  WINEDEPOT processes over 12,272 orders, up 504% on same period last year
•  WINEDEPOT signs up another 27 suppliers
•  WINEDEPOT appoints James Munn as COO

Disc: I hold

Enjoying the ride....long may it continue

WINEDEPOT PARTNERS WITH LEADING FINE WINE & BEVERAGE DISTRIBUTOR TO LAUNCH MARKETPLACE

HIGHLIGHTS:

•  WINEDEPOT forms Foundation Agreement with Bibendum Wine Co.
•  Under the Agreement Bibendum will offer its products via WINEDEPOT MARKET and introduce thousands of trade buyers to WINEDEPOT
•  WINEDEPOT will support the partnership by releasing incentives to trade buyers
•  Bibendum will bolster WINEDEPOT MARKET’s product range by adding: o a broad range of local and imported wine brands o hundreds of unique products o a variety of craft spirits
•  WINEDEPOT leverages technology to onboard Bibendum buyers
•  WINEDEPOT to roll out dedicated delivery fleet
•  Bibendum signs up to use WINEDEPOT’s logistics services as part of its third-party storage and fulfilment network
• DISC: I hold

WINEDEPOT SIGNS MEMORANDUM OF UNDERSTANDING FOR PARTNERSHIP WITH EBAY AUSTRALIA’S NUMBER ONE SHOPPING SITE

Digital Wine Ventures Limited ("Digital Wine" or "the Company"), is pleased to announce that WINEDEPOT has entered into a memorandum of understanding ("MoU") with eBay, Australia’s number one online shopping site.1

Under the MoU, WINEDEPOT and eBay will negotiate the terms of a partnership to provide Australian wineries with the ability to list their products directly on eBay without having to set up an account.

The partnership would enable products to be automatically uploaded via a new part of WINEDEPOT’s integrated trading and logistics platform called DIRECT, that allows suppliers to sell to customers across a broad range of direct-to-consumer sales channels. Orders generated from eBay will be picked, packed and delivered by WINEDEPOT, allowing eBay's 12 million unique monthly visitors2 to purchase from multiple suppliers at the same time, while taking advantage of same and next day delivery services in locations where those services are available.

1 Source: Similarweb.com, March 2021

2 Source: Similarweb.com, March 2021

DISC~ Small holding

HIGHLIGHTS:

~ WINEDEPOT makes a strong start to 2021 shipping 15,764 cases in January

~ WINEDEPOT processes over 7,408 orders, up 605% on same period last year

~ WINEDEPOT push into New Zealand gathers momentum

~ WINEDEPOT releases rates for Direct-to-Trade Marketplace

Digital Wine Ventures Financial results for the year ended 30 June 2020

Gross Profit $17,680 + Other income = $73,626

Cash $585,873
Debt $0

Cash burn = $1,867,166

With one capital raise already completed this year and the recent Wine Delivery acquisition and subsequent payment of $600,000 cash + script it appears another capital raise is imminent for DW8 to survive.

 

Leading Indicators

Appears to be a trend in “marketing” and “digital marketing plan” in relation to search terms for “wine” – May suggest suppliers (wineries) are looking for better ways to market their product during recent bushfires and Covid. Could also be irrelevant.

“Wine delivery” “Online wine” and “Alcohol delivery” huge positive trends during March.

Fundamentals

MC
$12.739M

Shares Outstanding
1.16Billion

EV
$9.99M

Income Statement

Margins are not high (16.4%). As company is highly scalable, vertically integrated, and leveraging 4PL margins should increase as they onboard more customers. They’re also waiving platform fees currently to help struggling wineries as well as onboarding new customers. However, it’s the B2B Marketplace to launch 2nd half of 2020 that should drive profits and have higher margins.

Balance Sheet

Strong, even if you ignore the extra cash from the capital raise

Current ratio: 3.6* this would be est. 0.6 without the $1.56M from the recent CR

D/E: company has zero debt

Cash Flow Statement

Most recent Quarterly - they only have 1.7 Qs of cash left.  Management expects this to extend out past 2 Q’s with some streamlining.

Competitors

Winedirect.com.au – uses Aus Post. Delivery can take up to 10 working days, but this time frame can be shorter depending on the overall pressure on the delivery network at that particular time, your distance from major centres and product availability.

Freight is free on any order of 12 bottles or more, $7.50 for anything less than 1… anywhere in the country.

Vinomofo - We charge a flat $9 per order, but shipping is FREE when you order 3 or more cases in the one order. They use Aus Post as well.

Delivery times: Vic up to 2-3 days. NSW up to 3-4 days. SA up to 2-4 days. TAS 3-4 to 12-16 days. ACT up to 3 days. QLD 2-4, 3-5 up to 5-13 days for far north. WA 4-5 days up to a week. NT 4-6 days up to 2 weeks for remote.

