A series of unfortunate events: Demise of Booktopia is a page turner

A battalion of red flags paved the way for investors to assess the prospects for one-time market darling, but now bankrupt, online tome seller Booktopia.

But the most recent and blindingly bright-coloured flag appeared only a month ago when the listed company told the market that directors’ fees for the year would be paid by issuing shares, rather than in cash.

Booktopia co-founder Tony Nash returned to the company after being ousted by the board.Credit: Julian Andrews

It was a clearer sign than any that the company’s cookie jar was empty.

And then there was last month’s emergency funding package in which Booktopia announced it had secured $1 million to help pay redundancy costs. For this, the company agreed to pay a $400,000 (plus GST) arrangement fee and a $200,000 (plus GST) establishment fee. That’s $660,000 in fees for a $1 million loan.

And the interest rate on this loan? A gargantuan 18 per cent.

The fact that this facility never eventuated because the company collapsed this week may simplify the work of the administrators from McGrathNicol who have been appointed to pick over the carcass of the company, whose revenue in the 2022 financial year was a seemingly healthy $224 million, up 7.6 per cent on the previous year.

The transition from market darling to pariah has been quick but painful.

In that same June announcement the chief executive, David Nenke, resigned and the chairman, Peter George, took over the role while the founder and largest shareholder, Tony Nash – who had been ousted from the company in 2022 – was wheeled in to take up the sales director role.

These executives were to receive a base salary of $275,000, but the cash element would be a record-breaking pittance of $27,542 a year. The rest was to be paid in Booktopia shares issued at 6¢ A share. These are now worthless.

The transition from market darling to pariah has been quick but painful.

From its inception, Booktopia was a disruptor business, one of a wave of online retailers capitalising on technology to eliminate the need for brick-and-mortar stores.

It had all the ingredients of a successful model that would take market share away from the large physical chains and the small community bookstores that dotted the suburbs.

Amazon, its largest competitor, was already making serious inroads into the book market.

Investors loved the idea and during its 2020 float shares were issued at $2.30 a piece and rose initially to $2.90.

The timing couldn’t have been better for Booktopia, who in those heady days boasted a market capitalisation of around $400 million.

Booktopia co-founders Tony Nash, left, and Steve Traurig ringing the bell at the online book retailer’s ASX listing in 2020.Credit: Steven Siewert

The COVID-19 pandemic was the financial equivalent of a shot in both arms for the company. In the first instance, COVID forced the community to hunker down at home with time to read a book, and secondly, buyers were less able to visit a bookstore. Thus, online book sales boomed.

Even with the growth in ebooks and audiobooks, which comprise about 11 per cent of the industry revenue, demand for physical books was still strong thanks to COVID.

Despite strong revenue in 2022, it was clear that all was not well at Booktopia as its earnings that year fell a very concerning 54 per cent.

The company developed a major cost problem during the 2022 financial year, during which it spent money on acquisitions, splurged on warehouse facilities and logistics technology, and incurred a $6 million penalty after the Australian Competition and Consumer Commission pinged it for making misleading statements in its online refunds.

That problem ballooned further when it responded with a series of costly retrenchments.

A year later, in the 2023 financial year, the company reported an 18 per cent fall in revenue and a loss of $29 million – after which it managed to secure $9.3 million in an equity raising.

But a series of disappointments had soured the investor market and the share price got caught in a rut on a downward trajectory.

When Booktopia reported its most recent financial statement for the first half of 2024, its struggles were a flapping red flag – revenue had fallen off a cliff and its profit was as red as the flag.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.