Do you want a red or a white? In Digital Wine Ventures Ltd’s (ASX: DW8) case, you may want to get a bottle of champagne because the share price has risen by 170% in the last month. Before you drink, let’s have a look into why it has done so well.
DW8 share price
What is Digital Wine’s business?
Digital Wine’s core asset is WINEDEPOT, a cloud-based technology platform that provides three key components: a smart logistics solution, order management system and direct-to-trade marketplace (to be launched later this year). Digital Wines earns revenue from trading fees as a % of the overall transaction and subscription fees. The subscription fee is determined by the number of users and products.
It also provides wine distribution and storage services where Digital Wines earns fulfillment fees.
In July 2019, Digital Wine partnered with a privately owned Australian company that provides logistics services to the wine and beverage industry. As part of the deal, this company established a dedicated central storage and distribution facility, which is WINEDEPOT’s main depository for suppliers’ inventory and be used to support an expanding network of depots.
Digital Wine provides wine producers with a warehousing solution so they can hold inventory in key markets, outsource the pick and pack function and leverage the metropolitan locations to ensure same and next day deliveries direct to consumers.
Digital Wine is ultimately aiming to enable wine growers to recover the margin traditionally lost to retailers. The company is also focused on servicing the sales channels in the growing direct-to-consumer and online market segments.
Key partnerships drive the DW8 share price
The Digital Wines’ share price really spiked when it announced a partnership with Vivino, the world’s most downloaded mobile wine app and largest online wine marketplace in mid-February 2021.
Vivino has 50 million users worldwide, using data analytics to suggest personalised wine recommendations.
Under the partnership, Digital Wines’ wineries are able to sell their products directly to customers across a wider range of direct-to-consumer channels on the WINEDEPOT platform. This essentially assists wineries to reach a wider audience and capitalise on the growing trend of buying wine online.
On top of this announcement, Digital Wines recently advised it entered into a partnership with eBay Inc (NASDAQ: EBAY) on 26 March 2021.
This partnership enables Digital Wines’ wine producers to sell to customers across large direct-to-consumer sales channels on eBay. Orders generated from eBay will be picked, packed, and delivered by WINEDEPOT.
And today, the company announced it has entered into an agreement with Bibendum Wine Co. Pty Ltd, one of Australia’s leading fine wine and beverage distributors. This agreement will help Digital Wines build its WINEDEPOT marketplace as Digital Wines will pay Bibendum a marketing and referral fee for each trade buyer introduced that chooses to participate in the WINEDEPOT market.
Digital Wines notes Bibendum has the potential to introduce thousands of trade buyers to WINEDEPOT.
My thoughts
I wouldn’t raise the glass yet even though Digital Wines is displaying strong progress in securing key partnerships. The company remains unprofitable as it recorded a net loss after tax of $2 million in FY20, an increase of 23% compared to FY19.
In saying this, the business is still in its early stages as it attempts to attract more suppliers and distributors.
I do like how the business is capitalising on a growing trend of purchasing wine directly from suppliers and online. As part of the Rask Investment Philosophy, I try to find companies that operate in structurally growing industries, and I think Digital Wines is one of them.
Readers should also keep an eye on salaries and wages as this jumped by around $430,000 from FY19 to FY20 and this will continue to rise as Digital Wines grows.
If you are interested in other ASX growth shares, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
