Cdon AB

STO:CDON

Earnings Call Transcript 2022-Q2

[Operator]

[Audio Gap]

in 2022. [Operator Instructions] Today, I am pleased to present CEO, Peter Kjellberg; and CFO, Thomas Pehrsson. Please begin your meeting.

[Peter Kjellberg, executive]

Next slide, please. I've been CEO at CDON since January this year. I have in my professional life had a full opportunity to be working with some of the strongest brands in the world. And I have been part of conducting a couple of very successful and transformation of brand during the years. One of the main reasons why I wanted to join CDON was the potential I saw in growing the business. And after 2 quarters, can I only conclude that my own belief has grown even stronger. I strongly believe that CDON has a great potential become the leading shopping destination in the Nordics. This will also not happen by itself. It's a mix of continuing to do what we do well and to change or add new ingredients into our [indiscernible]. The Nordic marketplace of [indiscernible] is very attractive and is up for grabs. Globally, more than 50% of all e-commerce goes from marketplaces. In Europe, the majority of the market-leading companies within e-commerce are marketplaces.

As a region, [indiscernible] is a couple of years behind in maturity compared to rest of the world, not when it comes to e-commerce in general, but to the marketplace model. At the same time, it is this what makes the potential with the CDON so very interesting. CDON is uniquely situated to become the leading shopping destination in the Nordics. We have the building blocks in place. To the shoppers, we provide a wide assortment in one place at the best prices with a single checkout. We have a strong customer base in place. More than 10% of Nordic population are purchased from CDON in the last 12 months.

For the merchants with the perfect sales engine, we provide access to consumers to new segments, to markets. We offer an extended online offering visibility. We improve customer experience. We give access to tech, to data, to insights. So, we have the shoppers, we have the merchants, we have the assortments, we have the platform, we have the brand. We have the experience internally and the presence in a way that no one currently can compete with on the Nordic markets.

However, we do not deliver the right consumer experience today at all times. The customer is often satisfied, but not impressed. And it is, of course, not okay only to be okay when we aim to be the best.

We are fixing this right now as we speak with a clear objective of getting more shoppers into our site more often. The brand awareness is very high, but the perception of the brand needs to be improved. We have top positions when it comes to awareness in all Nordic markets. The consumer knows about us. Now we are ready to launch a brand that not only will know about, but also we love. Today, we are often found through search engines or comparison sites. With our new brand position, we will be increasing the organic traffic and thereby, lower the cost of acquisition.

CDON can react upon changes and opportunities in trends and demands faster than most in the market. I'm really amazed about this. I'm amazed about the possibilities of being a marketplace. In literally minutes, can we curate and create assortments and campaigns that follows the needs and trends in the market. In good times and bad times, can we adjust our offering in real time. This makes us unique. And it's a strength we will utilize much, much more going forward.

I think we are all well aware of our strengths as well of our gaps of course. And we work relentlessly to close them. A key component in this work is our new strategy that we have named DO5 and I will talk briefly more about it in a couple of slides.

Next slide, please. Again, that for today contains an interaction to CDON, followed by a Q2 update. Thomas will then present our financial performance. And after that, we will open up to the Q&A session.

Next slide, please. So let me first give an introduction to CDON. Next slide, please. We have the right products at the best prices enabled for our marketplace business model in the Nordic markets. We offer currently around 12 million products in core categories on our site. It's everything from simple everyday products to capital goods from well-known respected premium brands. In many core categories, we have the biggest assortment in the Nordic region. A fact, the strength, I think we have not been so good at communicating and working with historically. A fact, a strength that we will utilize much more going forward in our work of becoming the shopping destination in the Nordics.

We have about or more than 1,500 active merchants operating on one or several of Nordics markets in our core categories. In Q2, I am very happy to note that we have a record high number of active merchants selling on the site. And at the same time, we also have a high number of new merchants onboarding to CDON. So really, really happy about that and good work of the sales team. We are active in all Nordic markets. Sweden is our biggest market by history, but we aim to grow in all markets. And we put a focus on Norway in Q2. And in Q2, we made a 65% increase in numbers of active merchants. Now we will put a focus on Finland and Denmark during Q3 and Q4.

