ThredUp Aims For $100 Million U.S. IPO

Summary

• ThredUp has filed to raise $100 million in an IPO, although the final figure may differ.
• The firm operates an online marketplace for buying and selling secondhand apparel and related goods for women and children.
• TDUP has grown through the pandemic but is generating increasingly high operating losses with no path to profitability.
• Looking for more investing ideas like this one? Get them exclusively at IPO Edge. Learn More »

Quick Take

ThredUp (NASDAQ:TDUP) has filed to raise $100 million in an IPO of its Class A common stock, according to an S-1 registration statement.

The firm provides an online destination for reselling lightly used women’s and children’s apparel and related goods.

TDUP is approaching a $200 million annual revenue run rate, but growth is only moderate and the firm is generating high operating losses with no obvious path to profitability.

I’ll provide a final opinion when we learn more about the IPO from management.

Company and Technology

Oakland, California,-based ThredUp was founded to develop a marketplace for the sale of secondhand goods provided by consumers, brands and retailers.

Management is headed by co-founder and CEO James Reinhart, who was previously co-founder of the Beacon Education Network.

Below is a brief overview video of ThredUp:

Source: thredUP

The company’s primary offerings include:

• Women's apparel

• Kids apparel

• Shoes

• Accessories

ThredUp has received at least $247 million from investors including Trinity Ventures, Redpoint Ventures, Upfront Ventures, Global Private Opportunities Partners and Park West Ventures.

Customer/User Acquisition

The firm seeks users of its marketplace via online search engine optimization, earned media and word of mouth.

As of Dec. 31, 2020, the site had 1.24 million Active Buyers and 428,000 Active Sellers.

It has "processed over 100 million unique secondhand items" since its founding in 2009.

Marketing, Sales and G&A expenses as a percentage of total revenue have dropped as revenues have increased, as the figures below indicate:

Marketing, Sales, G&A	Expenses vs. Revenue
Period	Percentage
2020	39.4%
2019	41.0%

Click to enlarge

Source: Company registration statement

The Marketing, Sales and G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Marketing, Sales and G&A spend, was 0.3x in the most recent reporting period.

Market and Competition

The global market for selling clothing online is extremely large, in the hundreds of billions of dollars and has been growing quickly.

The industry has continued to grow during the COVID-19 pandemic, although it has been hampered to some degree from logistical challenges.

According to a 2029 market research report by Digital Commerce 360, online apparel sales represented 38.6% of total U.S. apparel sales in 2019 and accounted for all of the growth in retail clothing sales.

Also, the market share of the industry has grown steadily in recent years, as the report chart below shows:

Major competitive or other industry participants include:

• eBay (EBAY)

• Mercari (OTCPK:MRCIF)

• Poshmark (POSH)

• The RealReal (REAL)

• Amazon (AMZN)

• Kohl's (KSS)

• Walmart (WMT)

• Burlington Stores (BURL)

• Ross Stores (ROST)

• TJX Companies (TJX)

Financial Performance

ThredUp’s recent financial results can be summarized as follows:

• Growing topline revenue

• Increased gross profit

• Slight increase in gross margin

• Increasing operating and net losses

• Growing cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
2020	$ 186,015,000	13.6%
2019	$ 163,812,000
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
2020	$ 128,148,000	13.9%
2019	$ 112,504,000
Gross Margin
Period	Gross Margin
2020	68.89%
2019	68.68%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
2020	$ (46,589,000)	-25.0%
2019	$ (36,807,000)	-22.5%
Net Income (Loss)
Period	Net Income (Loss)
2020	$ (47,877,000)
2019	$ (38,197,000)
Cash Flow From Operations
Period	Cash Flow From Operations
2020	$ (19,105,000)
2019	$ (10,090,000)
(Glossary Of Terms)

Click to enlarge

Source: Company registration statement

As of Dec. 31, 2020, ThredUp had $64.5 million in cash and $118 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2020, was negative ($38.5 million).

IPO Details

ThredUp intends to raise $100 million in gross proceeds from an IPO of its Class A common stock, although the final figure may change.

Class A shareholders will be entitled to one vote per share and Class B shareholders will have 10 votes per share.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

The principal purposes of this offering are to increase our financial flexibility, create a public market for our Class A common stock and facilitate our future access to the public equity markets. We currently intend to use the net proceeds that we will receive from this offering for working capital, other general corporate purposes and to fund our growth strategies, including continued investments in our business.

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are Goldman Sachs, Morgan Stanley, Barclays, William Blair, Wells Fargo Securities, KeyBanc Capital Markets, Needham & Company, Piper Sandler, and Telsey Advisory Group.

Commentary

ThredUp is seeking public investment for its general corporate growth plans.

The company’s financials show moderate topline growth and gross profit growth, but also significant operating and net losses and increasing operating cash burn.

Marketing, Sales and G&A expenses as a percentage of total revenue have dropped somewhat as revenue has increased; its Marketing, Sales and G&A efficiency rate was 0.3x in the most recent reporting period.

The market opportunity for operating an online marketplace for secondhand clothing is significant but the firm faces competition from a number of online sources.

Goldman Sachs is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 46.3% since their IPO. This is a top-tier performance for all major underwriters during the period.

The primary risk to the company’s outlook is a noisy marketplace with many online competitors.

While the company is approaching $200 million in annual revenue, its topline growth trajectory is not what I would have hoped, especially through the pandemic.

Also, I see no path to profitability in the firm’s recent financial results, so I’m somewhat underwhelmed by TDUPs performance.

When we learn more about the IPO’s pricing and valuation assumptions, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

Analyst’s Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.