IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

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Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/26023" target="_blank" data-smartkarma-citation="entities:26023:1">Stitch Fix Inc (SFIX US)</a> has the hallmarks of what some may find attractive in an e-commerce IPO. Stitchfix is a personalized stylist e-commerce retailer that has generated $1bn in sales in the US, lost money in its last financial year and preaches its ‘data science’ advantage (it is mentioned 65 times in the prospectus) which are the great buzzwords perhaps best suited for the modern e-tail IPO. Stitch Fix is an interesting concept, however, it faces a number of execution issues. We note four points:<ol class=""><li>Stitch Fix’s sales growth is slowing while its margins are falling: Stitch Fix’s sales growth is slowing and also fading relative to customer growth.  As a result, we argue Stitch Fix needs to increase marketing spend to fervently attract new customers to sustain sales momentum, which has put pressure on margins. We expect this margin pressure to continue. (we believe Stitch Fix uses an extensive array of paid bloggers to drive its brand awareness)</li></ol><ol class="" start="2"><li>Stitch Fix scores poorly on customer reviews: Recent customer surveys of the Stitch Fix offer are weak, with the service rated at the low end of customer satisfaction vs. comparable peers - the customer survey details are shown below the fold. We believe this is driving the company’s declining inventory turnover.</li></ol><ol start="3"><li>Accounting concerns and vague use of proceeds:  We note that following a review of its accounts by Deloitte, Stitch Fix have noted there is a “reasonable possibility that a material misstatement of our (its) financial statements will not be prevented or detected on a timely basis.” Perhaps to this end, we note that Stitch Fix does not have a comparable gross margin (it includes shipping and processing fees) and it has also not given detailed information on the use of proceeds from its IPO.</li></ol><ol class="" start="4"><li>Valuation supportive on EV/sales, not so on earnings metrics: At the mid-point of Stitch Fix’s IPO valuation, it would trade at 1.4x EV/sales, 71.1x EV/EBITDA with an estimated sales growth of 24% in FY18. Stitch Fix’s EV/sales valuation is on the low end of peers and expensive on earnings metrics and with lower relative sales growth. </li></ol>On the positive side, the company’s EV/sales valuation and investor appetite for an alternative to traditional retail may prove supportive for the share launch. On the negative side, the recent related deal flow has been average and we have long-term concerns related to SFIX's fundamentals, accounting and vague use of proceeds.

Stitch Fix Inc (SFIX US) has the hallmarks of what some may find attractive in an e-commerce IPO. Stitchfix is a personalized stylist e-commerce retailer that has generated $1bn in sales in the US, lost money in its last financial year and preaches its ‘data science’ advantage (it is mentioned 65 times in the prospectus) which are the great buzzwords perhaps best suited for the modern e-tail IPO. Stitch Fix is an interesting concept, however, it faces a number of execution issues. We note four points:Stitch Fix’s sales growth is slowing while its margins are falling: Stitch Fix’s sales growth is slowing and also fading relative to customer growth.  As a result, we argue Stitch Fix needs to increase marketing spend to fervently attract new customers to sustain sales momentum, which has put pressure on margins. We expect this margin pressure to continue. (we believe Stitch Fix uses an extensive array of paid bloggers to drive its brand awareness)Stitch Fix scores poorly on customer reviews: Recent customer surveys of the Stitch Fix offer are weak, with the service rated at the low end of customer satisfaction vs. comparable peers - the customer survey details are shown below the fold. We believe this is driving the company’s declining inventory turnover.Accounting concerns and vague use of proceeds:  We note that following a review of its accounts by Deloitte, Stitch Fix have noted there is a “reasonable possibility that a material misstatement of our (its) financial statements will not be prevented or detected on a timely basis.” Perhaps to this end, we note that Stitch Fix does not have a comparable gross margin (it includes shipping and processing fees) and it has also not given detailed information on the use of proceeds from its IPO.Valuation supportive on EV/sales, not so on earnings metrics: At the mid-point of Stitch Fix’s IPO valuation, it would trade at 1.4x EV/sales, 71.1x EV/EBITDA with an estimated sales growth of 24% in FY18. Stitch Fix’s EV/sales valuation is on the low end of peers and expensive on earnings metrics and with lower relative sales growth. On the positive side, the company’s EV/sales valuation and investor appetite for an alternative to traditional retail may prove supportive for the share launch. On the negative side, the recent related deal flow has been average and we have long-term concerns related to SFIX's fundamentals, accounting and vague use of proceeds.