We work with the 360 digital marketing, integrated campaigns, focused messaging spread around multiple points of customer contact. As I said before, the brand CDON is very well known. We have the highest brand awareness in the Nordics compared to our closest marketplace competitor. We have stronger overall levels throughout the whole brand funnel and managed to convert a higher share of consumers in the lower funnel. We have a model. We have a scalable platform, giving us the flexibility, the possibility to grow numbers of customers, merchants and products at the same time, which is great. We have today about 90 million visits per year and 2 million active shoppers.

Next slide, please. The internationally proven marketplace model is underpenetrated, as I said before, in the Nordic markets. Marketplaces market share globally is above 50%. And in Nordics, we are only talking about a couple of percentage. And this gives us, of course, an unprecedented opportunity to grow. I think the main reason why the marketplace model is underpenetrated in the Nordics are related to maturity. We are still in the early phase in the Nordics. Bear in mind, we converted to a marketplace in 2019, and we are already the market leader. Amazon launched its Swedish site in 2020. In more mature European markets like Poland and Netherlands, they started 10 years before us, and they now have 25% to 40% market share. Our ambition is, of course, to have the same development in the Nordics.

Next slide, please. We estimate the total available marketing in Nordics to be SEK 415 billion. Our core categories represent approximately 35% of the total online market. That gives us a target market of about SEK 145 billion. Our current market share is less than 2% of the target market, again, giving us great opportunities for growth.

Next slide, please. So some things up. I think we are uniquely positioned to win in the Nordics. For the shopper, we have the wide assortment in core categories at the best prices for the merchants. We have instant easy, cost-efficient access to millions of customers and Nordic countries. For the market, we are establishing the marketplace model in the Nordics in a similar successful way that has been seen in most international markets. I think CDON is a fantastic opportunity.

Next slide, please. And with that, we move into the quarterly updates.

Next slide, please. CDON Marketplace GMV grew by 1% to SEK 437.4 million compared with SEK 433.2 million. This Swedish e-commerce market as a whole decreased by 15% in April and 8% in May compared with the same months of last year. Net sales for CDON Marketplace increased by 22% to SEK 15.5 million. CDON Retail net sales decreased according to our plan by 29% to SEK 51.1 million. Our gross margin increased by 12.7 percentage points to 51.3%. Profit and loss before depreciation and amortization amounted to minus SEK 20.2 million. And profit and loss for the period amounted to minus SEK 26.7 million.

Next slide, please. In the previous interim report, we presented and introduced several activities to stimulate that growth. Halfway through here, we are starting to see the effects, which, of course, we are very, very happy about. We can see that the number of active shoppers has increased in comparison to the last 2 quarters. I think we now have a solid product mix with higher commission levels. The initiative to strengthen organic traffic is showing positive results. We reached a better position in organic search and our total traffic numbers increased compared to the same quarter last year. I think the enhanced marketing organization is taking form at a fast pace. And that is since April. We have invested capabilities to launch and optimize Performance MAX, which is now live in all our markets. Optimization is ongoing. We lower cost per order and reach a higher profitable acquisition.

I'm very happy to see that the rebranding projects have progressed according to plan. We have developed a completely new brand direction and a very nice visual identity of CDON. And all, everyone internally are extremely happy with the result. Going forward now, we will focus on, of course, the go-to-market plans, and we want to secure, of course, the maximum benefit from the brand position, turning to probably the new updated product assortment, adding new and relevant merchants and so on. We are working with that during the whole autumn, and we will launch the result of the whole rebranding process, which is quite complex, quite big during the beginning of the first quarter in 2023. But again, I'm super happy about the result.

This is a crucial step for us. Paid traffic costs more and more, it's not sustainable to only focus on transaction [indiscernible] customers. We need to add a dimension on entertainment, we need to have emotions be part of the buying process in addition to only price. So great progress for us going forward.

