Iris Finance

hims & hers had a monster day yesterday, popping >20% on continued momentum after reporting a 4x increase in EBITDA and +77% in sales YoY in their latest earnings. Hims continues to be a masterful display of the DTC business model at scale. Let’s break down the report ???? 1/ Subscribers HIMS is special because of its subscriber growth & retention combo. Unlike most DTC brands, Hims retains its customers for years. For reference, the average percentage of customers retained by brands on Iris after 90 days is 12%. In the quarter, subscribers grew +44% YoY to 2.05 million. ?? 1Q23 subscribers: 1.2 million ?? 3Q24 subscribers: 2 million What’s more, those subscriber economics are improving meaningfully. Monthly revenue per subscriber: ?? 3Q23: $54 ?? 4Q23: $67 Meanwhile, overall AOV was up a whopping 48%, with revenue surpassing $1 billion! Acquiring more subscribers is driving growth, which is great. But simultaneously improving unit economics is a whole other ball game. This team is executing beautifully. 2/ Gross Margins Obviously, there is a lot of hype around GLP-1s, and in the release, HIMS announced that they would launch Liraglutide in 2025, another GLP-1. These products carry lower margin profiles, so we’ve seen HIMS’ gross margin contract almost 4 points in less than a year. Usually, this would be highly concerning. However, this is a first-world problem; if the company’s lower-margin products are driving relative marketing efficiencies on a per-order basis, so be it. ?? 4Q23 gross margin: 83% ?? 3Q24 gross margin: 79% 3/ Marketing As HIMS grows revenue, gross margins are going down, but profitability is going up. Typically, MER (Marketing Efficiency Ratio) increases come with spend decreases. What's wild here is that they’re spending more, with higher MERs, lower gross margins, and getting more contribution. 4/ Profitability All of these factors aligning is what is driving profound increases in EBITDA, up 4x YoY. This is driving massive increases in cash flow. The stock trades nicely right now at around 20x annualized free cash flow or 4x sales. I had priced the stock at $27.02 right after the earnings report, which it jumped to yesterday, so we're fairly priced again. In Summary: $HIMS continues to prove that it is a critical distribution node for modern advancements in medicine as it continues to attract high-quality subscribers. HIMS has a SaaS-esque business model in a huge TAM. Weight loss alone is a $530 billion market. $HIMS revenue is $1.5 billion. On Friday, we will be doing the full $HIMS deep-dive breakdown, and as always, I will be providing the data I used to perform the analysis. If you want to sharpen your finance mind, make sure you SUBSCRIBE to the link pinned to my profile ??

Excited to participate in Startup Battlefield 200 @ TechCrunch Disrupt 2024! For those that are attending the event, come find us at Booth O7!

Mytheresa, a luxury ecommerce retailer, announced that it would be acquiring Net a Porter, another online luxury marketplace from its parent company Richemont. Mytheresa aims to become the amazon for luxury Richemont is writing off $1.3 BILLION. oof. Let's break it down?? First, let's quickly distinguish between Yoox Net a Porter & Mytheresa They are both ecommerce retailers for luxury products - but Mytheresa is more exclusively on the high end selling almost only designer brands, where Net a Porter does have some 'discount fashion' sprinkled in like Nike or Rag & Bone. Which is crazy to think of that as discount fashion... Anyways - Mythersa will be issuing Richemont 1/3rd of its shares in exchange for the asset. This is one of the worst dumps i've ever seen. Net a porter has been loss making despite some strong headline KPIs including: - $732 AOV - 1.4m active customers - $1.2B GMV - 297M site visits (ttm) Mytheresa on the other hand has seemingly cracked digital distribution of luxury goods: - $769 AOV - 7% Adj. EBITDA Margin - 852k active customers - 914m GMV - 9x MER The combined entity will have about 3B of GMV, of which Net a Porter actually makes up more than half, and another 900m coming from Yoox and The Outnet, the lower market properties. It's pretty amazing how much more traffic these platforms get - 493mm site visitors vs the 297mm of Net a Porter. The primary plan, according to CEO Michael Kliger, is to separate the profitable Net a Porter & Mr Porter from the loss making Yoox operation that focuses on discounted fashion The message? Fashion is hard, online fashion is harder, and discount online fashion is the worst. Mytheresa claims they have been able to grow profitably due primarily to their operational excellence, and plans to focus on back office excellence. They want to create a 4B GMV business with 8% EBITDA margins in the intermediate term. Every Friday I send out a new institutional grade research piece on a consumer brand - this week is a deep dive on this huge online luxury fashion merger. If you want to sharpen your finance skills, make sure you subscribe to the link in my bio for the full deep dive tomorrow!

