With the IPO of Stitch Fix on the horizon, Wall Street – and the rest of the tech industry – will closely follow this next major IPO as a signal for the future of e-commerce. start-up companies like Stitch Fix and the mainstream IPO market as a whole in half of the year.
So, one of the big steps on which Wall Street and others will focus is how Stitch Fix's activities will go beyond their current finances – which look good – according to Eric Kim, partner of Goodwater Capital. After interviewing about 3,000 people in recent quarters, the company found that even though a tiny fraction of respondents are Stitch Fix users, more than half of these people are waiting to what their use of Stitch Fix increases. This is a rounding error compared to Amazon, of which 91% expect to increase their usage, but it's still a positive signal for the company. The company has focused on this point, among a large number of other data points, in a big report released today before the company 's IPO.
"It compares pretty well with other startups and end-user e-commerce companies," Kim said. "It's a key number of customer sentiment that we're going to pay attention to over the quarters, that's improved based on our data, but we know that the best of it's category is 91% with Amazon, and 54% Stitch Fix.What we will pay attention to as the main indicator, is the ability of Stitch Fix to create this positive NPS. "
Kim said, according to their research, that the retention rate can be four times that of other fashion-oriented e-commerce startups. But while the ramp looks good for Stitch Fix right now, the consumer IPO market is still more or less in hangover mode after the poor performances of Blue Apron and Snap. These are obviously different companies, but Stitch Fix will test Wall Street's appetite for IPOs, and this will require selling the company's future potential in relation to their current performance, said Kim. .
Stitch Fix is currently experiencing a dynamic growth in its revenue because of its filing of S-1 documents with the Securities and Exchange Commission, which companies are publishing before being made public. Stitch Fix has shown a slight decline in its net profit, but it's mostly a product to start investing in new businesses to increase the company's total addressable market – which must be important if it will impress Wall Street.
Another big data point is that the majority of its users are also giving some sort of feedback to Stitch Fix, Kim said. Stitch Fix, while an ecommerce company that, at the end of the day, relies on stylists to send custom clothing, is touted as a data set next to the "Stitch Fix". an e-commerce business. But that also means that he has to build a defensible data set for the company that makes him able to outsmart other competitors like Trunk Club, which requires a lot of feedback from his base d & # 39; users.
"What they really need as a business, is to properly set expectations with Wall Street," Kim said. "They grew up so fast, everything works now, they've seen the operating margin increase, they've seen the gross profit go up, and I think they're probably going to send messages to the street that's out there." They will invest in the company for the long term.They can not be short-term profitability in the future or maximize profits.They just need to let it know so that the Street expectations are not very high on a dimension that would be in the best interest of the business to ensure that they have enough room to invest in other categories. "
Stitch Fix is also close to the breakeven point of the first purchase, giving it great freedom to maneuver into new business without worrying too much about profitability, Kim said.
Goodwater Capital invests in mainstream IPOs, but Kim said he hopes to publish reports and information of this type that will help "bridge the gap" between Wall Street and its founders in Silicon Valley. Indeed, many founders and investors are paying close attention to these upcoming IPOs, as they seek to define their expectations for comparable markets and start-ups – and where they should evaluate these start-ups, especially at the moment. approach of the IPO. This is similar to the kind of reports that most banks issue with stock ratings, which themselves can sometimes cause the stock prices of these companies to fluctuate.
Stitch Fix set the price range for its initial public offering last week, establishing a potential valuation for the company at nearly $ 2 billion in the upper end of the price range.
Featured Image: David Paul Morris / Bloomberg via Getty Images