Asos’s treatment on the stock market shows up investor short-termism
Bold leadership takes many forms: one such is at Asos, where boss Jose Antonio Ramos Calamonte has leant in to one of the more eye-catching methods of turning round a business – selling less, to fewer people.
The early indications are that the strategy is paying off, with profitability per order higher today than it was a year ago and fewer of what the firm refers to as its ‘least profitable’ customers, including those who treat buy now pay later contracts as more like guidance than loan arrangements and punters who return most of what they buy.
Calamonte’s team has upped the restrictions on buy now pay later and reduced targeted marketing spend on the heavy-returners. The combination has left the business in a much happier place than it was during its post-pandemic confusion.
Indeed if Calamonte pulls the transformation off, it could become a poster child for the correction we’re seeing across a raft of high-revenue, low-margin businesses. It’s become a truism that investors are looking more for profitability than growth in today’s high interest rate environment, but just because it’s common wisdom doesn’t mean it’s wrong.
So why, then, did the market respond by knocking down Asos’s shares yesterday? It’s never a good idea to second-guess equity markets too much. They remain the most efficient method yet derived of finding a price acceptable to all players in the market.
But looking across a raft of businesses on our listed markets which seem to have long-term growth prospects, you can understand why CEOs get frustrated that their valuations don’t seem to match up with earnings, trading at a discount compared to US peers.
Much has been made of the structural reforms required to get London listings moving again, opening up the IPO market once more. But – on more than Asos – there are questions about investor mindset too. Long-termism is in precious, short supply.