Finally famous!

Warby Parker's stock is down 75% from its IPO price - this makes it the undisputed WINNER of the DTC IPOs, by a lot Their outperformance holds a key attribute that every operator needs to understand: distribution. Let's break down why WP won???? 1) A brief history on WP: founded in 2010 by 4 friends as one of the first DTC brands (pre glossier & dollar shave club) the bunch got going quickly, raising >$50m in the first few years 2011 - $1.5m Seed 2011 - $12m Tiger Global Series A 2012 - $41.1m General Catalyst Series B 2015 - $100m T Rowe Price Series D I'm going to stop here... they went through series G! Raising a total of $535m 2) Public Market performance Fast forward 10 years and WP goes public on the NYSE - ticker: WRBY - and is down 75% since. This performance bests its peers, however: - Casper: taken private >50% below IPO price ?? - Allbirds: -99% ?? - Figs: -87% ?? - Peloton: -98% ??♂? Need more? 3) What makes WP better? ?? One word: distribution. Many people don't realize this, but WP is through and through a retail first brand, with retail revenues coming in at ~70% of overall revenue in the latest earnings report. This is not just a pulling back in their ecom business though, as overall revenues have grown steadily since IPO - unlike many of its peers (*coughallbirdscough*) 4) Unit Economics 'But Drew, retail revenues come with worse economics, right? How could investors reward this?" Well my young padawan, you are right but mostly wrong. WP does see continued gross margin contraction as its retail distribution outpaces ecommerce revenue. Gross margin trend: 1Q21: 60% 4Q23: 64% However these gross profits come with MUCH less required marketing spend to continue to feed the ecommerce machine, and contribution margin is actually growing with revenue, closing the gap on losses. This overall, is what makes Warby Parker's business model scalable. For 2Q24, marketing as a percentage of revenue was as follows: - Warby Parker: 3% ? - Allbirds: 23% ? This scalability is what keeps WP stock outperforming. If the company continues to execute, there is a clear path to not only real profits, but real operating leverage. ?? So perhaps this a lesson..the best way to run a DTC brand is to...not be DTC? On friday, we will be doing the full deep dive in my newsletter - make sure to subscribe (pinned tweet to my profile). I will provide the excel doc of WP financials since IPO, and other supporting materials

Thanks again to our friends at Modern Retail for featuring Iris in their latest story! One of the intangibles for Iris is how in such a short period of time we have become one of the go to sources for information on the financial state of our industry - and the best publications like MR see it. With nearly $3B of annual GMV running through our databases, Iris is uniquely positioned to comment on the state of the industry from a growth and profitability perspective, something no other company in our industry can claim. https://lnkd.in/gkqX9bUe

