Background: Temple & Webster is Australia’s largest pure-play online furniture retailer, founded in 2011 and listed on the ASX in 2016. Over the past decade, it has grown rapidly and now commands a meaningful slice of the local furniture market.

What happened: Despite revenue growth of 20%, Temple & Webster's share price plummeted 30%. The reason? Temple & Webster's net profit fell 36% to $5.76 million  as they prioritised aggressive discounting and promotions... which obviously squeezed margins.

What else: Rather than pulling back, management is doubling down on discounts. The CEO says capturing market share now is critical, especially as Millennials enter peak home-furnishing years. So clearly, the strategy is to sacrifice margins today to win scale tomorrow.

What's the key learning?

💡One of the biggest tensions in growth businesses is the trade-off between market share and margins. Winning customers often means cutting prices, but that comes at a cost.

💡Temple & Webster has lifted its market share to 2.9%, up from 1% six years ago. Revenue is rising, but heavier promotions are squeezing profits, which tends to worry investors.

💡The long-term bet is that scale eventually improves profitability through pricing power and supplier leverage. The risk is that competition keeps margins thin for longer than investors are willing to wait.