Stitch Fix IPO Preview – Leaving You in Stitches

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Close on the heels of IPOs by subscription meal-kit companies <a href="https://www.smartkarma.com/entities/24175" target="_blank" data-smartkarma-citation="entities:24175:1">Blue Apron Holdings, Inc. (APRN US)</a> and <a href="https://www.smartkarma.com/entities/26000" target="_blank" data-smartkarma-citation="entities:26000:1">HelloFresh AG (HFG GR)</a> comes the planned IPO for <a href="https://www.smartkarma.com/entities/26023" target="_blank" data-smartkarma-citation="entities:26023:1">Stitch Fix Inc (SFIX US)</a>, a subscription apparel retailer based in San Francisco. The company has filed to raise as much as US$200 mn through an offering on NASDAQ; at the upper end of the proposed US$18-20 per share price range, the company would enjoy market capitalization of over US$1.9 bn. We believe SFIX will probably face two of the same challenges as the meal-kit companies, namely relatively narrow product appeal and a potential threat from larger players in e-commerce and traditional clothing retail. Both APRN and, to a lesser extent, HFG, have been dogged by these two concerns since they launched their IPOs.But one problem SFIX doesn't face is a lack of profits: unlike the two recently-listed meal-kit companies, SFIX already generates Operating Profits and Free Cash Flow, and has done so for some time (although core margins are declining). The company's business model is asset-light and appears to be readily scalable. Because SFIX is already profitable, investors don't need to wonder when or how the company will reach profitability. Instead, they merely need to estimate the company's growth potential and what they are willing to pay for that growth. In our view, SFIX's IPO process is worth watching, even for non-US investors. The company's highly personalized approach to consumers, which combines data science and a deft human touch, appears to be a differentiating feature and may show a path forward for other niche retailers struggling to compete successfully against the likes of <a href="https://www.smartkarma.com/entities/409" target="_blank" data-smartkarma-citation="entities:409:1">Amazon.com Inc (AMZN US)</a> and <a href="https://www.smartkarma.com/entities/787" target="_blank" data-smartkarma-citation="entities:787:1">Alibaba Group Holding Ltd (BABA US)</a>.  In this note we will a) describe SFIX's business model; b) analyze its recent financial performance; c) discuss some of the risks it faces; and, d) attempt to estimate its fair value versus peers. We will also provide regular updates before the company's shares begin trading, probably by the end of November.

Close on the heels of IPOs by subscription meal-kit companies Blue Apron Holdings, Inc. (APRN US) and HelloFresh AG (HFG GR) comes the planned IPO for Stitch Fix Inc (SFIX US), a subscription apparel retailer based in San Francisco. The company has filed to raise as much as US$200 mn through an offering on NASDAQ; at the upper end of the proposed US$18-20 per share price range, the company would enjoy market capitalization of over US$1.9 bn. We believe SFIX will probably face two of the same challenges as the meal-kit companies, namely relatively narrow product appeal and a potential threat from larger players in e-commerce and traditional clothing retail. Both APRN and, to a lesser extent, HFG, have been dogged by these two concerns since they launched their IPOs.But one problem SFIX doesn't face is a lack of profits: unlike the two recently-listed meal-kit companies, SFIX already generates Operating Profits and Free Cash Flow, and has done so for some time (although core margins are declining). The company's business model is asset-light and appears to be readily scalable. Because SFIX is already profitable, investors don't need to wonder when or how the company will reach profitability. Instead, they merely need to estimate the company's growth potential and what they are willing to pay for that growth. In our view, SFIX's IPO process is worth watching, even for non-US investors. The company's highly personalized approach to consumers, which combines data science and a deft human touch, appears to be a differentiating feature and may show a path forward for other niche retailers struggling to compete successfully against the likes of Amazon.com Inc (AMZN US) and Alibaba Group Holding Ltd (BABA US).  In this note we will a) describe SFIX's business model; b) analyze its recent financial performance; c) discuss some of the risks it faces; and, d) attempt to estimate its fair value versus peers. We will also provide regular updates before the company's shares begin trading, probably by the end of November.

Stitch Fix IPO Preview: Not Just Another Retail Subscription Service -- This One's Profitable!

United States

Stitch Fix, Inc. operates as an online subscription and personal shopping platform. The Company offers shirts, jackets, sweaters, blazers, leggings, vests, scarfs, jeans, loafers, and boots for men and women. Stitch Fix serves customers in the United States.

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Stitch Fix Inc (SFIX US)

Stitch Fix IPO Preview – Leaving You in Stitches

Stitch Fix Inc (SFIX US) has the hallmarks of what some may find attractive in an e-commerce IPO. Stitchfix is a personalized stylist e-commerce...

Rickin Thakrar

Stitch Fix IPO Preview: Not Just Another Retail Subscription Service -- This One's Profitable!

Close on the heels of IPOs by subscription meal-kit companies Blue Apron Holdings, Inc. (APRN US) and HelloFresh AG (HFG GR) comes the planned IPO...

Daniel Hellberg

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