![]() For example, it showed that customers acquired in 2014 generated $188 in contribution profits on average over the next four years, which was 6.2 times higher than their customer acquisition cost (CAC) of $30 in 2014: Revolve went even further and also disclosed some of its customer value metrics as well. Our modeling results confirm this observation (more on this below). While some customers drop out quickly, there’s a segment of highly loyal customers who will stay with the company for many years to come. We also observe that each cohort demonstrates remarkable revenue stability after the first year of acquisition.This implies the firm is not so reliant on new customer acquisition and therefore its ability to keep marketing expense under control (it has done a good job to date in this regard, as marketing expense is less than 15% of net sales). The share of sales from existing customers has been increasing and reached ~70% in 2018 despite solid growth in the size of the customer base.The DataĪs usual, we were excited to see the Customer Cohort Chart (“C3”) in Revolve’s S-1 filing, breaking down total net sales by customer acquisition cohort: Finally, we will discuss in detail the conclusions summarized here. Next, we summarize the available data, then specify and validate our model for the firm. If we conservatively assume that Revolve is only able to maintain its current margin levels, our valuation estimate would be $1.2-1.4B, which is still at or above the target valuation. Decreasing WACC by 1pp from 12% to 11% increases the firm’s fair value by $300M. If Revolve is able to continue acquiring customers with unit-level performance comparable to what we have seen to-date, unlocking additional operating leverage in the process, we estimate its fair equity value at $1.7-2B or 40-60% above the midpoint of the firm’s target valuation ($1.2B). Justified target valuation with upside potential.Customers’ loyalty to the firm differs considerably across the customer base – while many customers have very low loyalty, we infer that 20-25% of customers will remain active with the firm for many years to come. If this trend persists, the CLV of future customers will go down but nevertheless remain healthily positive. We estimate that on average, each consecutive monthly acquisition cohort generates ~$2-3 in 12-month sales per customer less than the cohort that preceded it. If there is one thing to watch for in coming quarters, it is degradation in the goodness of customers across cohorts. Slight degradation in post-acquisition value across cohorts.Revolve acquires customers profitably with a good safety margin and at a reasonably stable cost. We estimate that on average, newly acquired customers generate ~$200 in contribution profit CLV, netting ~$300 in post-acquisition value (PAV) against ~$100 in fully-loaded CAC, resulting in ~200% total marketing ROI. ![]() In this post we apply our Customer-Based Corporate Valuation framework (CBCV) to analyze Revolve’s unit economics, and then bring in additional economic/accounting details to assess the attractiveness of its $1.2B target valuation.Ĭutting to the chase, these are our main conclusions: Revolve generated $42M in operating profit on $500M net sales in 2018, and its impressive 8% operating margin was up from 2% in 2016. In stark contrast to most (if not all) other high-profile companies that have gone public recently, Revolve is more mature (founded in 2003), growing at a relatively slower rate (25-30% annually compared to a more typical 80-100%+) and is actually profitable. After that, the company went completely silent about the IPO for many months … until last week, when the company finally announced a target IPO price range of $16-18 (a ~$1.2B valuation), to begin trading on June 7th. Online fashion retailer Revolve Clothing first filed with the SEC to IPO in late September 2018 ( S-1 filing).
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