Zalando turns from green to red after publishing its results

Zalando started the session with a bang, gaining 5% after the publication of its Q2 results. But this enthusiasm quickly faded away, with the stock then falling over 10%.

In a highly fragmented market, the group has been battered in recent years. After rapid growth at the end of the decade, the European e-commerce giant has suffered from the rise of Amazon, the advent of Vinted and then the breakthrough of Shein on the European market.

Market shares of major online fashion players in Europe (Source: Bloomberg)

Zalando is nevertheless aiming for a 13% market share by the end of 2025, a target supported by the acquisition of the German platform AboutYou.

Over the quarter, gross merchandise volume rose 5% to €4.1bn, while revenue increased 7.3% to €2.8bn. Active customers are more numerous (+6.1%), spend more (+1.2% of the average basket) and more often, although growth remains moderate.

AboutYou, a costly gamble

In March, analysts at MarketScreener mentioned a glass ceiling for the platform's growth.

To kick-start the machine, Zalando acquired AboutYou, a national competitor focused on a younger customer base. The €1.13bn deal was financed by a healthy cash reserve of over €2bn. The funds are there, but the offer remains aggressive, concluding with a premium of 107% on the average share price over the three months prior to the transaction, according to Bloomberg. This is a high price for a company that is not expected to break even before 2026. The transaction will not be accretive anytime soon, with the full effect expected in 2028.

With AboutYou included in its forecasts, Zalando is expecting a 14%-17% increase in revenue in 2025. However, for Zalando alone, this means targeting 4%-7% growth, compared with the 4%-9% announced earlier. The group also anticipates a 12%-15% increase in the volume of goods sold.

The key to understanding the performance at the start of trading lies in the forecasts published by Zalando. Barely integrated, Zalando has published its growth ambitions with AboutYou for the first time. It is important to understand that investors had certainly not heard of double-digit growth and market share gains in recent years. This brought back memories of the stock's heyday, but the return to reality was swift.

Analysts point to higher discounts weighing on margins, inventories that remain high and more cautious forecasts. This is especially true given that high inventories will certainly not help improve margins.

The prospects of double-digit growth briefly attracted investors, before they returned to a more measured view.