Enjoy’s recent investor update was evidence the company is progressing more quickly than we anticipated on its goal of becoming the Smart Last Mile solution for premium brands, including Apple and AT&T. Today, the last mile is confusing for consumers and brands. Enjoy makes it better with faster delivery, higher engagement through setup, along with an in-home shopping experience. The company expects to go public via a Marquee Raine SPAC (ticker: MRAC) by year-end. Loup’s an investor in Enjoy.
What is Smart Last Mile?
It’s best to start by outlining what the current “dumb” last mile looks like for consumers and brands. When checking out online, consumers typically have three delivery options: in-store pickup, same day for a fee, or 1-4 days for free. A Smart Last Mile will eventually offer in-store pick up, 1-hour delivery, or set up with an expert. For brands, the delivery options are divided between several service providers, including Postmates, FedEx, and UPS.
The benefits
Consumers typically approach a purchase with one of two mindsets: 1) I know what I want and I want it fast, and 2) I generally know what I want and am open to hearing about other products.
- I know what I want and I want it fast. Over the next year, Enjoy will quicken delivery times to under one hour through its mobile warehouses. For example, an Enjoy delivery van with inventory will be on the road, connected directly to a brand’s point-of-sale system. An order comes in for a delivery location 15 minutes from the mobile warehouse location. The order is routed to and fulfilled by Enjoy within the hour. Postmates can’t achieve sub-one-hour delivery windows given the drivers don’t hold inventory. For consumers, ordering online with delivery in an hour is ecommerce nirvana. For brands, it means increased conversion given the enticing delivery speeds.
- I generally know what I want and am open to hearing about other products. This is experiential retail, which online ordering with delivery to the door does not satisfy. For the consumer, Enjoy gives an option to bring experiential retail to the home through an expert that delivers the product, sets up the device, suggests accessories, and helps with any technical questions. The shopping experience takes about 30 minutes — significantly less than driving to the store for a similar purchase. In turn, brands see better customer engagement, increasing customer satisfaction, higher average order values through attaching accessories and services (adding 5G, Apple One bundle), and ultimately, increasing customer lifetime values.
Timing
Enjoy expects to cover all of its existing ~50 US markets with Smart Last Mile service this holiday season. For next year, the company projects to add 45 new markets in North America. By the end of 2022, Enjoy excepts to cover 235 million addressable customers globally.
Apple partnership expands
Enjoy now works with Apple in 14 US markets, up from 8 in mid-August and 3 earlier in the year. They now cover 67 million addressable customers. We see the expansion of the Apple relationship as the second most important development in the past month, after the launch of Smart Last Mile. We believe if Enjoy executes, it has the chance to be a core element in Apple’s global, direct strategy, complementing the company’s pillars around online and brick and mortar. We’ve researched Apple for two decades and know there are no guarantees when it comes to long-term partners. For Enjoy to be successful, they’ll have to earn the right to serve Apple customers one market, one visit at a time. Conservatively, we estimate Apple represents a $4B plus opportunity for Enjoy.
Valuation
The SPAC investor headwind is having a 10% impact on Enjoy’s near-term valuation. Despite reiterating full year 2021 revenue and earnings guidance, the company and Marquee Raine have lowered the approximate pro forma enterprise value by 10%, from $1.18B to $1.06B. This change makes sense given investors’ recent concerns around the unpredictable trading of SPACs. Our view on long-term valuation is unchanged. In our opinion, fair valuation today should apply a 5.6x revenue multiple on 2022 sales estimates, which yields a $1.4B valuation, versus Enjoy’s current $1.06B valuation. Looking out two years from now, valuation will likely be based on 2024 revenue estimates, which should be around $700m. Applying a 4x revenue multiple to 2024 sales, which is more conservative than the current comp group’s multiple, yields a $2.8B valuation.