Should I buy musicMagpie (MMAG) shares?

Another day, another IPO. Paul Summers runs the rule over new small-cap stock musicMagpie plc. Will he be buying the shares?

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The wave of new companies coming to the market continues apace. The latest new-stock-on-the-UK-block is re-commerce business musicMagpie. Trading of its shares began today on the (junior) AIM market of the London Stock Exchange. As someone who only very recently used its services and loves small-cap stocks, I’m keen to look into the investment case for the company. Should I buy MMAG shares today?

What is musicMagpie?

Founded in 2007, musicMagpie is a dream for anyone who likes to declutter. It specialises in “refurbished consumer technology“. It takes the stuff we no longer want — including smartphones, video games consoles, CDs and DVDs — and then sells it on. Previous owners get some fuss-free cash for their unwanted things and the company pockets the (often sizeable) difference between what it pays to acquire them and what it goes on to sell them for.

Thanks to the multiple lockdowns in the UK, decluttering has become extremely popular. This has proven a boon to firms such as musicMagpie. I can see this momentum continuing for a while yet, particularly if concerns over employment force people to find ways of raising cash quickly. 

So, what’s to like?

Aside from the current demand and simple business model, one thing I like about musicMagpie is that it’s not solely dependent on the UK for earnings. Back in 2014, the company expanded into the US with its Decluttr brand. This geographical diversification could help the company to continue growing at a fair clip going forward. It should also help investors sleep at night. 

A second positive is that musicMagpie has solid environmental credentials. Indeed, it recently received the LSE’s Green Economy Mark. This seal of approval is handed out to businesses that make 50% or more of their total revenue from green-economy-related products and services. This could make the MMAG shares popular, especially among younger investors.

As well as the above, I’m also particularly drawn to the company’s phone rental strategy. This may be enticing for those who 1) don’t wish to shell out hundreds of pounds for a smartphone and 2) regularly want to upgrade.

Last, musicMagpie is already profitable. This makes it a world away from a typical blue-sky, glitzy tech stock. 

Any negatives?

Despite the above, I think there are a few risks to be aware of. Perhaps the most concerning is the level of competition musicMagpie faces and its lack of ‘economic moat’. 

Reselling is hardly a new concept. Rivals in the UK include WeBuyBooks, Ziffit and CeX. On top of this, there are US giants Amazon and eBay. If declutterers have time, they have a good chance of making more money by selling things individually (although, ironically, their competition would be musicMagpie). 

On a more general level, trying to make money from an IPO is tricky. For every stock that does well (AJ Bell), there are many that don’t (Aston Martin, Deliveroo). Factor in the greater volatility seen in the small-cap world and early owners could be in for an ‘interesting’ ride.

My verdict on MMAG shares

At face value, MMAG shares look very interesting. However, that last concern is the most problematic for me. As such, I’m going to sit back and watch the market’s reaction to musicMagpie’s listing before I consider taking a stake. If I miss out on some early gains, so be it.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended eBay and recommends the following options: short June 2021 $65 calls on eBay, long January 2022 $1920 calls on Amazon, and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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