IPO Report: zulily (ZU)

zulily (ZU) launched the zulily website in January 2010 with the goal of revolutionizing the way moms shop.

Nine other IPOs scheduled for this week. The full IPO calendar can be found at IPOpremium.

ZU scheduled a $196 million IPO on Nasdaq with a market capitalization of $2.2 billion, at a price range midpoint of $17 for Friday, November 15, 2013.

Manager, Joint managers: Goldman Sachs, BofA Merrill Lynch, Citi.  Co-Managers: RBC Capital Markets, Allen & Company, William Blair.  S-1 filed November 1, 2013

Overview

Compared to the year earlier period, results for the nine months ended September, 2013 included:  revenue up 116% to $439 million; net income of $115,000 up from a loss of $14 million; postive EBITDA and free cash flow, up from negative figures.

Valuation

Glossary

Conclusion

ZU’s top line revenue is increasing in the triple digit range. ZU turned barely profitable for the September 2013 nine months, with positive EBITDA and free cash flow.

The ZU rating is a buy.

Business

ZU launched the zulily website in January 2010 with the goal of revolutionizing the way moms shop.

Today, ZU is one of the largest standalone e-commerce companies in the United States.

Through its desktop and mobile websites and mobile applications, which ZU refers to as its “sites”, ZU helps its customers discover new and unique products at great values that they would likely not find elsewhere.

ZU provides moms a fun and entertaining shopping experience with a fresh selection of over 4,500 product styles offered on a typical day through various flash sales events, which are limited-time curated online sales of selected products launched each day on its sites.

ZU sources its merchandise from thousands of vendors, including emerging brands and smaller boutique vendors, as well as larger national brands.

By bringing together millions of moms and a daily selection of products chosen from its vendor base, ZU has built a large scale and uniquely curated marketplace. Since inception through September 29, 2013, ZU has worked with over 12,000 brands, featured over 2.0 million product styles and sold over 51 million items to approximately 3.5 million customers across its platform.

ZU believes it is a disruptive e-commerce company

zulily is a disruptive e-commerce company built to address a retail experience for moms that it believes has become uninspiring due to the concentration of sales among mass retailers and the commoditization of merchandise.

ZU distinguishes itself by offering a fresh and affordable selection of products that inspires moms to shop. ZU’s merchandising team constantly scours the market for new and unique brands in children’s apparel, women’s apparel and other product categories, such as toys, infant gear, kitchen accessories and home décor.

Once it finds these brands, ZU invests in photography and editorial content to tell each brand’s story in its fun and engaging voice. ZU then sells these products through its flash sales model, creating an impulse-driven shopping experience that delivers entertainment, value and convenience for moms anytime and anywhere.

Increasingly, moms are shopping at zulily throughout their day from their mobile devices, and as a result ZU has optimized its platform for mobile shopping.

ZU’s focus on delivering a better and more entertaining shopping experience for moms has driven strong new customer growth as well as repeat purchasing by existing customers, which have been the keys to the differentiated economics of its business.

Competition

ZU expects to increasingly compete with e-commerce businesses, such as Amazon.com, Inc., the e-commerce platforms of traditional retailers, such as Target Corporation, Toys“R”Us, Inc. and Wal-Mart Stores, Inc., and online marketplaces such as eBay Inc., particularly as some of these companies adopt flash sales business practices.

A substantial number of flash sales sites have similar business models in related and unrelated market segments, including Fab, Inc., Gilt Groupe Holdings, Inc., HauteLook (which is owned by Nordstrom, Inc.), MyHabit (which is operated by Amazon.com), One Kings Lane Inc. and RueLaLa.com (which is operated by Retail Convergence.com LP).

ZU also competes with the traditional offline retail industry, including discount and mass merchandisers, such as Target, Toys“R”Us and Walmart, as well as boutique sellers of children’s apparel, women’s apparel, and other product categories, such as toys, infant gear, kitchen accessories and home décor.

5% stockholders

Darrell Cavens 20.9%

Mark Vadon 30.3%

Dan Levitan 23/5%

Entities affiliated with Maveron 23.5%

August Capital 7.4%

Entities affiliated with Andreessen Horowitz 7.3%

Use of proceeds

ZU expects to net $98.1 million from its IPO.  Proceeds are allocated for working capital and general corporate purposes.