IPO Preview: Zulily

Nov.15.13 | About: Zulily, Inc. (ZU)

Based in Seattle, WA, Zulily (NASDAQ:ZU) has scheduled a $196 million IPO with a market capitalization of $2.2 billion on the Nasdaq at a price range midpoint of $17 for Friday, November 15, 2013. ZU recently raised its price range to $18 - $20.

Ten operating company IPOs scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-1 filed November 1, 2013

Manager, Joint managers: Goldman Sachs, BofA Merrill Lynch, Citi

Co-Managers: RBC Capital Markets, Allen & Company, William Blair

Summary

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

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; positive EBITDA and free cash flow, up from negative figures.

Valuation

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing Sept 9 mos

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Zulily

$2,074

3.6

11032

11.7

11.9

12%

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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.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

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 Wal-Mart, 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.

Disclaimer: This ZU IPO report is based on a reading and analysis of ZU's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article

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. I have no business relationship with any company whose stock is mentioned in this article.