Good Pair Days – deliveries are a bit delayed with recent surge in demand. Syd, Mel, Bris – 1-2 days, Perth 5-7 days, Adelaide 2-5 days, Rural – longer. Shipping is free for all orders that have 4 bottles or more. Otherwise we charge a flat rate rate of $9.

Tipple – charge flat rate $7.95/order with min $30 order. Deliver to 120 suburbs in Melbourne and Sydney.

Astrovino – standard courier delivery rate $12.50, express $22, same day/next day local delivery (Melbourne only) $20. Bris and Adelaide 2-4 days, Melbourne and Sydney 1-3 days, Perth and regional 5-7 days with standard service via courier.

Jimmy Brings – deliver to Sydney, Melbourne, Canberra, Brisbane, Adelaide, Sunshine Coast, Gold Coast and Perth. Charge $5 plus a mark-up (not confirmed with website).

Handpicked wines - $10 delivery to metro areas in 2-5 business days, regional up to 14 days – Aus wide. Express same day only available to Sydney metro for $15.

Naked wines – 2-3 days Syd, Mel, Perth metro, 2-4 days Bris, Can, Adelaide. Freight costs vary.

Amazon – B2C free delivery for orders over $39 with Amazon Prime subscription ($6.99/mth)

Compared to:

Wine Depot – metro Syd, Bri, Mlb, Adl, Pth - $7.95/case. Non metro $10.95 and up. Same day service to metro areas.

Management

Early 2019 – Dean Taylor appointed CEO

Mr Taylor brings with him a wealth of experience and contacts in the wine industry, having been named one of the 50 Stars of Wine and Top 50 People in Ecommerce and has seven successful online wine ventures. With a career shift in his early 30’s he launched his first business Wine Ark – an off-site climate-controlled storage for wine collectors. This was eventually sold for $8.5M.

Further leveraging tech and his love of wine he established Wine Exchange, the Cellar Club, as well as Crackawines.com.au – an online marketplace that allows wineries to sell direct-to-customer.

After a busy 10 years regularly working 7 days a week, he accepted an offer to sell his 3 businesses.

He states all his wine ventures have been disruptive with a strong tech focus.

His insight into running a successful ecommerce business is to be patient and to surround yourself with great people with skills and experience you don’t have. Don’t be afraid to let average people go to make room for great people, create a workplace with a great culture and always make the happiness of your customers your number one priority. He stresses the importance of technology in today’s business world stating, “if you’re not a technology company, you are about to be disrupted by one.”

With regards to the team around him, he’s done just this, clearing out the old Dawine BOD and appointing a strong team.

Sep 2019 – appoint James Walker – Non-Executive Director

Mr. Walker has a track record in successfully commercialising cutting-edge technology in emerging markets. He has headed a number of Australian and international technology companies, including as Chief Executive Officer of DroneShield, Chief Financial Officer of Seeing Machines and held leadership positions in a number of growth companies. Mr. Walker is currently the Non-Executive Chairman of thedocyard, a Non-Executive Director at Bluglass and the Chief Financial Officer of Douugh, an AI based fintech. His strong finance, strategic management, M&A and IPO experience will add significant value to the Digital Wine Ventures Board.

Nov 2019 hired Paul Evans – Non-Executive Chairman

Paul has 27 years of private equity experience with 3i in the United Kingdom and with AMP, Gresham and Ironbridge in Australia. After six years as a Director of AMP Private Equity, where he led several of Australia's leading management buyouts, Paul left to join Gresham in 2001 as a Director. There he led the A$252 million buyout of car parts group Repco in 2001.

In 2003 Paul became one of the Founding Partners of Ironbridge and has represented Ironbridge Funds on the Boards of Barbeques Galore, iNova Pharmaceuticals and Amart Furniture.

Paul obtained a first-class Honours degree in Modern Languages from Cambridge University. He is also a keen wine collector and the current Chairman of the Advsory Board at Elderton Wines.

Feb 2020 hired Matthew Johnson – Finance Manager - promoted to CFO June 2020

Over 25 years of accounting and financial management experience in a range of local and international businesses of various scales. Including PBL, British Telecom, Westfield, George Patts, Fairfax and DMG World Media. Over the last 5 years Matt’s focus has been mostly helping fast growing SaaS and Fintech businesses like WINEDEPOT including Maestrano, Inlogik and GeoOP (NZA:GEO).

March 2020 hired Steven Alexander - COO

Two decades of operational experience within the logistics and supply chain industry.

Steven has a track record of uncovering efficiency improvements, reducing operating costs, and leveraging Lean Six Sigma practices and technology to generate long-term competitiveness and simplifying complex supply chains.

