IPO Preview: Care.com

Jan.24.14 | About: Care.com, Inc. (CRCM)

Based in Waltham, MA, Care.com (NYSE:CRCM) scheduled an $80 million IPO on the NYSE with a market capitalization of $485 million at a price range midpoint of $15 for Friday, January 24, 2014.

CRCM is one of three IPOs scheduled for the week of January 20, 2013. The full IPO calendar can be found at IPOpremium.

SEC Documents

Manager, Joint Managers: Morgan Stanley, BofA Merrill Lynch, J.P. Morgan

Co-Managers: Allen & Company, Stifel

End of lockup (180 days): Thursday, July 24, 2014. CRCM may be a candidate to short a week or 10 days before the lockup ends. Or if it gets hit around the lockup day, it might be a buy on the expectation it will bounce back from the lockup hit.

Summary

CRCM is the world's largest online marketplace for finding and managing family care, with more than 9.7 million members, including 5.2 million families and 4.5 million caregivers, spanning 16 countries. CRCM has similarities to Craig's List.

For the 9 months ended September '13 revenue increased 79% to $59 million from $33 million, compared to September '12 results.

Losses increased to -$25 million (42% of revenue) from -$18 million (54% of revenue).

Gross profit declined to 76% from 79% of revenue.

The % of paying families to total families declined to 9% from 11%. In 2010, the ratio of paying families to total families was 15%.

Omission: CRCM should have a section on 'recent developments' with estimates for the period ended December 31, 2013. Not having that updated section is a negative.

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing Sept 9 mos '13

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Care.com

$446

22.7

-13.4

2.7

5.0

18%

Click to enlarge

Rate-of-change analysis

The only rate-of-change metric that is still increasing is revenue-per-family.

Rate-of-change for all the other metrics is declining including: Members, Families, Caregivers, Paying families, and Paying caregivers. Rev-per-paying caregiver is flat. See financials below.

Churn rate concern

Most of the paid memberships are monthly memberships, and the average paid membership length for consumer matching solutions is approximately seven months.

Conclusion

Buy CARE on the IPO because institutions like recurring revenue subscription-based companies that are market leaders, even though cash flow breakeven is not yet visible.

Institutions also like companies that have grown revenue 79% over year earlier comparable periods.

The two areas of concern are declining rate-of-change metrics and a relatively high churn rate.

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

Business

CRCM is the world's largest online marketplace for finding and managing family care with more than 9.7 million members, including 5.2 million families and 4.5 million caregivers, spanning 16 countries.

CRCM helps families address their particular lifecycle of care needs, which includes child care, senior care, special needs care, and other non-medical family care needs such as pet care, tutoring, and housekeeping.

In providing families a comprehensive marketplace for care, CRCM is building the largest destination for quality caregivers to find fulfilling employment and career opportunities globally. CRCM strives to help its members-families and caregivers-pursue their passions and fulfill the basic human need of caring for each other.

Churn rate risk

Currently, most of the paid memberships are monthly memberships, and the average paid membership length for consumer matching solutions is approximately seven months.

As a result, CRCM must regularly replace paying members who allow their membership to lapse with new paying members either by converting existing non-paying members or by attracting new members to our service.

Anticipated member acquisition costs and analysis of the revenue that CRCN expects new paying members to generate over the life of the membership depends upon several estimates and assumptions, including lengthening paid memberships and increasing renewal rates, including conversion rates of existing members to paying members, future membership fees, and success in cross-selling existing and new products and services to members.

Members and visitors

In 2013, CRCM had an average of over 6.3 million unique visitors to its platform each month, including approximately 2.2 million visitors per month from mobile devices.

In the process, CRCM also helps caregivers find rewarding full-time and part-time employment opportunities.

In 2013, 60% of all job postings were for part-time care services, with the remaining 40% seeking full-time care. CRCM believes the scale and breadth of its services, combined with its commitment to delivering the best possible member experience for families and caregivers, have made it the most trusted and leading brand for finding and managing family care.

Competition

With respect to consumer matching solutions, CRCM competes for members with traditional offline consumer resources, online job boards, and other online care marketplaces.

CRCM also competes for a share of the overall recruiting and advertising budgets of care-related businesses with traditional, offline media companies and other Internet marketing providers.

5% stockholders

Matrix Partners VII, LP, 22%

Trinity Ventures IX, L.P. 15%

New Enterprise Associates 13, LP 13%

Institutional Venture Partners XIII, L.P. 10%

Entities affiliated with USAA, 9%

Stephanie and William Breedlove, 7%

Use of proceeds (unable to find this section)

CRCM expects to net $72.5 million from its IPO. Proceeds are allocated to working capital and other general corporate purposes.

Disclaimer: This CRCM IPO report is based on a reading and analysis of CRCM'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.