Billabong to surf the online wave

With Internet commerce continuing to boom at the expense of ‘bricks and mortar’ retailers, it is no wonder struggling surfwear group Billabong (ASX: BBG) is rumoured to be considering spinning off its online retail sites SurfStich and Swell into a separately listed vehicle.

With Billabong’s share price under enormous pressure, it would appear a smart move to spin off the fast growing assets and allow the market to appropriately value the businesses separately. Other listed online businesses such as REA Group (ASX: REA), Wotif (ASX: WTF), and (ASX: CRZ) all trade on lofty multiples and there is the potential that once SurfStich and Swell are free of the shackles of Billabong’s wholesale and retail store network it could trade on a higher multiple too.

The next few months for Billabong shareholders will continue the rollercoaster of announcements with the possibility of a buyout offer from members of the USA management team, along with weighing up the value of the online spin-off and sales results from the Christmas quarter.

Last week’s Click Frenzy event reinforced the power of online sales. As the news headlines reported, there was such a high volume of traffic to sites taking part in the event that numerous websites crashed. While that was disappointing for companies such as David Jones (ASX: DJS), that experienced technical difficulties, it nevertheless highlights the demand from shoppers. With the all-important Christmas trading period underway the market will be keenly watching the sales numbers and strategies of the listed players such as Myer (ASX: MYR), Harvey Norman (ASX: HVN), and Super Retail Group (ASX: SUL).

Foolish takeaway

Many investors choose to focus their investments in sectors experiencing strong growth. While this doesn’t provide certainty of success, as competition will always be intense in a high growth sector, at the very least it can provide a tail wind to a business instead of a headwind. Online retail is one such sector that can provide a tailwind and well worth following for investment opportunities.

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Motley Fool contributor Tim McArthur owns shares in Billabong.  The Motley Fool ’s purpose is to help the world invest, better.  Take Stock  is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.


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