Temple & Webster (ASX:TPW) share price tumbles on third quarter update

The Temple & Webster Group Ltd (ASX:TPW) share price is under pressure on Tuesday following the release of its third quarter update…

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The Temple & Webster Group Ltd (ASX: TPW) share price is under pressure on Tuesday morning.

At the time of writing, the furniture and homewares focused ecommerce company's shares are down 5% to $10.18.

Why is the Temple & Webster share price under pressure?

Investors have been selling the company's shares this morning following the release of its third quarter update.

According to the release, for the three months ended 31 March, Temple & Webster delivered a 112% increase in revenue over the prior corresponding period.

At the end of the period the company had ~750,000 active customers. This is up 10.6% from 678,000 at the end of the first half.

What about the fourth quarter?

Positively, while the company's growth has moderated so far in the fourth quarter, its revenue is still higher than the prior corresponding period.

During the month of April, Temple & Webster achieved a 20% increase in revenue over the prior corresponding period. This is particularly impressive given that April 2020 was the fastest growing month last year due to the nationwide lockdowns.

Pleasingly, the company also reported that COVID-19 cohorts continue to perform better than historical cohorts.

Why are its shares trading lower?

Possibly weighing on Temple & Webster's share price was management's commentary relating to the future and its focus on revenue growth rather than earnings.

The company believes that COVID-19 has permanently accelerated online adoption in the Australian furniture and homewares market.

It explained: "… we estimate more than 20% of furniture & homewares was bought online in the US during 2020, and we believe Australia is following the same trajectory. We estimate that in 2020, ~9% of Australian furniture & homewares were bought online, an almost doubling of the ~5% bought in 2019. Online penetration in both markets is expected to continue to increase significantly."

In light of the above and its online market leadership position, the company has reaffirmed its growth strategy.

This will see it building strong brand awareness to achieve a national brand status, using "tactical" pricing and promotions to increase conversion, investing in 3D and artificial intelligence capabilities, differentiating its range through new category additions and private label expansion, and growing its B2B sales teams.

This will of course come at a cost. As a result, management intends to focus on delivering strong double digit revenue growth with EBITDA margins in the 2% to 4% range.

Temple & Webster CEO & Co-Founder, Mark Coulter, said "You only need to look at the US to see how the e-commerce market is playing out, and why we remain bullish about the shift from offline to online. We are at the start of this once in a generation shift, and now is the time to put our foot down to secure market leadership and ensure we are the brand for the next generation of furniture shopper."

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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