We are pleased to see that our commitment and focus on increased marketplaces in Norway, as I said, is yielding result with a 65% increase in the number of active merchants during the second quarter of '22 versus the same period last year. And as also mentioned, we will have a similar focus on developing Denmark and Finland in the second half of this year. The number of active Nordic merchants continues to grow at a steady pace. During the second quarter, we reached a record high, which, of course, I'm very happy about. In addition, there is a positive trend also with many new merchants coming in. In June was especially strong at with a high number of newly signed merchants. The number of international merchants is also increasing. At the end of the second quarter, we signed BigBuy Electronics, for instance, which we are very happy about. It's one of Europe's largest home electronics retailers. We have started to integrate their very impressive assortment, and we plan to go live with that during the third quarter.

Our newly established international partner sales organization have focused upon deepening their relationship with a larger European marketplace aggregators. As a result of that, for instance, the partnership with Octopia evolved during the second quarter. For us, it means now that we have, that we can offer the potential of more than 14,000 merchants from 70-plus countries, the access to the Nordic market via CDON Marketplace. The outcome of that, we will see going forward what that will achieve. But of course, a very positive result from the team.

During the second quarter, 6 months fulfillment product with selected merchants was completed. The results is very promising and will result in a business case for further development of relevant delivery solutions. We also successfully updated and improved our communication existing with potential merchants according to plan in our markets through our new merchant website, a new implemented CRM strategy. We continue to focus on our core categories winning the home to enable a stronger merchant base, improved assortment in the Nordics. Our new improved campaign organization have prepared the second half of the year, I would say, impact of well-planned activities related to [indiscernible] prior to Christmas, winter sale, et cetera. Sales preparation towards the merchants have been improved, and we are now preparing to go live with the biggest sales events in the Nordic market. The CDON marketplace gross profit consists of merchant commission, as you know, and financial commissions from our payment solutions provider. The marketing income from ads is still in a very early phase, and it constitutes less than 0.3% of our marketplace GMV. Compared to international player, it's low. We now have, which I'm very happy about the business development team in place. We are starting then to see how we can grow this very interesting business for us.

The newly established category team are now recruited. This is, again, according to our growth strategy, winning now. So this will have a very positive impact on the customer experience on our side and the loyalty of our customers already from the second half of this year.

During the quarter, we developed and implemented some great technology to the site. We updated product recommendation, added new filters, the implementation of improved CDON Buy Box with our unique identifier CID has now been taken further from the test phase with our selected audience to roll out in selected product categories. The development of the CDON app proceeds according to our plan. During the quarter, tests were conducted with selected audience. And approximately, I think it's like 80% of our shoppers already use the mobile device for purchases. And this app will of course give them a more seamless shopping experience. And we were really looking forward to launch the app during the second half of the year.

We have also launched a new platform for digital marketing. The integration has been completed during the second quarter, and we are now working to improve the process and it is working. It is a scalable e-mail system, it intends to improve both efficiency and profitability when it comes to our biggest marketing activities. And which I'm very happy about, during the second quarter, leadership development has been ongoing. We are focusing on change management. And as you can hear, we are doing a lot of activities. We have a lot of activities in plan. So this is, of course, crucial that we have organizations that are willing and eager to change. Also, very, very happy to see that the eNPS are at a stabilized higher level than before.

Next slide, please. I'm also very happy that we are now taking the next step in our strategic development to further strengthen our growth ambitions and to fulfill our vision of becoming the #1 shopping destination in the Nordics. During the first half year, we have done further analysis of necessary development areas. We have identified short-, medium- and long-term activities needed to achieve our vision. The analysis resulted in a comprehensive strategic plan, which in its turn, contains a wide range of identified activities. We have named the strategy DO5, it rests on 5 pillars. One is then boost the brand. Number two is product is king. Three is to create a flawless shopper experience. Four, to secure that we have a lead in digital. And five, of course, so that we secure also that we have an internal organization that is aimed for growth. We will talk more about DO5 and the activities it contains during Q3 and Q4.