Steven has held key strategic roles (General Manager of Operations) with organizations like Fastway, a globally franchised courier company. Previously he held a position with Damco (part of the A.P Moller - Maersk Group) a global logistics company that has a presence in 100 plus countries, over 11,000 staff and turns over in excess of 2.5 billion US dollars. His role there was to build and develop an operational structure to support the Australian and New Zealand business units managing a range of high-profile customers including Zara, Country Road, Bardot, Nike and Consolidated Brands.

Prior to that, he was a General Operations Manager for Americold LLC which owns and operates over 185 temperature-controlled warehouses around the world. One of his key projects there was managing the successful relocation and consolidation of the Woolworths business into one super HUB (Distribution Centre).

Steven holds a Bachelor of Business (Logistics and Supply Chain Management), a Diploma in Logistics Management and is currently completing his Masters of Business Law.

Business Model

Problem:

There are 2500+ wineries in Aus and over 2000 distributors making it highly fragmented and extremely erosive on supplier’s margins. Distributors margin = 35% + marketing support. Retailers margin = 35 – 45% margin + marketing support

There is no one technology that everyone uses.

Supply change hasn’t changed in 30+ years. It’s incapable of serving fasting growing markets – direct to consumer and online markets. Modern consumer expects delivery in 2 days and in Aus this is next to impossible.

Solution:

Technology that connects the industry; the goal being that everyone in the industry has some contact with it. Use that connection to unlock the value and improve delivery time and reduce human resources in the supply chain.

Platform – 3 key components:

Each can function alone but are all vertically integrated.

Order management system – SaaS. Cloud-based application that connects the various stakeholders within the industry allowing users to consolidate and manage orders generated across all their sales channels - websites, cellar doors, retail channels, wholesale channels, export channels. This is done all in one place giving a holistic view of their inventory holdings regardless of whether they are in their warehouses, 3rd party warehouses or on a ship to China.

These are integrated with key technologies used within the industry including ecommerce solutions but also specialised software used by wineries to manage their cellar doors and production.

Logistics solution – the only way to solve delivery within 2 days was to actually hold inventory locally and being able to pick and pack and deliver from those locations. Digital Wine Ventures have a network of depots around the country where they hold inventory on consignment on behalf of their customers. As orders come through they get routed to the nearest depot, pick, packed and delivered.

The best part is they employ 4PL meaning they don’t operate the warehouses – they use 3rd party warehouses. They use DW8 technology, systems and processes and customers have no idea that they are using a range of different suppliers for this. It becomes a simple singular experience and very simple for them to use.

This has been accomplished through a partnership with Australia Post providing access to 57,000 sqm of storage and >100 warehouse staff on a variable cost base, scaling up and down as required. The benefits are reduced capital expenditure and execution risk.

Their orders flow directly into APs fulfillment system – allowing same and next day delivery in Adelaide, Brisbane, Sydney, Melbourne and Perth. There is no other business in Australia that can do this in the amount of markets they can, some can do it in Sydney and Melbourne but they are the only ones who can do it nationally.

AP was deemed an essential service, so they’ve been able to maintain all of their operations.

B2B marketplace – goes live later this year and is what this business is all about. Marketplace allows suppliers to sell directly to thousands of trade buyers, providing a low-cost route to access and service the wholesale market without a distributor.

This helps suppliers

•Build brand awareness

•Generate incremental sales

•Provide customers an order portal

•Reduce paperwork and administration

Current wholesale wine market has ~$2.2B of trade that goes through the market every year – going through distributors who typically take 35%. This is an enormous amount of lost profit. Digital Wine Ventures is cutting out middleman and enabling a higher margin for suppliers all while allowing suppliers to maintain direct relationships with buyers. Originally, they wouldn’t be aware of who’s stocking their product. This will generate incremental sales and reduces administration cost for them.

Revenue Model – 3 Core Revenue Streams

Platform fees: SaaS subscriptions, support, and data. They have currently waived these fees to increase their customer base as well as offer support in these difficult times to wineries. They will increase those fees over time which will become substantial recurring revenue.

Trading fees: charge a % of overall transaction. From B2B marketplace (later this year) – Dean Taylor compared it to what online share trading did for broking industry – creating an online platform that allows efficient trade of product without layers of middlemen.

Fulfillment fees: storage, freight, surcharges.

Annual release pattern of the wine industry provides them access to recurring revenue. Over time they expect trading fees on their B2B Marketplace to become their largest and most profitable revenue stream. This is now their primary focus.

