Data is the new oil, or so they say. If that is right, then Boohoo (LSE:BOO) has been striking new oil with a frequency that other companies can only envy.
It was the Economist magazine that first described data as the new oil. Ever since then, the phrase has gained popularity. Digital technologies lie behind the development and digital-related working practices are closely linked. Boohoo is a master of all.
The Boohoo share price has been on quite a ride. The shares are up 15% over the last month, by 80% over the last year and have increased 12-fold over the last five years.
Some question whether it can continue, whether Boohoo, with its whopping great P/E ratio of 75 is overpriced. This point of view gained more support when it emerged recently that Booboo, with net assets worth around £300m, had a higher market valuation than Marks and Spencer with net assets worth £2.6bn,
I don’t agree with this view though, because I don’t think the critics understand the value of data.
The importance of data
Let me illustrate the point. Marks and Spencer recently admitted it had bought too many tight fitting jeans and chinos. There is a fundamental problem here. The retailer, with its 900+ stores across the UK, has to buy goods at scale in order to supply those stores.
Boohoo also buys at scale but because it focuses on selling online, it is not so encumbered. It can match consumer demand more precisely, in part because it can apply lean stock control systems — the need to have full store shelves to entice customers in does not apply to it.
There is an even bigger reason why Boohoo is more likely to get its buying right.
It approach can be described by the mantra of test, repeat, fail fast and learn. Data is core to this.
The company is expanding and has practically doubled the size of its ‘C-Suite’ (individuals with the word chief in their job title) without becoming top-heavy.
Boohoo’s big opportunity lies overseas. It holds a tiny 0.4% market share of the US and EU online apparel market.
With brands such as Karen Millen, Nasty Gal, BoohooMAN, PrettyLittleThing, Coast, and MissPap as well as the Boohoo label itself, its opportunity to gather data, test data and draw insights from that data grows. Add to the mix its mastery of digital marketing, in particular social media, and its business model remains compelling.
One of the important points about data is that size really does matter. The optimal size of a data company is one that entails market monopoly. That’s why there is only one Facebook-type service. I am not saying Boohoo will grow to have a market monopoly, but I am saying that its optimal size is much greater than its current size, which is why I think the share price has got a lot more growth left in it.