Next slide, please. Now I would like to give the word to Thomas to present the financial performance.

[Thomas Pehrsson, executive]

Thank you, Peter. Let's move to the financial performance then. Next slide, please. Group income statement. As Peter said, despite a market that decreased during April and May, CDON Marketplace GMV grew by 1% for the quarter. The combination of increased commission levels and the solid product mix has led to gross profit, which was 25% higher than the corresponding period last year. According to plan, we are phasing out our retail business, and as a consequence of that, the net sales and gross profit for this segment decreased.

Since we have been investing in activities for future growth such as marketing and product categorization and attracting key expertise, we have recognized somewhat higher expenses in this quarter compared to the same period last year, which is in line with what we communicated at our last call, the last quarter. This means a lower EBITDA and EBIT than the second quarter last year.

Next slide, please, group balance sheet. Last year, we acquired shares in the associated company Shopit as well as a majority stake in Xales and Commerce 8. So our fixed assets have increased compared to the same period last year. As I said, we are phasing out the retail business, and this leads to a lower inventory. We had a cash balance of SEK 118.8 million and the total equity is higher than the end of the first quarter last year due to the rights issued that took place in the third quarter of last year.

Next slide, please. Group cash flow statement. We recognized a lower operating result versus the same period last year, mainly due to specific initiatives to enable growth, as mentioned. We are not content with the result. However, we have a cash balance at SEK 118.8 million, going into the financially strongest part of the year. While we are accelerating several of our ongoing growth initiatives, we are in parallel adapting our spending to the challenging market situation, which in turn will have a temporary impact on our paid traffic moving forward.

So in summary, we are content that our marketplace GMV has grown throughout the year and to be able to launch the new brand platform and the related improvement initiatives, we will focus on profitability for the remaining year.

Thank you, and over to you again, Peter.

[Peter Kjellberg, executive]

Thank you, Thomas. Next slide, please. With that, I will say thank you all for listening, and I would like to open up for the Q&A. Next slide, please.

[Operator]

[Operator Instructions]

Our first question comes from the line of Nick Fharm.

[Nicklas Fhärm, analyst]

I'd like to kick off by asking you on site traffic. Effectively, this is the first quarter with -- even though it's slight, but still positive growth year-on-year since Q4 2020. Could you give us an idea of how your integration of Shopit Online's technology, perhaps has impacted or whether there are some other main factors explaining this breaking trend, please?

[Peter Kjellberg, executive]

We have -- as you know, we have been working with Shopit now for a while. And I think close to 100% of our assortment is now categorized through Shopit.

[Nicklas Fhärm, analyst]

And would you say that is the key driver behind the sort of sustained site traffic data in this quarter year-on-year? .

[Peter Kjellberg, executive]

I would say it's a vital contributor, but not the only one. I think we have done the right things both when it comes to our paid and organic traffic. So it's a combination but of course, it has been an important step for us in the work in total.

[Nicklas Fhärm, analyst]

My second question, besides product mix, are there any other drivers that explain the increase in the take rate year-on-year, I estimate that at about 2 percentage points actually.

[Thomas Pehrsson, executive]

Yes, Nick, I would say that except the product mix as such, it's also that we have more qualitative items than last year in the comparable period.

[Nicklas Fhärm, analyst]

Sorry, you broke there, Thomas. Could you repeat that, please? .

[Thomas Pehrsson, executive]

Sorry. I said, except from the more favorable category and product mix, it's also due to more quality merchants than last year, and those 3 make up a higher take rates.

[Nicklas Fhärm, analyst]

Excellent. And my final question for now. How do you plan for H2 this year, the second half. I mean, do you assume that the e-commerce market growth will improve, deteriorate or remain flat compared to the first half this year? .

[Thomas Pehrsson, executive]

As you know, we do not comment on future predictions. And you know the market situation, how that looks currently and probably have seen a lot of reports, the latest days and how they have been actually performing. Of course, we are careful with how we see the future and how we will act in the future, but we don't comment on our projection for the e-commerce market for the future, so to say. But of course, we should be.

