The Naked Wines (LSE: WINE) share price has tripled over the course of the pandemic. From a low of 224p in May 2020, it rose all the way to a high of 858p in August 2021. This made the company seem like a very exciting prospect for my portfolio. But this surge has brought with it a lot of volatility. The price has bounced rapidly between the high 600s and low 800s over the past few months. Is this just a temporary bump before pushing on again to new all-time highs?
What is ‘Naked Wines’?
Naked Wines is an online retailer specialising in the sale of wines and spirits. Its stated goal is to provide quality wines at low prices by acting as a direct channel between independent winemakers and customers.
What makes Naked Wines unique is its ‘Angels’ system. Angels are customers who choose to pay a subscription fee of £20 each month. This money is then used by Naked Wines to help fund independent winemakers around the world. In return for this subscription, customers gain access to a slew of discounts, ranging from £2-£6 per bottle, as well as exclusive wines unavailable in stores or to non-Angel customers. The subscription fee can also be redeemed as credit when making purchases later on.
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But with all of these cost cutting measures in place, I wondered if Naked Wines was able to make any money at all.
Revenue and profits
Before the pandemic, Naked Wines was struggling financially. In 2019, the company lost a staggering £9.4m, prompting it to sell off two of its subsidiaries and become a completely online business. This transition was completed in March 2020 and could not have happened at a better time.
Following international lockdowns, Naked Wines went on bring in £202.9m in revenue for the 2020 fiscal year, an increase of 13.7% over the previous. It seems people were very happy to buy wine online while they were furloughed at home.
This growth trend has continued through 2021. The company increased revenue by 68%. That’s £340.2m so far this year. I believe this leap can be attributed to expansion into the US market.
The number of Angels has also increased by 53%, which is good for long-term stability.
Reservations
If the company is able to maintain or expand its customer base, I think the share price still has a lot of room to grow. However, I am hesitant to add Naked Wines to my portfolio today for one reason. Economic uncertainty.
I’m reading a lot about the UK possibly entering into recession. If this turns out to be true, we may now see a long period where households are forced to cut unessential costs, such as their monthly wine subscription.
Naked Wine customers may well consider their Pinot Noir to be essential. As we have seen, sales of alcohol do often go up in challenging times. But for now I’d rather wait and see how the market plays out before I add Naked Wines shares to my portfolio.
