Billion Dollar Unicorns: Zulily Tumbles

Till a few years ago, flash sales sites were the darlings of e-commerce. But soon, as the fad passed, so did their valuation. One of the recent sites to have fallen off the plank is Zulily (Nasdaq: ZU). The Billion Dollar Unicorn club member went public a little over a year ago in a rather successful IPO. But the tables have turned since and the company has seen its valuation crash as the company continues to miss the market’s expected financial metrics.

Zulily’s Financials

Seattle-based Zulily was founded in 2010 by former Blue Nile executives Darrell Cavens and Mark Vadon. Mark founded Blue Nile prior to Zulily. Zulily came into being as a daily deals site focused on moms and kids. Unlike other flash sales sites,Zulily prides itself in providing their customers with access to niche products from small and branded boutiques. They have a dedicated vendor planner team that focuses on working with vendors to help plan vendor businesses. Their strongly integrated model not only helps Zulily attract a loyal customer base, but also helps their vendors build a sustainable and a high-growth business model. The strength of their offerings had also helped Zulily surge in the recent months, but the market is no longer as forgiving, as it expects the company to meet financial expectations.

For the recently ended fourth quarter, Zulily’s revenues grew 52% over the year to $391.3 million, falling short of the Street’s target of $408.8 million. Adjusted EPS of $0.08 was also lower than the market’s forecast earnings of $0.14 per share.

Among key metrics, active customers grew 54% over the year to 4.9 million. Total orders placed during the quarter increased 42% to 6.8 million and the average order value improved 3% to $58.09. Mobile orders accounted for 51% of North American orders compared with 45% a year ago.

Zulily ended the year with revenues growing 72% to $1.2 billion and an EPS of $0.11.

Zulily forecast revenues of $300 million-$320 million for the current quarter and $1.5 billion-$1.65 billion for the year. The outlook was significantly short of the market’s forecast of revenues of $1.78 billion for the year.

Zulily’s Troubles

Zulily’s disappointing financials are attributed to several execution issues in the recent past. Two quarters ago, they had a significant e-mail outage that led to several customers not getting their daily email blast. Analysts also worry that Zulily’s customers may be getting upset with the slow product delivery due to the “lack of new fulfillment center efficiencies”. While the email issue has already been addressed, Zulily hopes the new fulfillment centers planned in Ohio, Nevada, and Pennsylvania this year will deliver improved shipping times.

The new fulfillment centers are now expected to cater to the UK markets as well. Earlier this month, Zulily shut down their UK fulfillment center and announced plans to cater to the UK market from their US centers. They already cater to the Australian and Canadian customers. The move would mean higher shipping costs and longer shipping times for UK customers. But Zulily believes that their customers will be willing to accept these delays on account of the niche products that they offer.Zulily plans to use a similar model for other international markets that they are hoping to expand to in the year.

Prior to going public in 2013, Zulily had raised $138.6 million in venture funding from investors including Andreessen Horowitz, Meritech Capital Partners, Trinity Ventures, Maveron, and August Capital. They raised $253 million in an IPO round in November 2013 that valued them at $2.6 billion. The stock had a good run last year when it touched a high of $73.50. But the valuation has tumbled since. The market was disappointed with their recent results, and the stock has fallen to an all-time low of $14.22 bringing the market capitalization down to $1.78 billion.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

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