- Betterware sells direct to consumer household products in Mexico
- Trades at a modest 10x 2020 Ebitda, despite rapid growth
- Revenue for 2020 forecast at Ps7.25 billion ($364 million) with Ebitda of Ps2.1 billion ($105 million)
- Potential for data analytics business to expand in Latin America
- New website connects distributors and associates
- Board members include Executive Chairman Luis Campos, The Goldman Sachs Group, Inc. alumnus Martin Werner
- Shareholders include Campalier SA, Promotora Forteza SA
Social ties in Mexico are everything. And now investors can parlay this into profits through Betterware de Mexico SAB de CV (Nasdaq: BWMX), which sells household products focused on home organization, from furniture and electronics to personal care and other goods.
The Guadalajara-based company, founded in 1985, serves 3 million households in 800 communities in Mexico though its network of associates who use social media as a digital Tupperware Party, like the real ones popularized in the 1970s. While Tupperware hasn’t had much good news to speak of in recent years, Betterware is thriving in the middle of a pandemic, turning heads as a SaaS business.
The company became the first Mexican company directly listed on the Nasdaq exchange this year after merging with DD3 Acquisition Corp., a SPAC founded by The Goldman Sachs Group, Inc. veterans Martin Werner and Jorge Combe. Messrs. Werner and Combe led the Mexico and Latin America investment banking division at Goldman.
Betterware is penetrating new markets domestically and recently launched in Guatemala, using data analytics to replicate the Mexico model, and is targeting expansion to Colombia and Peru. It is constantly innovating and introducing new products, which are assembled in China. It also just rebuilt its website to connect consumers directly with 59,000 distributors and 1.2 million associates.
The secret weapon is that the company moved beyond its catalogs and understood that its app, launched six years ago, would be the glue that enabled its associates, gig-economy workers who use smartphones for everything, to reach friends and family and conduct business. This created a virtual Tupperware Party that has paid dividends. And now that everyone is staying home during the pandemic—business has skyrocketed.
The pandemic, like much of the world, will continue to dominate Mexico’s outlook this year and next. Bloomberg economists predict the country’s economy will contract by 8.7% in 2020 and partially recover in 2021 with growth of 4.6%. Betterware’s business, which has had a CAGR from 2003 to 2019 of 20%, saw massive gains in the third quarter, including a 200% YoY increase in revenue and a 234% YoY rise
in Ebitda. Management has been able to manage the increase in demand and maintain strong in-stock and on-time delivery levels and leverage operating expenses, and shares have risen 130% since August.
Even so, the shares are still priced at a friendly level. At just 10 times 2020 forecast Ebitda, there is lots of room to run.
Founder Luis Campos, now Chairman of the Board, and who used to be the Chairman of Tupperware Americas, has tailored the business model to Mexico’s unique geographic, demographic and economic dynamics. Mexico is the seventh-largest direct-to-consumer market in the world and the second in Latin America.
The country’s labor force is growing with higher female participation and favorable demographics. Indeed, many of Betterware’s associates are women who use the opportunity as an extra source of income. The business dovetails with the administration of President Andres Manuel Lopez Obrador’s focus on social programs providing supplemental funds to low-income consumers.
The company just opened a huge campus on the outskirts of Guadalajara, Mexico’s second-largest city, that will consolidate operations to one location. Many communities are small and scattered across the country, with very low retail penetration and difficult to fulfill last-mile logistics. Warehousing and distribution processes, optimization of space usage and inventory management efficiency is backed by technology.
As the business continues to expand beyond Mexico and into the rest of Latin America, investors must realize this is one fiesta they don’t want to miss.