[Peter Kjellberg, executive]

And what you also can say, Nick, if you look at the nature of our business, I think we have a good assortment for good times. We have a good assortment for bad times. We have capital goods with premium brands. We have good low-ticket products for everyday use that you can -- there is always we will be a market for. So I think we are well balanced both when it's, again, good times and bad times. One segment, just to mention is the used segment because that is growing quite fast. And we actually also have a quite good assortment of used products. So that is something that I would like to look into personally going forward to expand that business. And we are already quite big in it.

[Thomas Pehrsson, executive]

And as you have seen, we have outperformed the market so far this year. And that yes, that's what we can say.

[Operator]

Our next question comes from the line of Brad Hathaway.

[Brad Hathaway, analyst]

So Peter, you made a comment early on about kind of the frequency -- kind of customer purchase frequency at the site. How do you think about, I guess, kind of where you are today and the path forward with purchase frequency.

[Peter Kjellberg, executive]

We -- as you heard, our ambition is to become a destination, being national shopping destination. That is our long-term objective. To become a destination, it also then has to be place where you frequently come in. Otherwise, you are not a destination. So we need to work with our offering towards the market to become a more frequent provider. It should be natural to go in the best case, a couple of times a week, let's start with the ambition a couple of times a month at least. So that is what we are working. That is part of the strategy going forward is DO5.

[Brad Hathaway, analyst]

Okay. Got it. So I mean, I guess my understanding I think right now it's a couple of times a year. So the idea is eventually, maybe a couple of times a month or a couple of times a week at some point is kind of what you're hoping for? .

[Peter Kjellberg, executive]

That's the end state. That is not done, of course, overnight. But that is in from a strategic standpoint, that is what we are working on as our main goal.

[Brad Hathaway, analyst]

Got it. And have you seen anything in the beta test of the app that kind of suggests a different behavior of those customer forwards?

[Peter Kjellberg, executive]

Sorry it was breaking up. I think you asked about the app?

[Brad Hathaway, analyst]

Yes. Whether you're seeing any different behavior in those kind of early tests of those customers.

[Peter Kjellberg, executive]

What we see is it's the same pattern. It's a younger target group, it's a more frequent purchase. So that is perfect. And again, what I'm really interested in is since times is what times is at the moment, it goes quite fast, especially in this area here where we have inflation, interest rates, food prices, fuel prices, energy prices, whatever, and that is getting a quite complex situation, then used products again are super interesting for us to look into, and that could be perfect for that. Let's see.

[Brad Hathaway, analyst]

Excellent. Great. And you mentioned kind of that the Nordics remain very underpenetrated. If we look at other European markets obviously [indiscernible] take a much larger share, is there anything structurally that you've seen now in just 6 months to suggest that there's something different about the Nordics. There's some reason why the Nordics shouldn't look like other European countries?

[Thomas Pehrsson, executive]

No. It's mainly a maturity thing. We are a couple of years behind. Secondly, it's also about what I talked about before. People are okay with the shopping experience, but it's not perfect. If we can balance the things up coming into also the frequency discussion, and I think we have the perfect mix. But the main thing is it's a maturity. We need to -- the marketplace definition still is quite unknown. But as you know, we are saying the e-commerce, we are highly penetrated. It's just a matter of keeping going on what we are doing right now, and it will come.

[Brad Hathaway, analyst]

Great. Well, I appreciate all the efforts and the progress in the first half of the year and looking forward to starting to see some of the benefits of some of the things that took place.

[Operator]

[Operator Instructions] And our next person is Adam Wyden.

[Adam Wyden, analyst]

Couple of things, housekeeping first. You mentioned on the first quarter that you had some elevated G&A expense from talent recruitment and I guess, maybe severance of other people, but kind of stuff that kind of transactional G&A kind of restructuring type stuff that you expected to be elevated in the first half, do you think most of that's behind you? Do you think that your kind of G&A levels are going to be kind of in line with as a percentage of sales? Do you think that they're flat on a dollar basis? Do they come down? I mean how should we think about G&A going forward? .

