Boohoo (LON: BOO) and Asos (LON: ASC) share prices have had a terrible performance in 2022. They dropped by more than 90% and shed millions of pounds in market cap. Boohoo, which was valued at over £3 billion in 2020 has a market cap of just £430 million. Similarly, Asos’s market cap has dropped to about £496 million.
The fall of British e-commerce
Boohoo and Asos performance is a reflection of the challenges facing British e-commerce startups. Other tech firms have also struggled. Made.com filed for bankruptcy and was later acquired by Next PLC. Similarly, THG, formerly known as The Hut Group, has seen its market cap crash to about £619 million.
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Asos and Boohoo stocks have plunged as the companies have faced significant headwinds. Demand has plunged as inflation jumped to a multi-decade high. Further, the companies have seen a significant increase of returns while growth has slowed.
Most importantly, the two companies have announced several profit warnings in 2022. Boohoo warned about its profits three times this year while Asos warned that its profit could drop to just £20 million in 2022 from £190 million in the previous year.
As a result, the companies have come under significant financial strain. As I wrote in this article, Asos recently hired restructuring experts PJT Partners for advice about its hefty debt. Some of its creditors include HSBC, Lloyds, and Barclays. It is never a good sign when a company moves into restructuring talks.
The most recent results showed that Boohoo’s revenue dropped by 10% to £882 million in the six months to August. Its adjusted EBITDA dropped by 58% to £35.5 million while its net debt dropped to minus £10 million.
Asos, on the other hand, lost £32 million in its financial year as consumers spent less money on fashion. That loss compared with a profit of £177 million in 2021.
Better buy between Boohoo and Asos
Asos and Boohoo are both risky companies that are facing substantial challenges. With the UK set to remain in a recession in 2022, the two firms will likely continue struggling in 2023.
Nonetheless, I feel like Boohoo is a better buy than Asos. It has a loyal fanbase and a strong brand in the UK. It is also growing in other geographies than in the United States.
Boohoo’s finances also appear to be in a better shape than Asos. It has over £325 million in total debt while Asos has over £475 million.
Still, as shown below, the two stocks have a close correlation, meaning that their returns will be similar unless one moves into administration. In this regard, Asos is at a bigger risk for going under than Boohoo.
