Caught Between Currys and Amazon

AO World — the UK's largest online-only electricals retailer, now also running the Music Magpie recommerce business. All figures in pounds sterling.

AO World has produced final results for the year ending 31 March 2026. Revenue was up 11.4%. Adjusted profit before tax was up 16.1% to a record £50.5m — which comes as quite a surprise to me. Significantly, the statutory profit before tax was also £50.5m: there were no adjusting items at all this year, compared with negative £22.9m of adjusting items in last year's figures. That is surprisingly good. The adjusted pre-tax margin was 4%, closing in on the medium-term target of 5%. Reported earnings per share stands at 6.36p.

FY 2026 results

Sources: AO World FY26 final results, 17 Jun 2026; DirectorsTalk; GlobalData; Investegate. FY25 adjusting items were £3.3m Music Magpie acquisition costs plus a £19.5m goodwill/intangible impairment on the postpay mobile business (£22.8m total).

The single biggest reason the statutory comparison looks so dramatic is the absence of the prior year's adjusting items. In FY 2025 there were £22.8m of one-off charges (£3.3m of Music Magpie acquisition costs and a £19.5m impairment of goodwill and intangibles on the postpay mobile business). In FY 2026 there were none. So statutory profit before tax swung from a heavily-charged £29m to a clean £50.5m — but a large part of that swing is the non-repeat of last year's write-downs rather than pure trading improvement.

That said, the underlying trading genuinely improved too: adjusted pre-tax profit (which already strips out those one-offs in both years) still rose 16.1%, and the operating profit jump from £21.1m to £49.4m reflects revenue growth with broadly stable margins and well-controlled administrative costs. So it is a real improvement — but the headline statutory leap in earnings per share overstates it, because the prior year was depressed by impairments.

The operating profit jumped 134% to £49.4m while revenue grew to around £1,266m. Gross margin was held broadly stable — 24.26% in FY 2025 and around 24.95% in FY 2026 — so they kept margins steady while growing gross profit. Critically, they did not take on major additional administrative costs: administrative expenses moved only modestly, from 20.64% of sales to 21.05%. Effectively, admin costs (a big cost for the business) didn't rise as fast as sales, so scale mattered. The Music Magpie acquisition does appear to be playing through positively.

One of the big revenue-driving areas has been the Music Magpie recommerce business, where e-commerce sales grew around 118% to £119.5m. That reflects the first full year of ownership (Music Magpie was acquired in December 2024, so FY 2025 only captured a partial-year contribution).

Segment picture (FY 2026)

Sources: AO World FY26 results; GlobalData (B2C c.9.5%; B2B and network commission declined as the group rationalised for profitability); AIM Group (FY25 recommerce c.£42.6m).

To answer how much of the growth is real versus acquisition-driven, the cleanest cut is to strip Music Magpie entirely out of both years. It contributed only around £29.7m in FY 2025 (acquired 12 December 2024, so just under four months of ownership) against around £119.5m in FY 2026:

Revenue excluding Music Magpie

On this basis, the group grew only around 3.6% once Music Magpie is removed — versus the 11.4% headline. The roughly £90m increase in Music Magpie revenue is almost entirely the mechanical effect of annualising a four-month acquisition into a full twelve months. It will not repeat: once FY 2027 carries a full year of Music Magpie in both comparison periods, that tailwind disappears, and growth reverts to whatever the core engine and a now-mature recommerce business can jointly produce. This is why I am holding the long-term growth assumption down at 4%.

Since 2021, shares in issue have been diluted by around 16%. However, there was a slight concentration in the last twelve months: the company announced a new shareholder return in these results — a 10% special dividend plus a £10m buyback, completed back in March. All the good figures meant the company swung from net debt of £35.9m to net funds of £16.4m. Inventories held steady at £87.4m, trade receivables flat at £105.5m, and cash increased to £81.3m. With no dramatic increase in long-term borrowing, net asset value rose 21.4% from £144.5m to £175.5m. I don't judge the company too much on net asset value, but it is indicative that the position improved.

Six-year financial history

Revenue has been a rollercoaster since 2021. FY 2021 hit 58.8% turnover growth to a high of £1.661bn during COVID (this is an online-only business, so the pandemic was a huge tailwind), followed by three years of decline, then +9.5% and +11.4% this year. The current £1.266bn is still well below that £1.661bn COVID peak. The encouraging story is the gross margin, which has climbed steadily from 17.0% to over 24% — the pivot to profit and cash generation is evident.

I have a big question mark on AO World, as always, because they are in a very competitive marketplace. You have Currys selling huge volumes in store, and Amazon doing a very good job online. Those are two different positions, and AO is caught between them. Amazon will always pull in huge customer numbers and compress product prices, so AO will always struggle to improve margins on that front — and they have to pay to be seen, in a way that Amazon simply doesn't, because Amazon is the default online store with the ease, convenience, ratings and delivery options. That is a dangerous squeeze position.

I've commented in the past that it's interesting AO hasn't tried to link up more specifically with other companies. I think they should be progressing ideas about getting onto the high street via franchise arrangements — having a presence within high-street shops to sell their products and drive people to their website. I'm not aware of them going down that route, but that's what I personally think they should do to extend their presence across the country.

Nonetheless, these are some blinding figures from a company I haven't been impressed with in recent times. They really have got their act together on profitability.

My core concern feeds straight into the growth rate. Their core business isn't really progressing, they already have a huge online presence, and they can only grow as fast as the general market — plus the uncertainty over how much of this year's jump is the one-off Music Magpie annualisation. So I'm being cautious. I'm giving earnings per share of 6.36p and being generous with a growth rate of 4% (somewhere in the middle: Music Magpie has helped, but there are real struggles with core sales rates). I'm applying a 20% risk factor — we roughly know what's going on and where they're heading — and no uplift or reduction.

VALUATION SNAPSHOT

This gives an actual valuation of 67.16p against a current share price of 93.80p — a negative value opportunity of −28.4%. That's not a huge surprise to me; AO has had a tendency to be overvalued, in my opinion. On the back of these growth figures, someone could argue that if the company can sustain a long-term growth rate above 10.5%, then it is fair value. But I think they will struggle to expand sales.

• Sustained higher growth: If AO can sustain a long-term growth rate above ~10.5%, the shares would be fair value. The strong B2C share gains (+9.5%) and recommerce momentum could, in principle, support that.
• Margin progress to the 5% target: The adjusted pre-tax margin reached 4%, closing on the 5% medium-term target. Hitting it would lift profitability meaningfully.
• Recommerce structurally growing: If Music Magpie keeps growing organically (beyond the annualisation effect), the growth picture improves.
• Balance-sheet strength: The swing to net cash (£16.4m), special dividend and buyback show a healthier, more confident company.
• A high-street/franchise move: If management pursued the kind of high-street presence I've suggested, it could broaden reach and reduce the Amazon squeeze.