[Thomas Pehrsson, executive]

Adam, thanks for the question. Yes. As we said in Q1, we had some one-off costs. And we also said in that call that we should continue with part of those in Q2, and that's it. And then we should be at a normal level, so to say, in Q3 and forward. And that is what we are looking for right now. So they were the same high level, so to speak, as you were referring to, that will not continue.

[Adam Wyden, analyst]

On a gross dollar basis. I'm just trying to think about -- because what's so interesting about this business, you saw here is -- you saw the increase in take rate and you saw how much gross margin that you generated. And I think one of the things that I think maybe perhaps Nordic investors seem to not understand relative to global investors is that your ability to manage margin in the marketplace is far superior, and that there shouldn't be the same dollar for dollar cost. And so I'm just trying to think out loud about how we should think about incremental margins and basically in the event, like, let's say, god forbid, we grow 50 this year or next year, whenever, at some point we do like, do you think that you expect G&A to grow as a percentage of sales? Do you think that it should be fixed? I mean how should we think about kind of G&A going forward? I mean do you feel like there's a lot more G&A coming as a function of investment? Or obviously, you're going to have some onetime stuff that came off in the first half, but do you think that gets replaced with something else? Or I mean, I just want to -- how you think about G&A in kind of the next intermediate term?

[Thomas Pehrsson, executive]

Yes. No, the G&A in relation to sales should, of course, be lower. We are -- as you know, we are a very scalable business. We should be able to run this business. Of course, there are some kind of half fixed cost that has to move with sales, but that should be quite limited. So you shouldn't expect it to be the same percentage of sales or close to in the future, it will be much lower.

[Adam Wyden, analyst]

Okay. Yes. And look, I think in my calls with previous management, I think there was a big -- there was some argument around the increasing cost of paid traffic. And then obviously, we know that organic traffic is good for 2 reasons. One, it's cheaper obviously; and b, organic site visitors end up probably going there and they get the loyalty app and they get whatever, the Prime and they buy more. And so I'm really interested in kind of your comments around the growth of organic traffic. And is your comment around paid traffic really more of a defensive posture? Or is it because you have confidence that the organic traffic is going to come and you don't need to buy as much sales?

[Thomas Pehrsson, executive]

I think this answer is twofold. If we start with the paid traffic as Peter was mentioning before, getting more expensive to buy traffic due to a harder climate, so to say, or competitive landscape. There are more companies competing for the same buyer, so to say. And also its higher price levels on that track. We have to be smarter when working with that, meaning being a better buyer of traffic, meaning lower cost for that traffic. And that is really a masterpiece of art to do. And we have some really good expertise in this area. Secondly, coming to the organic traffic. Of course, that is the same. We also need to be better in that. Shopit helps us, as you know, but there's also a lot of other SEO initiatives that will make a better in organic traffic. And we also have very good expertise in-house of working with that. Those 2 factors will make us more efficient in marketing spend going forward. But that is, so to say, as I said, that is a masterpiece of art of doing that, and it takes some time to maneuver in that and be the best. But if we succeed in that, we should be, I must say, we should be one of the best at least in the Nordics, working with both SEO and SEM. And that's what we're striving for.

[Adam Wyden, analyst]

Yes. Okay. Moving on. On the take rate front, you went from 7.8% to 9.3%, which was -- I think I'm getting the number right, that's pretty impressive. Obviously, you didn't break out mix, at least I couldn't see it in the interim report like how the category mix changed. But I know that you did purge a bunch of big merchants in the fourth quarter. And again, I know it was meaningful. I don't know if you spelled it out on the call in the fourth quarter or whatnot. But I got the sense just based on kind of the [indiscernible] we did that merchant or those merchants could be as much as 10% GMV. Have you guys tried to quantify internally how much. Because like in my head, I'm like thinking about it like, okay, they're an electronics merchant, right? Maybe they were a lower commission rate, lower take rate. And so if some of the take rate increase a function of getting rid of that merchant and then at the same time, kind of also shows the drag on GMV. I mean, have you quantified how much GMV was kind of voluntarily purge merchants from the fourth quarter and how that kind of flows through the take rate?

