The Adore Beauty Group Ltd (ASX: ABY) share price has glowed up this week, shimmering 30% on Tuesday to outperform the wider S&P/ASX All Ordinaries Index (ASX: XAO).
Curiously, there was no news out of the ASX All Ords company, which was issued a speeding ticket yesterday and gave back some gains.
But fellow ASX e-commerce share Temple & Webster Group Ltd (ASX: TPW) also rocketed 30% on Tuesday after the company's FY22 results surprised to the upside.
This positive sentiment could be flowing through to Adore Beauty, with investors believing the shares could be oversold.
After going public in late 2020 at a price of $6.75 apiece, the market fell out of love with Adore Beauty shares.
Despite Tuesday's meteoric rise, the Adore Beauty share price is still down more than 50% this year. And since its initial public offering (IPO), Adore shares have tumbled around 70%.
But while Adore Beauty struggles to win over investors, here are three reasons why I like this ASX All Ords share.
Alluring tailwinds
As an online-only retailer, Adore is benefitting from the industry's structural shift to e-commerce.
The company plays in an $11.2 billion beauty and personal care (BPC) market in Australia. And despite the COVID tailwind, online penetration still sat at a lowly 11.4% at the end of 2020.
The key here is that Australia is a laggard compared to larger Western countries. Online penetration in the United States was up to 17.1% in 2020. The United Kingdom boasted penetration rates of 18.4%.
Globally, places like South Korea and China are streets ahead with 40-50% of the beauty industry already online.
What's more, the company's brand awareness and presence in the industry have plenty of room to grow. Adore Beauty commands a 13% share of the online BPC market in Australia.
It's a double-whammy here as Adore Beauty seeks to carve out more market share, all the while the market itself is also growing.
Range authority and scale
In its early days, Adore's biggest issue was getting brands onto the platform. As its size and reputation grew, and the benefits of social proof flowed through, the conversations with brands have become much easier.
Adore started out with just two Australian brands when it launched in early 2000. It went on to sign its first international brand, Clarins, in 2006.
Fast forward to today and Adore's online store boasts more than 11,000 products across more than 270 brands. This vast range of brands and products has attracted 880,000 active customers to Adore in the last 12 months.
What's more, with larger order volumes, a growing audience, and a specialisation in online, brands are turning to Adore not just as a distributor but also as a marketing partner.
As a result, Adore is reaping the benefits of co-marketing support from brands through promotions, special giveaways, events, and samples.
Together with increased product rebates, this has seen the company's gross margin improve over time as the business scales and takes a bigger slice of the market.
A beautiful brand
In today's landscape where barriers to entry are low and competing sites are popping up out of the woodwork, trust is increasingly important.
The fact that Adore is a long-standing, established Australian business with a strong reputation and high customer satisfaction levels are big ticks.
The company has also leveraged its brand to create a powerful content arm across a media network of podcasts, videos, and blog posts.
Not only are these channels a means of marketing but through curated blog posts and podcasts, Adore can move up the funnel to customers who may not be in a shopping frame of mind.
Here, it's more about content marketing where Adore can introduce customers to the products they didn't know they needed. As you can imagine, this can do wonders for engagement and purchasing patterns.
So what's the verdict?
At first glance, it's easy to write Adore off as a glorified distributor. But over the years, this ASX All Ords company has evolved to become more than just an online store.
In my eyes, competition, customer retention, and customer acquisition costs remain the key risks for Adore.
But the Adore Beauty share price may already reflect these risks, with shares currently trading on a trailing price-to-sales ratio of 1.2x.
According to our Foolish ASX reporting season calendar, Adore will release its FY22 results on Monday 29 August.
Some of the things I'll be watching include revenue and customer growth, the company's gross margin profile, marketing expenses, progress on its private label initiatives, and earnings margins.
It's also worth noting that the company is on the hunt for a new CEO. Tennealle O'Shannessy handed in her resignation last week. She'll be leaving Adore in February next year to take the top job at IDP Education Ltd (ASX: IEL).
