too bad. I bought from you probably.
Sentiment is so bad and price has dropped so far that it is a good setup.
I've been on a call with the co, pretty bullish. FQ4 is seasonally strong (May-June). Also FQ2. The drop you see in spending is because FQ3 (Jan-Mar) is the slowest, with Apr being similar to March and May is where things take off. If you use google trends and have been following the co you see that a drop in interest during Q3 is normal.
They expect to at least meet the single analyst that followed the co (till he left). It means that H2 rev will be higher than H1. This implies RR of ~300 mil.
Also, you can't ignore other players in this space. Farfetch, their closest comparable, also dropped like a stone but has since stablized. They trade approx. 2.4 this year's rev (year ends in ~8 months) and expected to grow rev ~24%.
Cettire trades, if you agree that they will do 300 mil rev, at almost 1 turn *this* year's rev, the year that ends in 2.5 months, and will grow much faster than 24%, probably to the tune of 100%.
The co claims that they proved the market that they can be profitable - re pre IPO years, and now they are trying to use as much of IPO funds as possible -otherwise why go public? I tend to agree with that, if you have cash - why not acquire more customers even if it makes the P&L look ugly in the short term.
Regarding the founder selldown they have an interesting claim: they claim that close to the release of the reports on Feb 3rd, brokers started chatter about Dean selling shares and stock started dropping. They claimed that they contemplated issuing a release saying he will not sell to kill the rumors but then he will have to say " i wont sell till XXX" - kicking the can down the road towards date XXX. So he decided to sell some to satisfy the rumors and draw a line in the sand. Sounds at least a little plausible. A nice thing that goes toward their version of the story is that the shares were released on Feb 3, but sold on March 23rd. Almost 2 months later and on a much lower price. If he intended to sell, he'd probably pre-arrange a sell before shares are released from Escrow so he can sell immediately when they are released. He is an organized person, so this kind of disorganization tends to point to the fact that he did not plan to sell, but was "forced to". I told them that the best line in the sand would be him buying shares, lets see if this happens.
Another thing is that the CFO remuneration is tied to the share price, and out of this 2.5 million options in 1.21 strike price, 2/3 only vest if the share price is over 3 and 4 dollars on december 31 2023. Looks like they internally believe this is what the SP should be. In his words: "if the share price is not over 3 or 4 by the end of next year i get paid nothing".
Another claim was that they have contracts with suppliers signed 3 years ago when the co was selling a fraction of what it is selling today. Now when they are approaching 300mil in rev they can renegotiate these contracts to increase margins. In any case they say that this year's goal was to grow as much as possible and tend to margins next year.
After buying for 89 last year and selling for 2-3, I am back in the share. It is not a clean story - that's for sure. I think Dean has some kind of a problem like autism and he was probably not the most popular kid on the block. He stopped talking to shareholders and hired Marketeye to help him communicate, which goes to say he acknowledges there is a problem, which is good.
I saw some ppl say they should trade 10x rev, I do not agree. But eCommerce businesses can easily command 1x sales and even 2x sales, and we are already on 1x sales for this year. if the biz can maintain 1x sales you get next year's growth for free - and may even enjoy a multiple expansion to 2x. if the biz grows 100% next year and multiple expands to 2x you can quadruple your money in a little over 12 months time.
Suggesting that they spend marketing in order to lose money is also problematic. These guys are marketing geniuses as you can see. They know what is their ROI on marketing. They are not committing suicide. We can try and analyze their marketing and get all sorts of CAC and LTV numbers but the fact is that the biz is not in steady state. They change the blend of marketing returns with respect to cash on hand, LTV, conversion and also - strategy. Sometimes it is better to buy a less profitable customer to gain scale. So you earn less on the customer but you gain on renegotiation of contracts that expands margin. So you give here, and you earn there.
Again - it is not a clean story but from my experience the stock is cheap here. It may still go down but other businesses in the space are considered cheap on 1x sales with a much slower growth operating in a much smaller markets.
As for the experience - I am a customer of the company and likes to order diesel jeans from them. My closet is filled with things I bought on the platform. I also tested the return procedure. Experience was comparable to that of FarFetch and price was lower. So, for me, the co creates value and in the end of the day if the co creates value it HAS value.
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