IPO Preview: CafePress

| About: CafePress (PRSS)
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Based in San Mateo, California, CafePress (CPRS) scheduled a $77 million IPO with a market capitalization of $289 million at a price range mid-point of $17 for Thursday March 29, 2012. Managers: J.P. Morgan; Jefferies.

CPRS is one of nine new IPOs scheduled for the week of March 26. For a summary see our IPO Calendar.


CPRS is a leading e-commerce platform enabling customers worldwide to create, buy and sell a wide variety of customized and personalized products.

CPRS itself is selling 2.5 million shares. Stockholders plan on selling 2 million shares, 44.4% of the IPO.

CPRS's 12 month trailing P/E of 80 seems to high given the cyclical retail business they are in. However, we don't know what effect the actual acquisition made in October and the current acquisition in process will have on the income statement.


At a price of 80 times trailing 12 months earnings, CPRS seems fully priced.

On the other hand, CPRS has 15 million members and 3 million shops, so it may go up in the after market based on customer interest, similar to what we saw last year with the social networking stocks.


CPRS is a leading e-commerce platform enabling customers worldwide to create, buy and sell a wide variety of customized and personalized products.

CPRS believes it has developed a strong brand with a growing community that, as of December 31, 2011, had more than 15 million members and more than three million shops. CPRS shipped over 7.8 million products in 2011 from a catalog of over 320 million unique products, as measured by the number of different combinations of designs and types of merchandise.

A key differentiator, according to CPRS, of its business model is its ability to profitably produce customized merchandise in small quantities on a when-ordered basis. CPRS generally process and ship orders within three business days after a customer places an order, and in many instances can process and ship an order within 24 hours from when the order is placed


CPRS serves customers, including both consumers and content owners, through a portfolio of e-commerce websites, including a flagship website, CafePress.com.

Consumers include millions of individuals, groups, businesses and organizations who leverage CPRS's innovative and proprietary print-on-demand services to express interests, beliefs, and affiliations by customizing a wide variety of products. These products include clothing and accessories, art and posters, stickers, home accents, and stationery.

Content owners include individual designers as well as artists and branded content licensors who leverage the platform to reach a mass consumer base and monetize their content.


CPRS defines members as visitors to its website who register and provide email address. Members often become customers through purchases on CPRS websites, content owners by opening a shop or purchasing through CPRS's Create & Buy function, or both.

Content owners include individuals or groups who upload or design images for their own purchase or for sale to others, or corporate clients who provide content to support the sale of branded merchandise. These products can be sold through storefronts hosted by CafePress, which CPRS refers to as shops. Content owners may also sell products through the retail marketplace found on CPRS's portfolio of e-commerce websites


CPRS services address multiple large adjacent markets which include, but are not limited to:

Screen printing and garment printing

According to Freedonia, the U.S. screen printing and garment printing market is expected to grow from $7.2 billion in 2009 to $8.1 billion in 2014.

Source: "U.S. Online Retail Forecast, 2010-2015", Forrester Research, Inc., February 28, 2011.

Creative photo merchandise

IDC estimates that the market for creative photo merchandise will grow from $2.8 billion in 2010 to $6.6 billion in 2014. Creative photo merchandise encompasses all products that are customized with photos including, but not limited to, cards, calendars, posters, photobooks and scrapbook pages, wall art and home décor.

Promotional products

According to Promotional Products Association International, the promotional products industry grew 5.9% to $16.6 billion in 2010, up from $15.6 billion in 2009. This includes $2.7 billion in online sales of promotional products in 2010, up 11.1% from $2.4 billion in 2009.

Customization services for product manufacturers

From tablet cases to water bottles and beyond, our product diversity suggests a large opportunity encompassing ever-expanding retail merchandise categories. Based on 2009 U.S. Census Bureau data, we estimate the U.S. market for customizable retail goods is approximately $1.0 trillion.

CPRS believes traditional printing models are not optimized to satisfy individual consumers and smaller constituencies due to long lead times, costly set-up, limited printing capabilities and minimum quantities needed to achieve efficiency.


In 2005, CPRS raised venture capital to finance expansion of production and fulfillment capabilities in response to increasing demand.

