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CafePress: 20% Growth Trading For Book Value

Jan. 11, 2013 5:49 AM ETCafePress (PRSS)CMPR13 Comments


CafePress, Inc. (NASDAQ:PRSS) is an online manufacturer and retailer of custom printed products, such as coffee mugs, t-shirts, stickers, stationery, home accent pieces and more. Users can login to CafePress.com and actually submit their own designs for virtually anything, have CafePress produce the products, and sell them in a "store" on the website. Users include individuals with creative ideas they'd like to monetize as well as licensed content from individuals or other companies who need print-on-demand capabilities. The company gains and retains customers via its easy to use platform and the ability provided to users to access a large manufacturing base with no investment on their part. CafePress leverages its manufacturing capabilities in order to produce and sell its customers' goods more efficiently.

Segments and Operating Metrics

The company operates in two broad segments, US and International based upon the destination for the final product for an order. As you can see in this table from the most recent 10-Q, the International segment is a relatively small piece of the entire business at roughly 10.5% of the business through the first three quarters of 2012. In addition, you can see that the International segment is actually contracting in terms of total revenue. This is somewhat troubling except that the International piece is so small and that the US portion is growing so quickly, it dwarfs the small contraction in International revenue. Looking at the table below, from the 10-Q, we can see that, for the nine months ended in September, YoY total revenue growth was 23.2%, International revenue contracted 3.8% and US revenue grew a staggering 27.4%. Note: these two tables are recreated from the 10-Q as the 10-Q tables weren't legible.

Nine Months Ended September 30



United States






This article was written by

Josh Arnold profile picture
Josh Arnold has been covering financial markets for a decade, utilizing a combination of technical and fundamental analysis to identify potential winners early on in their growth cycles. Josh's focus is mainly on growth stocks. His goal is efficient and profitable use of capital, which overly rigid buy-and-hold strategies do not allow. Josh is the leader of the investing group Learn more.

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Comments (13)

Enlightening article Josh.
As an independent designer and operator of a number of Cafepress "stores" I can tell you that last Christmas was my best Christmas since 2008. My personal numbers were greatly helped by Cafepress' move into household items, such as shower curtains.
Josh Arnold profile picture
Thanks for the insight pickletoon, and congrats on your success.

Josh, I think you need to go into the online forums to read what people are saying about Cafe Press - there is a lot of negativity and dissatisfaction and resulting customer loss.
Secondly, you mention but underestimate how ultra-competiitve space the "custom products" space is. There are dozens of smaller competitors, and new ones all the time springing up all the time, competing for same customers and compressing margins. POD/custom products may be a commodity but there are lots of little niches for competitors to define and win. Over time growth may get harder for Cafe Press.
Another factor to consider is that the technology to make custom products like t-shirts, prints, i-phone cases, mugs etc is getting much cheaper and cheaper and more and more accessible. Logistics can all be outsourced.
This technology change is lowering the barriers to entry to PRSS's competitors. Small printers, small art communities, ringtone sale businesses, online dictionaries, etc can all move into the "custom products" space with ease and probably will over the next few years. Many of these "small fry" might aim to operate on low margins and build some product revenues and hope to get bought out. This will put the squeeze Cafe Press and on existing Cafe Press competitors like Zazzle, CustomInk, Spreadshirt, Threadless, Shutterfly and Vistaprint. The overall effect of proliferating technology and lower barriers to entry will be lower margins, lower revenue multiple valuations and prices below NTA as incumbents such as Cafe Press, Zazzle etc have in effect paid too much acquiring their customers and building their business up to now. The only people making good profits out of custom products will be those with special niches such as premium or highly specialised products.
Josh Arnold profile picture
Jeff, you make a good point and this is an inherent risk in any commoditized business, including for CafePress. I do believe the acquisitions that have been made have somewhat insulated PRSS from some of these risks but it remains to be seen how they will ultimately play out. As a shareholder, I believe PRSS is in a position of competitive strength but there are always risks, such as what you've laid out. Indeed, most investors must feel your sentiment since PRSS is trading for book value.

Thanks for the comments,
I order customized stuff for my family and business a lot... but their products look expensive compare to their other major online competitors. The gap is even greater if you compare it to world factory like China (compared with shipping included). The "one-stop-shop" has too high a premium in this case.
Josh Arnold profile picture
That is certainly a risk to CafePress' business model and if the majority of customers feel that way, it will spell big trouble for shareholders. Thanks for the insight.

OpusNephilim profile picture
Nice article. I'd have not considered it at all prior to reading this, but this has me thinking, and reading, a lot.
Josh Arnold profile picture
Thanks Opus, glad you enjoyed it.

Not to mention the CEO increased his stake in the company by 10% back in November at the low point.
Josh Arnold profile picture
Insider ownership of PRSS is huge at around 30% of the float and this is certainly making me more bullish.

Thanks for the comment,
yumy87 profile picture

what are you expecting in terms of earnings next round?
Josh Arnold profile picture
Honestly, I have no idea. I am long based on what I presented above and the fact that expectations are so low for PRSS right now that the odds of them disappointing must also be low. However, this is their first 4Q as a public company so we don't really have anything to compare it to and I'm sure this is contributing to the uncertainty. But given that the stock is trading for liquidation value, I don't see a lot of downside risk.

Thanks for the comment,
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