Zulily Inc. (ZU), a retail website that tailors its offerings and user experience to moms, plans to raise $195.5 million in its upcoming IPO. The Seattle, Washington-based firm will offer 11.5 million shares (including 45% insider shares) at an expected price range of $16-$18 per share. At the midpoint of that range at $17 per share, Zulily will command a market value of $2.2 billion.
ZU filed confidentially on October 8, 2013.
Lead Underwriters: BofA Merrill Lynch, Citigroup Global Markets Inc, Goldman Sachs & Co
Underwriters: Allen & Company LLC, RBC Capital Markets LLC, William Blair and Co LLC
Founded in 2010, Zulily has exploded into one of the largest standalone e-commerce firms in the United States. Zulily is specifically designed to target moms both in its selection and in its shopping experience.
The website offers a new selection of some 4500 product styles on a typical day, typically through flash sales events-time-limited, curated sales of products sourced from national brands, boutique vendors and emerging brands. Zulily offers vendors access to a large and carefully-targeted audience, which is especially valuable to smaller vendors who may not have the resources to directly access that market on their own.
The firm operates with limited inventory, essentially acting as an intermediary by taking customer orders before purchasing inventory from vendors. Zulily has seen rapid growth in its customer base, with a 98.5% increase in active users (defined as customers who had made a purchase at least once in the past year) from September 30, 2012 to September 29, 2013.
ZU offers the following figures in its S-1 balance sheet for the nine months ending September 29, 2013:
Net Income: ($155,000)
Total Assets: $168,964,000
Total Liabilities: $90,331,000
Stockholders' Equity: ($57,711,000)
Zulily reported $331.2 million and $438.7 million in net sales for calendar 2012 and the nine month period ending September 29, 2013. The firm reported a net loss of $10.3 million and $0.2 million in net income over the same periods.
Zulily is hardly the only online retailer seeking consumer attention, and must compete with other online retailers and the websites of traditional retailers. Major competitors include Amazon (AMZN), eBay (EBAY), Half.com, Target (TGT), Wal-Mart (WMT), and many others. Some of these competitors are better capitalized and have access to a greater user base than Zulily.
Co-founder Darrell Cavens has served as Zulily's President and CEO since 2009. Mr. Cavens previously served as the director of BizTalk Server and SQL Server at Microsoft Corporation (MSFT) and in various positions with Blue Nile (NILE), an online retailer of fine jewelry, most recently serving as Senior Vice President of Marketing and Technology. Mr. Cavens attended the University of Victoria in Canada from 1990 to 1994.
Zulily looks to be an exciting IPO. Our recommendation is a buy in the proposed range of $16 to $18.
However, we don't believe that Mother Merrill has correctly priced the propose range and the deal will likely come at a significant premium. We would be a buyer up to $20.
We are hearing that this deal is already oversubscribed. This first to market exciting internet retailer definitely has a strong buzz in our IPO community.
The firm appears to be clawing its way to profitability, and it has shown truly incredible revenue growth since its 2010 inception. Zulily seems to have the ear of moms, who form a critical element of the American consumer base and can be difficult for vendors to reach on a consistent basis. Zulily has a bright near-term future, and well worth paying for.