Eclipsed only by Facebook, luxury "flash sale" website Gilt Groupe is the second most highly-anticipated IPO of 2012. I present you the following SWOT analysis of the company as well as the following three words: invest with caution.
- Gilt Groupe holds inventory. The company is not just another middleman like highly-criticized Groupon (NASDAQ:GRPN).
- Reputable investors have allocated significant amounts of money to GG. GG has received tens of millions of dollars of cash infusions from heavy hitters such as Goldman (NYSE:GS) and Softbank (OTCPK:SFTBF).
- The lousy economy has made deep discounters such as GG popular.
- Founded in 2007, GG enjoys first-mover status in the luxury "flash sale" niche.
- GG has yet to turn a profit in five years of operation. However, Amazon (NASDAQ:AMZN) didn’t turn a profit for many years, and we all know how that story ended.
- GG is dependent on suppliers who wish to sell their products at a deep discount. Currently, GG can count on inventory from luxury brands. It is unclear, however, if luxury brands will keep discounters as a primary distribution source as the economy improves.
- GG’s upper management appears overconfident. From smug photos on the site to brazen claims in the media that they are going to "change the face of online retailing,” GG’s executive team comes across as pompous. Co-founder Alexandra Wilkis Wilson is publishing an autobiography/self-help book despite having done little of note prior to her involvement in GG. GG’s upper management is reminiscent of AOL’s during its heyday.
- GG’s website is full of amateurish mistakes such as grammatical errors, illogical navigation, and difficult-to-read color schemes. One has to wonder about an organization that overlooks detail to the degree that GG does.
- GG is not adept at supply chain management and has at times been plagued with shortages and surplus inventory.
- Competitors are being shuttered or bought out. GG has made its own significant acquisitions in Bergine and BuyWithMe. GG will soon become one of the last men standing in the luxury "flash sale" niche.
- GG has deep pockets and the opportunity to negotiate partnerships with major web players. Currently, GG is working on mobile apps and is negotiating a key partnership with the world’s second most popular website, Facebook.
- The improving economy could deter GG’s suppliers from using the site as a primary means of distribution. GG currently sells items for as low as 60% below MSRP. If GG’s suppliers find that they can get full price for their wares, they might cut GG out of the distribution chain all together.
- As investor Jim Rogers suggests, we may be in the middle of a mini tech bubble. The late ’90s tech bubble ended in a crash that destroyed the valuations of well-established, highly-profitable companies. It also destroyed hundreds of dot coms. A second crash could wipe out GG.
- Revenue (2011, estimated): $400 million
- Net Income (2011, estimated): -$50 million
- Number of Users (2011): 1.5 million
- Number of Users (2007): 15 thousand
- Employees: 700
- IPO (estimated): Q2 2012
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.