Everyone's talking about how the Only Fans owner made $472MM in dividends in 2023. Since they're based in the UK they disclose all their financials - so we get to dive in This is the story of Only Fan's journey to paying out its owner Leonid Radvsinky over $1B in 4 years ?? 1/ A brief history of OF OF was started in 2016 by Tim Stokely as a platform that allowed creators to monetize their work directly from their fans. Think chefs, musicians, etc. You know, wholesome stuff. However, the internet did what the internet does best and quickly OF was an adult entertainment hotbed. In 2018, the year after OF did *only* $44m revenue, Ukranian businessman Leonid Radvisnky acquired a majority stake in the company. This has turned out ok for Radvinsky who has paid himself over $1B in dividends since 2020. 2/ But how is this even possible? This is a marketplace model at its finest. OF has very few employees (40), and the only 'real' expense to the business is the payment processing fees for all the transactions it books on its platform. The company's gross margin was about 63% in 2023, with an operating margin of 50 (read: FIFTY) percent. A lot of this profitability saw a huge uptick in 2021 thanks to increased demand from covid. In 2021; Gross margin increased 10 points YoY Operating margin increase 30 (read: THIRTY) points YoY Its also worth noting that in its largest dividend year yet, we saw a mix shift in revenue go from subscription to non-subscription revenue - which consists of 'messaging and access to content.' '23 YoY Growth: Subscription: +4% Non Subscription: +35% So not only is OF gaining efficiency off its cost base, but is also growing revenue faster than its growing total platform value, by about 40 basis points - which is falling to the bottom line less COGS, which has been decreasing as a % of rev. This all makes for profit margins that even big tech can envy, and in turn very healthy dividends to Radvinsky, who has not been shy to pay himself profits. In 2023, the dividend as a % of net income was 97% For the deep dive this week, make sure you subscribe to my newsletter where on Friday I will be sending out the full report along with all the materials I used to create the analsysis. Link to subscribe pinned to my profile ??

We have huge news to share! TechCrunch named Iris Finance one of the top?AI finance #StartupBattlefield companies ??. We will be one of only 200 startups exhibiting at #TechCrunchDisrupt2024 out of thousands of applicants! The whole team has poured our hearts and souls into Iris' mission and we can't wait to put it all on display in San Francisco at the end of October. I am so proud of this team Alexander Heckmann, Yiheng(Intel) Chen, Marko Iwanik, Denton Zhao, Paul Sung, Chris Benedict?? See you in SF!

Allbirds stock trades below $1 per share, or ~$100m market cap Most people just say 'DTC is hard' when telling the story of allbirds - but there's a deeper lesson in this story, and one that I think every DTC/retail operator should hear let's break down where Allbirds went wrong ???? 1) A brief history of allbirds Founded in 2015 by Tim Brown and Joey Zwillinger, Allbirds saw massive adoption quickly 2015 - Lerer Hippeau Seed Round 2016 - $1.1m Sales / $7.5M Maveron Series A 2017 - $27m sales / $17.5M Tiger Series B 2018 - Unicorn status 2) The IPO In November of 2021, Allbirds IPOed on the NASDAQ under ticker: BIRD in an offering that raised $300m+. The stock closed that day at about $29, or +90% from IPO price. All things considered, it was actually a pretty good initial run as a public company. or the 2Q22, right after IPO, BIRD posted YoY rev growth of 15% to ~$78m with a EPS of $(0.20). The losses were widening at this time QoQ, but generally stable on a per share basis when you zoomed out over the past couple years - something the market was perfectly ok with (picture 1) 3) The beginning of the end However, cracks began to emerge almost immediately in BIRD's fundamentals - most importantly, gross margins. The 4Q21 earnings call was mostly positive - However, this call was the first time the mentioned gross margin pressures from logistics & production costs. By 2Q22 Allbirds had lost twenty full points of gross margin. This is a death sentence for any business, especially a DTC model. It would only spiral from here as further gross margin pressures began to drive massive losses (Picture 2). 4) The pullback & the knife in the coffin With a turning market and contracting margins, BIRD had no other choice than to pull back on marketing expenses - by this point is was too late. The real BIRD killer had been set in motion several quarters before and was irreversible: inventory production (picture 3). When the company unexpectedly lost gross margin, they had to pull back spend, which decreased sales and the inventory the company had bought and wasn't growing into had to be moved. The 2Q22 earnings call can be summed up w/: ‘higher than expected discounting. Unfortunately there is no clear path for Allbirds to recover as a public equity. The point I want to leave you with is this- there is good growth, and there is bad growth. If top line is growing, it can do so on top of a house of cards Know your unit economics. On friday we will be doing the full 2,000 word deep dive on allbirds in my newsletter - make sure to subscribe (pinned to my profile) and I will also be providing the excel doc of allbirds financials since pre IPO and a short summary of every earnings call since IPO

Great time chatting with Paul! Thanks for having us!