Building on increasing awareness of CPRS's brand, along with sales of politically oriented merchandise in connection with the U.S. general election, net revenues increased to $120.4 million in 2008.

In 2009, net revenues declined to $103.5 million as a result of macro-economic conditions in primary markets that reduced discretionary spending by customers coupled with the absence of election year sales.

In mid-2009, CPRS adopted a royalty and pricing structure which pays differentiated royalties for sales transactions through the content owners' shops as compared to the royalties paid on sales through CPRS's marketplace. These changes positively impacted gross margin, resulting in a 46% increase in Adjusted EBITDA in 2009, despite the 14% decline in net revenues.

In 2010, CPRS aggressively focused on order and customer growth. This included increasing sales and marketing expenses to drive brand awareness and customer acquisition, as well as the acquisition of Canvas On Demand, LLC in September 2010.

As a result of these investments, CPRS net revenues grew by 24% in 2010 compared to 2009. CPRS has continued this strategy into 2011, and as a result, net revenues grew by 37% in 2011 from 2010. In October 2011, CPRS acquired substantially all of the assets of L&S Retail Ventures, Inc. to expand online customized stationery offerings.

Further, in March 2012, CPRS entered into an agreement to acquire substantially all of the assets of Logo'd Softwear, Inc., to expand offerings in personalized apparel and merchandise for groups and organizations.

The acquisition is anticipated to close during the second quarter of 2012, subject to obtaining the requisite approvals and other customary closing conditions.


A significant portion of CPRS sales are realized in conjunction with traditional retail holidays, with the largest sales volume in the fourth quarter of each calendar year. Unique offering of custom gifts for the holidays combined with consumers' continued shift to online purchasing drive this trend.

As a result of this seasonality, revenues in the first quarter of each year are generally substantially lower than revenues in the fourth quarter of the preceding year. CPRS expects this to continue for the foreseeable future. In addition, political merchandise represents one of CPRS's largest content categories, creating a cyclical impact on volume during key election periods.


Although CPRS's principal growth has been organic, it has also grown through acquisitions.

In July 2008, CPRS acquired Imagekind, Inc., an online art marketplace, for cash and stock consideration valued at $8.4 million. In September 2010, CPRS acquired Canvas On Demand, an online service for creating personalized canvases from photographs, for cash and stock consideration valued at $10.1 million.

CPRS also agreed to make up to $9.0 million in earn-out payments to the former owners of Canvas On Demand, contingent upon the achievement of performance targets in each 12-month period from October 1 through September 30 through 2013. CPRS records these earn-out payments as acquisition-related costs in our consolidated statements of operations.

In October 2011, CPRS acquired substantially all of the assets of L&S Retail Ventures, Inc., an online customized stationery company located in Cary, North Carolina. In connection with the acquisition, there was an initial cash purchase price of $4.5 million, and contingent rights for the two principal stockholders to receive up to $8.0 million in future performance-based consideration, including CafePress stock options valued at up to $1.0 million based on the fair value of CPRS common stock.

In March 2012, CPRS entered into an agreement to acquire substantially all of the assets of Logo'd Softwear, Inc., an e-commerce provider of personalized apparel and merchandise for groups and organizations. The asset purchase agreement provides for a total initial purchase price of $8.3 million, consisting of $7.5 million in cash and $0.8 million in shares of CafePress common stock.


The market for customized products and services is large, fragmented and intensely competitive. CPRS expects competition to increase in the future.

Competition includes e-commerce companies such as Amazon.com (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) plus online providers allowing users to customize goods in specific vertical markets, such as VistaPrint (VPRT) for small businesses and Shutterfly (NASDAQ:SFLY) for photographic products. Other competitors include:

• Traditional offline printing businesses;

• Physical and catalog retailers of personalized merchandise;

• Online providers of unique goods such as Etsy, as well as various other private companies offering customized products such as CustomInk, Spreadshirt, Threadless or Zazzle.


CPRS expects to net $37 million at the price range mid-point from the sale of 2.5 million shares. Selling stockholders intend to sell 2million shares, 44.4% of the IPO.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.