For a list of their fees: https://winedepot.com/rate-card/

Addressable market (Australia)

SaaS Income

Wineries – 2,500+

Distributors – 2,000+

Licenced venues – 60,000+

Trading Income:

Wholesale wine market - $2.2B pa DW8 believe they will grow this by providing easy ramp for wineries

Fulfillment Income

Wholesale – 70M cases pa

Direct-to-consumer – 12M cases pa

Online retailers – 10M cases pa

Global wine market is expected to reach USD 423.6B by 2023

Once proven in Australia, Winedepot plans to progressively expand its unique trading and fulfillment model into other key wine markets.

China is Australia’s largest wine export market at $1.2B pa

Digital Wine Ventures has established the corporate, legal, financial and IT structures required to operate their trading and distribution platform in mainland China, already having a small office in Shanghai.

Partnerships with Australia Post provides access to 15 distribution centres in China servicing Tier 1 and 2 cities, which could be used to expand their depot network.

They are also providing fulfillment for olive oil and vinegar for existing customers.

Key Strengths

Green field “tech” opportunity

Recurring revenue streams

No inventory risk (none of the product is under their ownership)

4PL logistics model – meaning they’re not investing in any of that “old world” infrastructure

Totally agnostic – they don’t work with any wine partners meaning they can work with Coles, Woolies, Metcash inclusively.

Highly experienced team

History

Early 2019

DW8 – Dawine acquires WineDepot – a B2B electronic marketplace for the wine industry. Up until this point Dawine was burning cash and not having success. It appears they were focused on the Chinese market while not accomplishing much.

As part of acquisition Dean Taylor, founder and owner of wine depot, is appointed CEO and executive director. In addition, Mr Taylor is issued 83,333,333 fully paid ordinary shares for the acquisition of 100% of WineDepot. This amounts to roughly $500,000. In addition, Mr Taylor has 50M Class A performance rights and another 50M Class B. If/when he achieves these his total holding will be brought up by ~10% to roughly 18% in the company.

Class A conditions: company generates at least $1.25M revenue over any consecutive 3 Qs (equating to AR of at least $5M) AND VWAP of company’s shares over any consecutive 3-month period of at least $0.015. Expires 3 years after his start of employment.
Class B conditions: company generates at least $2M revenue over any consecutive 3 Qs (equating to AR of at least $8M) AND VWAP of company’s shares over any consecutive 3 month period of at least $0.025. Expires 3 years after his start of employment.

With 100% share-based compensation for Winedepot, his motivation is to see Digital Wine Ventures succeed and his incentives are adequately aligned with shareholders. For comparison, most recent Q revenue is $183,000.

What They Do

WINEDEPOT is a cloud-based technology platform that has been designed to connect wine industry stakeholders to reduce the time, margin and capital wasted in the existing supply chain. Catering for producers, distributors, importers and retailers of all sizes, the vertically integrated trading, order management and logistics platform provides an end-to-end supply chain solution capable of servicing a wide variety of sales channels including the rapidly growing direct-to-consumer and online market segments. WINEDEPOT plans to prove out its integrated wine trading and smart logistics platform in Australia before expanding its depot network into other key markets for Australian wine such as China, USA, UK, Canada, Hong Kong, Singapore and New Zealand.

Recognising the potential of Australia's fastest growing wine sales channel - the $1 billion online direct-to-consumer market - WINEDEPOT combines technology, storage, logistics, wholesaling and retailing together via one platform, to leverage this opportunity and bring the thousands of existing wine sales platforms and distributors together in one unified platform that not only meets but exceeds consumer expectations.

With depots in each state of Australia, they’re able to connect boutique Tasmanian wines with customers across the country in record speed. Once their presence and operation have been well cemented locally, they plan to look at how this solution can be applied to global markets.

Digital Wine Ventures(ASX DW8) is an Australian Publicly listed company that aims to identify and invest in early stage technology-driven ventures that have the potential to disrupt and digitally transform segments within the global beverage market and support them by providing access to capital, expertise and share services.

The company streamlines Australia's highly fragmented wine industry which to date has been inefficient and fails to meet modern consumers expectations.

Allows sellers to expand their reach internationally and domestically, by providing access to inventory from thousands of suppliers and enabling drop ship orders directly to consumers from strategically placed depots. For producers, this smart logistics solution dramatically reduces delivery costs and shipping times, but also simplifies administration and increases sales opportunities.

Over the past 10 years there has been an enormous shift in the way consumers buy wine. Supply chains, dominated by distributors with high-cost warehouses, haven't adapted to provide the range of wines people want, the prices or the speed of delivery.

They're harnessing the full potential of technology to eliminate all the double, triple and sometimes quadruple handling that goes on behind the scenes to get a single order delivered, whilst also providing a faster and cheaper delivery, wider consumer choices and the ability to easily purchase wine online by the bottle rather than case.