Zulily: Could Become Amazon For Moms

Nov.10.13 | About: Zulily, Inc. (ZU)

The offer:

Zulily (NASDAQ:ZU) and its selling shareholders are offering 11,500,000 Shares in the price range of $16.00 and $18.00 per share. The expected listing date is November 15, 2013, on Nasdaq. (Source: IPO prospectus)


Zulily is one of the largest standalone e-commerce companies in the United States, which helps moms to shop in a cost-effective way since January, 2010, through its desktop and mobile websites/applications. It offers its customers new and unique products at great values. Its main offerings include children's apparel, women's apparel and children's merchandise. Children's apparel is its largest merchandise category as it accounted for 46% of its U.S. units ordered in the nine months ended September 29, 2013. The company holds 1.1 million square feet of leased fulfillment space at facilities in Nevada and Ohio.

The nature of the products sold by the company makes it clear that why the company says, "We Work for Mom." The company operates with a goal to revolutionize the way moms shop.

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Product sourcing and sales:

The company offers the products that belong to the women's and children's boutique brands, which is the highly-fragmented brand segment. The company aggregates products from thousands of big and small brands through its platform and offers its customers a vast choice, which is hardly available elsewhere.

The company showed the healthy rise in the number of active customers as also in the numbers of orders received during the last few years (see the chart below). (The company defines an active customer as an individual customer who has purchased from it at least once in the last year.)

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Since inception through September 29, 2013, the company has worked with over 12,000 brands, with over 2.0 million product styles and sold over 51 million items to approximately 3.5 million customers across its platform. The company historically experienced the highest sales during the back-to-school shopping season in the third quarter and the holiday shopping season in the fourth quarter.

Unique flash sales model:

The company sells its products through a flash sales model, with offerings typically only available for 72 hours and in a limited quantity, which makes customers to visit the site frequently and make purchases promptly. It comes out with fresh selection of flash sales events with over 4,500 product styles offered on a typical day. The company informs its customers about the events via email and "push" communication. The "push" feature allows the company to send the information to the users via alerts and messages, even when the application is not actively in use. In the latest nine months 77% of the U.S. daily visitors to its sites came via email, mobile "push" feature or other unpaid sources, such as search engine optimization.

The company creates significant value for its customers, as it offers products at a significant discount.

As mentioned in the IPO prospectus:

"The average item on our sites is offered for over 50% off the manufacturer's suggested retail price."

The company can handle all sizes of events. In 2012, 90% of its events generated less than $50,000 of the U.S. product sales, and these smaller events accounted for approximately 65% of the U.S. product sales. This shows that the company does not need a big scale to conduct an event. This makes the company's websites a very attractive venue for the small vendors who can't offer big quantities.

For the vendors the company is not just an e-commerce company that provides a selling platform. The company actively involves with its vendors in the brand building activities. For this, the company manages the entire infrastructure which is required for the online brand building like photography studios, editorial writers, etc. In fact the company has a merchandising team of 314 employees and 43 in-house photography studios, supported by a substantial and talented photo editing, copyrighting and editorial team in the United States and the United Kingdom. The team and studios efficiently style, photograph, photo edit and compose copy of products to show on the company's websites.

The company maintains strong relationships with its vendors.

As mentioned in the IPO prospectus:

"Of the vendors we featured for the first time in 2011, approximately 76% have returned to sell again at least once on our sites through September 29, 2013."

This shows the effectiveness of the company's vendor relationship strategy.


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The company experienced significant growth in the recent times, with the total revenues of $18.3 million, $142.5 million and $331.2 million in FY 2010, FY 2011 and FY 2012, respectively, generating year-over-year increases of 675% and 132%, respectively. It incurred net losses of $7 million, $11.3 million and $10.3 million, in FY 2010, FY 2011 and FY 2012, respectively.

For the nine months ended Sept. 30, 2012 and Sept. 29, 2013, its total revenues were $202.7 million and $438.6 million, respectively, with a loss of $13.5 million and a profit of $0.15 million during the same period, respectively.

Considering the fact that the company is a growth-oriented company and has reported the losses since inception (except for the recent nine months) its balance-sheet is healthy.


As per Euromonitor, the online retail represented $183 billion, or 5.9% of the total retail market in 2012. The online retail is expected to grow to $360 billion by 2017.

In the U.S. over 39 million households have children under the age of 18, representing 121 million people. All these households are the potential customers of the company.


At $17 (mid range of offer price) the company's valuations stand at about $2 billion. At $17, the company is available at P/S of about 3.55x (trailing twelve months).


The company provides an online platform, which allows the vendors to sell their products to the millions of customers who use the company's sites to make purchases. Most of these customers are moms. In simple words, the company specializes in selling the merchandise that is typically purchased by moms. The company is successfully serving one of the most demanding consumer demography, which tells a lot about its service quality and business strategy.

The e-commerce industry holds the low entry barriers. The business strategy of any company plays the most important role in its success in the industry. The company's business strategy makes the shopping a fun and exciting experience for its customers. This makes them to visit the site frequently, which increases the customer engagement with the company. Financially, the company showed a marked improvement during the last few years. It showed a constant improvement in the operating margins, which during the nine months ended Sept. 29, 2013, showed a positive trend. The gross margins also showed a constant improvement during the last two years.

The key worry for the company is its order-to-ship time, which in the third quarter of 2013, takes about 11.4 days. The prime reason behind this is that the company normally does not maintain an inventory of the products it offers. It typically purchase the inventory only after it receives the orders. The company's prominent competitor includes Amazon (NASDAQ:AMZN) and Wal-Mart (NYSE:WMT); both are much bigger than the company and normally deliver products in a much shorter time span.

The company showed an exceptional growth since the inception. Its recent entry in the international markets will further fuel the growth.

It holds an enormous growth potential due to its business strategy as well as its infrastructure, which is capable to serve small vendors. Though, the growth rate can come down, in percentage terms, due to the rising scale.

The company's concentration on things like customer experience, technological advancements and product presentation can make it "Amazon for moms" in the years to come, but the company will have to reduce the order-to-ship time if it wants to compete with biggies like Amazon and Wal-Mart.

Due to the limited operational history, it's very difficult to take a long-term view about the company, but the company holds most of the ingredients for a long-term, growth story. Valuations look like on the higher side, but growth stories rarely come cheap, and also holds a component of risk.

Disclaimer: Investments in stock markets carry significant risk, stock prices can rise or fall without any understandable or fundamental reasons. Enter only if one has the appetite to take risk and heart to withstand the volatile nature of the stock markets.

This article reflects the personal views of the author about the company and one must read offer prospectus and consult its financial adviser before making any decision.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.