Zulily: This is what a fully-baked IPO looks like
In the Cantos, Ezra Pound wrote about a Chinese emperor who had these words written on his bathtub: “Make it new, day by day make it new.” Along with Pound, a century of poets and artists have drawn inspiration from those words until they began to sound like a cliché. But the more the web evolves, the more the motto applies to online businesses as well.
One example is Zulily, which filed for an IPO yesterday, less than a week after Twitter filed its own prospectus. Unlike Twitter, however, Zulily has approached the market under the radar, despite its consumer-web business model. For most people who weren't shopping on its site, it was long known as one of several companies offering flash sales, a consumer trend that peaked and faded like the daily-deal emails.
Gilt Groupe was once the premier flash-sale company before it went, in Erin Griffith's words, “from high flying startup to drama-ridden turnaround story in a matter of a year.” Many thought the sector was washed up, but there were a few outliers with healthy traffic like Fab and Zulily. The future of ecommerce 2.0 relied less on consumer gimmicks and more on a retailer's ability to generate demand rather than fulfilling it as older ecommerce sites did.
Zulily's approach, according to its CEO Darrell Cavens, show the company not moving away from flash sales but doubling down on them. Groupon found success by backing way from daily deals and focusing on a database of more durable discounts. Zulily increased the volume of daily sales. “We host 50 new events a day,” Cavens wrote in a piece for Inc. “That means adopting about 6,000 new [stock-keeping units] online daily. A typical Costco store has about 4,000 SKUs.” (In its prospectus, Zulily says it offers a large volume of items because it takes customer orders before it purchases inventory from vendors.)
Zulily makes its site new every day. If anyone's wondering what happened to the daily newspaper publishing model in the past several years, it's been adopted by retailers like Zulily. Weirdly, it works by luring Zulily's targeted consumer, trendy but busy mothers who want to dress themselves and their kids well, and are happy to pay a premium.
The ephemeral volume of sale items is a draw for shoppers for whom time is a more precious commodity than money. Much like Twitter, the evolution of Zulily has happened in response to how its users wanted the site to work. In another interview with Geekwire, Cavens said, “What makes us special is that we are focused on a customer segment that is very passionate about their kids, and they are looking for great products.”
Zulily's growth trajectory is similar to Twitter's. Its revenue was $18 million in 2010, $142 million in 2011, $331 million last year, and $272 million in the first half of this year. Compare that to Twitter, which saw $28 million in revenue in 2011, $106 million in 2011, $317 million last year and $253 million in the first half of this year.
The difference between the companies emerges in their operating profits. Both sustained losses in their early years. Twitter had a $77 million loss last year and a $63 million loss in the first half of this year. Zulily, however, had an $11 million loss last year and a $2.4 million profit in the first half of this year. Zulily looks more like the kind of black-ink IPO investors prefer.
Twitter has more users – 218 monthly active users – vastly more than the 2.2 million customers Zulily cites. But Zulily is growing its customer base (up 93 percent from a year earlier) faster than Twitter (up 44 percent in the same period) and wrings profits from them.
Such comparisons are only so useful, since Twitter and Zulily have very different business models. But investors will be comparing them by virtue of the fact that they're entering the IPO pipeline close to each other as consumer-web companies, a sector that has been gaining favor since Facebook's last, surprisingly strong earnings report.
Last week, Fortune's Dan Primack, noting that Twitter marked the end of an era of consumer-web juggernauts like Facebook and LinkedIn, said, “What we know is that this is the end. What we don't know is what follows.” He may already have gotten his answer with Zulily: startups focused on consumer niches that focused quietly but intently on building its core business.
Zulily's revenue may be comparable to Twitter's, but the impact its IPO may have on the market won't come close. From an investor perspective, however, that cultural impact matters less than the performance of the stock once it hits the market. Looking at the financials, Twitter may be the company with the bigger long-term potential, but Zulily is the one quietly making a profit today. Depending on how these two IPOs are valued, that detail may carry a lot of weight with investors.
(Image via Wikimedia Commons.)