How two teenagers built a company with a market capitalization of 2.35 billion Swedish kronor

The story of the Swedish seller of snus and nicotine pouches, Haypp Group, began in 2009 in a garage in southern Stockholm. Two 19-year-old friends, Henrik Nordström and Linus Liljegren, were avid consumers of snus, but were disappointed with the assortment available in local stores. So they decided to take matters into their own hands. Today, the market capitalization of the company they created stands at 2.35 billion Swedish kronor (approximately $221 million). And according to analysts’ forecasts, its value could increase by more than 75%.

The Genesis 

“Throughout our years of friendship, we discussed what kind of business we could create,” Linus Liljegren recalled in an interview with the Swedish publication ehandel.se. 

The idea came naturally: being avid consumers of snus – chewing tobacco – they were well aware of the local market’s offerings, which often fell short. Limited choices, sometimes expired products, Liljegren listed. This prompted the friends to start their own snus business, thus giving rise to Snusbolaget.

They simply created a website for the store, investing 10,000 kronor (around $1400 as of December 31, 2009), and began selling snus from lesser-known manufacturers through it. All the money they earned was reinvested into the business’s development and the establishment of a loyal customer base. The friends only started drawing their own salaries after two years.

Eight years later, in 2018, Snusbolaget was already operating with an annual turnover of 500 million Swedish kronor, experiencing a 65% growth in a year. The company is now called Haypp, having changed its name in 2019.

Today, Haypp’s business consists of 11 online stores where customers can purchase snus, nicotine pouches, and vapes. The company operates in seven countries, including Germany, the United Kingdom, and the USA, with its customer base nearing 1 million.

According to their own estimates, Haypp controls 90% of the market in Sweden and 80% in Norway. The company’s goal for 2025 is to achieve net sales of 5 billion Swedish kronor (approximately $472.2 million). In 2023, the figure stood at 3.17 billion Swedish kronor (about $299 million).

Small Warriors 

Achieving such significant growth, the two young entrepreneurs were aided by investments from investors and professional managers. Among such investors in the then Snusbolaget was E-Business Partner, owned by Swedish entrepreneur Patrik Rees and his partners. They were seeking projects for investment specifically in e-commerce.

“Our idea is to find young entrepreneurs with good business ideas, small warriors who want to move forward and for whom we can be mentors,” Rees said in February 2017. By that time, he had already invested in Snusbolaget.

Rees explained that when investing in companies, he becomes a minority shareholder, comparing his involvement in the business, in particular, to Formula 1: for young businessmen to succeed at a higher level, they need people who can help them. “We look at where the company is today and where we can take it (…). You can’t learn e-commerce in courses; you have to drive the car yourself, practice, and sometimes end up in the ditch,” he admitted.

In 2017, Gavin O’Dowd joined the company as CEO, bringing with him substantial experience in the tobacco industry, having previously led British American Tobacco in Sweden.

The founders themselves stepped away from the operational management of Haypp. Nordström now heads the nominating committee and is not listed among the company’s largest shareholders. Liljegren sits on Haypp’s board of directors. He is the main owner of GR8 Ventures, Haypp’s largest shareholder with a 13.09% stake. GR8 Ventures has sold Haypp shares several times, most recently at the end of May this year.

Rees directly owns 12.16% of Haypp, with an additional 3.64% held by E-Business Partner.

Explosive Growth 

After Snusbolaget garnered investor support, it became more active in expanding its business, including through acquisitions of other companies and entering new markets.

The real boom occurred in 2020 when Haypp’s business grew by over 100%, as Peter Deli, the company’s CFO, explained at the 14th annual LD Micro conference in New York in early April this year. This growth was driven by the ongoing COVID-19 pandemic and changes in consumer behavior, including a shift from cigarettes to alternative products and an increase in online purchases.

In 2021, Haypp Group conducted an IPO on the Nasdaq First North Growth Market – a division of Nasdaq Nordic for small companies in Europe. During the listing, the company sold 31.2% of its shares, including the overallotment option. The placement was oversubscribed, attracting significant interest from both institutional and retail investors, according to Haypp.

For example, a local billionaire and real estate investor Erik Selin from the Forbes’ eighth hundred acquired shares worth 66 million Swedish kronor.

As a result, Haypp raised 150 million Swedish kronor (approximately $14 million; with additional shares sold by shareholders). O’Dowd told the local publication breakit.se that the company plans to use the raised funds for expansion into other markets with greater growth potential than Scandinavia.

Operating in the “Gray Zone” 

Haypp describes its audience as people looking to quit smoking.

According to the World Health Organization, over 8 million people die annually from the “tobacco epidemic”: 7 million directly from tobacco use and 1.3 million from exposure to tobacco smoke.

In the European Union, laws are in place to combat tobacco smoking. Haypp Group itself acknowledged in its IPO prospectus that it operates in a highly regulated market.

WHO believes there is no such thing as safe tobacco. However, tobacco companies and distributors are promoting alternatives to traditional tobacco products, which are not regulated by legislation. For example, for nicotine pouches, whose sales share at Haypp is rapidly growing, the regulatory framework is “unclear” and “open,” O’Dowd admitted to breakit.se.

But he noted that he does not see any legal threats to the business. “We […] focus on public health and want people who consume more harmful forms of tobacco, especially cigarettes, to switch to safer products,” he said.

It appears that the Swedish government holds the same view: in April, it presented a bill to parliament that proposes reducing the snus tax by approximately 20% while simultaneously increasing the cigarette tax by about 9%. The government aims to widen the tax gap between cigarettes and non-tobacco alternatives, considering the latter less harmful to health.

Haypp expects that by 2025, the market for nicotine pouches and snus in the regions where it operates will reach 60 billion Swedish krona (about $5.7 billion). For comparison, according to a market study cited by Haypp, it was 27 billion Swedish krona (approximately $2.6 billion) in 2020.

Analysts’ Insights 

The average target price for Haypp shares from analysts is 111 Swedish kronor per share, according to Yahoo Finance. This represents a potential growth of almost 40% from the closing price on June 10 (79.8 Swedish kronor).

Barclays analysts raised Haypp’s target share price to 150 Swedish kronor in March. The company promised that its US business would soon become profitable, Barclays explained in their report. Currently, the US accounts for about 3% of Haypp’s sales, as Deli explained at LD Micro. The company considers this market to be growing.

However, in May, Barclays analysts lowered the target share price to 140 Swedish kronor, reiterating their “buy” recommendation. This is more than 75% higher than the closing price on June 10. Revenue dynamics in 2023 met market expectations, but earnings per share did not, Simply Wall St analysts explained.