[Peter Kjellberg, executive]

Yes, we have. Interesting question. And you're not that far away in your estimate actually. It's around 8% when we exclude that.

[Adam Wyden, analyst]

Right. So basically -- because I'm just trying to think about kind of, look, this -- and again, I don't know if lot of people feel like the sound my own voice, but I think it's -- sometimes it's helpful to kind of think about where we were. I mean this business went through this hyper growth phase for the first 5 years, and then we went through this platform change where we went from renting someone else's technology to implementing our own. And obviously, that had some adverse consequences. And so I don't know if that meant bad merchant acquisition, whatever you want to call it. But I think -- for me, what I think is super interesting is trying to understand what is the kind of what is the core business improvement as a function of kind of this restructuring turnaround, however you want to call it, reacceleration plan. And so for me, it's like if I back out that merchant, it looks a lot more like 10% GMV growth. And to me, that actually is quite impressive in the context of where the market is. So that's really helpful for me. And then can you talk a little bit, Thomas made a comment about quality of merchants, and I guess my question is like as you onboard that big bicycle guy and the sporting goods guy, like is it that you have less chargebacks? Or is it that the commission level or take rate is higher? I mean how -- when you think about the composition of take rate as that quality of merchant improves, is it that you're able to charge them a better commission because they have better scale and better efficiencies themselves, i.e., they themselves have a higher gross margins, so they can pay you a higher take rate? Is it like less chargebacks? Like what is it that allows you to make more money on higher-quality merchants? I'm just curious.

[Thomas Pehrsson, executive]

It is a combination of the merchant itself and the product they're offering, which, of course, more qualitative ones have a more high-end products, so to say. And therefore, commission could be higher. But we don't comment on any category mix, I mean, merchant mix and category levels. But that is, as you said, that is the main reason.

[Adam Wyden, analyst]

Yes. I mean I think it's somewhat intuitive. I think everyone knows that low ASP electronics is a lower ASP. So subsequently, there will be less money to go around for the distributor in the marketplace. So sporting goods and furnishings and these are all great categories. So that probably makes sense. Can I ask something else? So in terms of -- you made a comment about advertising in terms of being very low. Can you talk a little bit about how you kind of think about advertising? And I kind of put these in the other bucket. Like if I think about the composition of take rate, I would say, kind of commission rate. And then I would say advertising, loyalty partnerships, whether it's like Amazon doing a deal with Hulu or the free shipping or what have you. I mean how do you see that kind of -- what I would call the ancillary revenue stream kind of evolving?

[Peter Kjellberg, executive]

In all honesty, we really haven't had anyone working with focus before. Now we have a small business development team in place with a history on the working with the same topic for our biggest competitor in Europe, and they are on board now. And we are working now with the conceptualization of it, price settings, communication plans and so on. So the foundation is there now, and then we need to start to roll it out during the autumn. You will not see instant impact of it, but it will come.

[Adam Wyden, analyst]

So do you think -- I guess my question is if you think about the composition of take rate, do you think there's a lot more room on commissions? Or do you feel like your 9.3% or 10% or 11% or whatever the number is, do you think that's the upper bound of commissions and the kind of the delta between 10% and 11% is really the ancillaries? Or do you think that there's more room on kind of the traditional mechanisms that you have in place? .

[Peter Kjellberg, executive]

I think we have more room. There are additional services that we will add. We have segmented the merchants in a way we haven't done before. We have them defined also those additional services. So I see a positive effect on that. I will not -- I don't want to quantify it at this point. But of course, it's in our action plans to make it happen.

