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Why the Digital Wine Ventures share price is surging today

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The Digital Wine Ventures Ltd (ASX: DW8) share price jumped to a more than five-year high after management released a bullish trading update.

Shares in the small cap tech stock surged 5.4% to 3.9 cents in the last hour of trade when the All Ordinaries (Index:^AORD) (ASX:XAO) and the S&P/ASX 200 Index (Index:^AXJO) eked out a 0.3% gain each.

Management said earlier in the day that its online wine platform WINEDEPOT won another 16 customers in the month of June.

New customer wins

This takes the total number of new sign-ons to 39 in the quarter representing a 111% growth over the previous quarter.

But it’s still early days. The total number of customers on WINEDEPOT stands at 74, although management is putting a positive spin on this by saying it has lots of space to grow.

Only 2.7% of the 2,500 plus wineries are on the platform, while distributors and craft spirits producers in Australia barely register as a blip.

Some of the new customers in the latest quarter include Stoney Hill Vineyard, Brokenwood Wines and Cirillo Estate Wines.

Opening international markets

It’s also interesting to see Chateau Picoron from the famous French region of Bordeaux signing up to the WINEDEPOT service. Chateau Picoron is the first customer from France to use WINEDEPOT.

“The addressable market has also been widened to include tens of thousands of international wineries,” said the company in its ASX statement.

“Included in the expanded market opportunity are approximately 500 New Zealand wineries, which can fairly easily take advantage of the same benefits offered to Australian wineries by using the platform to service direct-to-consumer orders received from Australian consumers.”

Riding the online boom

Online sales of alcohol (and just about everything else) is booming during the COVID-19 pandemic. Stuck-at-home consumers and those wishing to minimise the chances of catching coronavirus are opting to shop online instead.

Alcohol is also seen by many as a way to cope with the fallout from the virus and WINEDEPOT is trying to position itself as a service facilitator.

It’s probably better to be a technology enabler than a wine producer at the moment too. Treasury Wine Estates Ltd’s (ASX: TWE) problems with its US and China operations are well documented.

Revenue model

The cloud-based platform serves as an order management system and logistics solution.

Digital Wines generates revenue from three sources. It collects a trading fee, which is a percentage of the overall transaction.

It also gets paid a fulfillment fee for storing, picking, packing and shipping the order; and a subscription fee that’s based on the number of users and products.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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