Zulily, Inc. (ZU), an online flash sale retailer geared toward moms, especially younger mothers, just had a very successful IPO in mid November. According to Yahoo Finance, there were 10.15 million shares exchanged hands on Zulily’s first day as a public company. Combined the first two days, there were totally 11.5 million shares exchanged, very close to the planned volume, i.e. 11.5 million shares, on Zulily’s prospectus filed on November 15th, 2013. Since then, average traded volume for Zulily has been around 355k, which is only a third of what was traded on its first trading day.
On this note, we would like to take a look at Zulily’s most recent quarter financial performance before discussing further.
Zulily has been able to improve its bottom line for the quarter ended September 30th, 2013 with net income of $155k, based on GAAP financial measure, as shown below. However, in terms of its cost structure, gross profit margin stayed almost the same. Therefore, the growth rate of net revenue would be one of the pointers for its stock price to go higher. Meanwhile, there are few bright spots including less-than-before percentage in both marketing expenses and SGA&E. Specifically, when we take a look at the growth rates among net sales, marketing and SGA&E, we can see that the growth of net sales have been nicely larger than those of marketing and SGA&E on the annual basis and nine-month ended September 30th, 2013, respectively. These trends yield a room of profitability in the midst of growing revenue. With this said, Zulily’s adjusted EBITDA had turned positive first time since its inception in 2010 and we can also see that most of EBITDA was squeezed by the rising depreciation, amortization and stock-based compensation.
On the balance sheet side, Zulily has grown its cash and short-term investment steadily to a level of 60% of total assets, as of September 30th, 2013. Additionally, Zulily has also raised an amount between $127 – $147 million in its IPO, depended on whether underwriters had fully exercised their overallotment option. So in terms of cash position, Zulily has strengthened its war chest with expectations to do more in mergers and acquisitions, which currently didn’t show up in balance sheet at all.
However, according to Zulily’s Form S-1, the pro forma as adjusted net tangible book value per share after its IPO offering was $1.69 – $1.84. Then with the current stock price hovers around $35, the price-to-book-value ratio (P/B ratio) would be around 18, which implies that its valuation might look full. For the nine months ended September 30th, 2013, Zulily has net sales at $438 million already and the net sales in the fourth quarter would be one of the deciding factors to dictate whether its current price would continue the momentum since its IPO.
Bottom Line: Zulily, Inc. started out as a flash sale site company geared toward moms and enjoyed many early successes. However, investors should pay attention to the sustainability, continuity and richness in its stock price.