[Adam Wyden, analyst]

Okay. And the last -- obviously, I know I've been going on for a while. The last -- I got two more. So one is on logistics. Can you talk a little bit about, I think, a major kind of -- it's interesting is a lot of people in what we've gotten from our focus groups is people say, well, people in the Nordics don't really care about logistics. There's more retail stores, people are more comfortable going and blah, blah, blah, that they don't really value the logistics. And then other people like, oh, but they don't have same-day delivery. And I'm just curious like in a world where we might be going into a recession, and we just -- I think everyone in the United States has lived through Prime Day. I'll just use it as an example, right, live example relative to CDON, Prime Day was yesterday and the day before. My wife went and just went ham on that thing. And why? Because we pay for the Prime subscription and the delivery is free, and they're like, "Oh, I've got to front-load all this stuff." And so like, this concept of free delivery and loyalty package, I think, gives you that kind of, as you said, passion, enthusiasm, buying, and more importantly, I think as you go through this period where if we're going to a bad economy, I think people tend and -- we saw this in 2008 and '09, right? Like in 2008, '09, Amazon and some of these Internet retailers actually did very well because the e-tailers didn't have fixed rents and inventories, and it was much easier for them to be the lowest common price. And so when I think about kind of the environment that we're going into right now economically, it kind of portends or at least in theory should portend to an environment that would really favor CDON, right. Because you're selling stuff for people that don't necessarily have the retail and the labor and all the rest of, they can be the lowest price. And if packaged with the right logistics and the right delivery and whatnot, it could actually allow us to gain a lot of market share. I mean, do you think you're making progress on kind of that what I would call that logistics, loyalty kind of offering?

[Thomas Pehrsson, executive]

We are definitely not underestimating the importance of delivery, Adam. And we have a few various initiatives on that fulfillment and so on, which can also be seen and already in the report and the last report. And we are working heavily on that. We just did a pilot of a fulfillment concept that worked out well. And we will roll that out. It takes some time, of course, because it's a huge project. But also before that improved delivery. And that is in the Nordic countries it's very important for many reasons, but it's also a little bit complicated because we have a few people in long distances, and that should be handled. But it's definitely high up on our priority agenda to be a really good delivery company. It has to happen. Otherwise, we won't succeed, so.

[Adam Wyden, analyst]

Yes. And then the other thing I noticed and I was curious about. You guys posted something about a CDON Business Intelligence. It looked to me that it was an app for your merchants. And I was curious, like you kind of got my mind thinking, in addition to improving the experience for the customer. And obviously, I know you're kind of this iPhone app and all that is going to, a new website is going to come out in the back half of the year. I'd be curious to as you're doing to kind of improve the merchant experience. So it makes it and how this app applies to getting them to put on more products or making the merchant acquisition strategy faster and SKU strategy faster, how that kind of all works?

[Peter Kjellberg, executive]

I think the app that you're referring to is a very specific app that we have developed for connecting merchants towards that are already operating on certain aggregator platforms. So it's smaller [indiscernible] that now we are making it easier to enter also into CDON. It's a new app, it was launched like a month ago, something like that. So we need to then evolve, of course, then follow it closely to see the outcome of it.

[Adam Wyden, analyst]

All right. Yes. Look, it's very exciting. The only thing I would add is you mentioned the market being SEK 450 billion, I mean and being 2% penetrated. I think the other thing that I think is interesting to us and perhaps doesn't apply to today is that because of that lower penetration in marketplace, it also is a lower aggregate e-commerce penetration. So look, I'm hopeful that all these initiatives are in place by the time e-commerce in the Nordics goes back to growing 15% to 20% because I think the underlying dynamics support that longer term. So it's almost kind of like you're able to put all these pieces in place today when things are a little bit slower. So thank you and this was super helpful.

[Peter Kjellberg, executive]

Thank you Adam. We are burning the midnight oil.

[Operator]

And currently, there are no further questions in the queue. So at this time, I'll hand the call back to our speakers for the closing comments.

[Peter Kjellberg, executive]

So with that, I say thank you. Thank you for listening. Thank you for all the questions. Really, really positive. And with that, Thomas, I think we say thank you from our side and see you again soon. Thank you.

[Thomas Pehrsson, executive]

Thank you.