Here’s why the Adore Beauty (ASX:ABY) share price is tumbling 9% today

The Adore Beauty (ASX:ABY) share price tumbled 9% to a record low this morning. Here’s why its shares are under pressure right now…

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It was another disappointing day for the Adore Beauty Group Ltd (ASX: ABY) share price on Monday.

At one stage, the online beauty retailer’s shares were down as much as 9% to a record low of $3.34.

When the Adore Beauty share price hit that level, it meant it was down a disappointing 50% from its October IPO listing price of $6.75.

Why is the Adore Beauty share price under pressure?

As well as being caught up in an ecommerce selloff along with the likes of Ltd (ASX: KGN) and Redbubble Ltd (ASX: RBL), a disappointing trading update last week has weighed heavily on the Adore Beauty share price.

That update revealed that Adore Beauty achieved revenue of $39.4 million. While this was a 47% increase on the prior corresponding period, it is a 22% decline on the average quarterly revenue it achieved during the first half.

In addition to this, management’s decision to change the goal posts when reporting its active customers has confused investors.

Instead of reporting active customers on a 12-month basis as normal, it elected to report them on a 9-month basis.

Management revealed that active customer reached 687,000 at the end of March on a 9-month basis. This was up 69% on the prior corresponding 9-month period.

However, it was a decline on the 12-month active customers it reported at the end of December of 777,000. 

No explanation was given for the change in reporting. Nor did management advise whether its numbers are growing or declining on a 12-month rolling basis. In light of this, investors may be concerned that the company is cherry picking metrics.

What else is weighing on sentiment?

The response to its update from brokers also appears to be weighing on the Adore Beauty share price.

For example, Shaw and Partners cut its price target by 28% to $6.00 and Morgan Stanley slashed its price target by 43% to $5.00. UBS was a little more forgiving, cutting its price target by 9.7% to $5.60. 

It is, however, worth noting that they all have the equivalent of buy ratings on its shares. So all is not clearly lost.

And while Morgan Stanley has warned that the next couple of quarters could be challenging, it remains positive. Due to its leadership position in a structural growth market, the broker believes it is worth sticking with the company.

It is expecting Adore Beauty to post a decline in revenue in the first half of FY 2022, before returning to growth in the second half.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Adore Beauty Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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