Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Stock Rating Catalyst Category Price Target Price (12/9/2013): $6.50 Upside: 62% Ticker: PRSS Exchange: NASDAQ Industry: Ecommerce Trading Stats ($USD millions) Market Cap: $115 Enterprise Value: $94 Price / Book: 1.3x Dividend Yield: N/A Price / 2013E EPS: 72.0x Price / 2014E EPS: 18.0x EV / 2013E EBITDA: 8.0 x EV / 2014E EBITDA: 4.7x
Source: Company filings, Wall Street Consensus
Price Performance 52 Week range: $5.19 - $7.47 Analyst Details IB Username: JudyR2K Employer: Juniper Investment Co. Job Title: Portfolio Manager Analyst Disclosure PRSS Position Held: Yes
Company Overview
CafePress (PRSS) is a leading ecommerce platform enabling worldwide customers to create, buy and sell a wide variety of customized and personalized products. Products include clothing, accessories, art, photography, posters, stickers, home accents, and stationary. There are currently over 500 base goods available to design. This is truly crowd-sourced or user generated content. The company serves its customers and content owners through its portfolio of e-commerce websites, led by its flagship site CafePress.com. Customers include millions of individuals, groups, businesses and organizations who use PRSSs innovative and proprietary print-on-demand services to create customized products. There are currently 19MM registered members, 3MM individual shops that offer PRSS services and over 3MM current customers. The company works with content owners (individual designers, artists, and branded content licensors) to leverage its platform to reach a broad consumer base and monetize their content. The companys technology allows for single unit and small quantity orders on a when-ordered-basis. The company ships over 8MM items per year and growing. The company tracks total number of customers, total number of orders, and average order size (AOS). AOS has traditionally run $50 - $53, and has been relatively stable. With the most recent acquisition of EZ Prints, the AOS has declined to $38 due to mix. EZ Prints business has a much lower order value, including many orders below $10. One of the companys goals is to raise AOS through new higher priced items such as home goods and logo sportswear. The company has 3 types of revenue streams due to its diverse business model: 1. First, the company recognizes full revenues from online transactions through its portfolio of e-commerce websites, where customers find or design and buy products. Second, the company recognizes net revenues (revenues less royalty payments to content owners) when an item is purchased using licensed content or from a previously designed product from one of its millions of designers. The company licenses content, particularly in the area of entertainment, for customers to use when designing products. PRSS also works as the backend for others storefronts (i.e., ABC.com, Urbanoutfitters.com) to allow those businesses to offer create and buy services using their own proprietary content. a. Most recently, PRSS signed a deal with Marvel to give its customers access to the marvel characters. This is significant, as there is a move toward content owners looking for additional ways to monetize their investment. The Marvel characters have great appeal, and now consumers can use these to design all sorts of exciting products. If a company like Marvel needed PRSS expertise to allow customization, imagine how many smaller content owners could benefit from a similar relationship. Likewise, PRSS has s deal with Sony Pictures to launch a store for the TV show Breaking Bad. These are just a few of the new entertainment and licensed opportunities for PRSS. Finally, the company also acts as a fulfillment partner to other e-commerce businesses. Here PRSS does not take title to the inventory and only recognizes fees for services as revenues.
2.
3.
Just a point on designers - individuals use the site and vast creative resources to design interesting products that others might like (whether to wear, or for the home, etc.). Designers are creating 100,000 new designs per week on average. Those products remain on the site, and can be searched for and discovered by other customers. This allows for long tail marketing. If a customer buys a designers product, that designer gets 10% of the revenues. This has created an industry for a number of talented designers. In fact, there is a small number of designers who work from home to design products and earn 6 figure incomes. This has also created a huge library of proprietary products for PRSS, as the company owns the designs. PRSS library is increasing by over 130,000 new images a week. Today, the company has a catalog of ov er 400MM unique products.
Cost of Sales
The companys cost of sales includes raw materials (i.e., cotton, as t-shirts are close to half of the business today) for its base products, shipping, labor, royalties and fixed overhead related to manufacturing facilities. The company is currently consolidating numerous facilities it has acquired through acquisitions to increase utilization and improve manufacturing,
labor and shipping efficiencies. Inventory consists of such things as blank t-shirts, mugs, etc. These products never really go bad and are sourced both locally and in Asia. Given the on-demand nature of the business, inventory levels can stay relatively low and the business can scale nicely.
Market Overview
The personalized segment is extremely fragmented, with most of it served through offline businesses. Industry estimates range from $25B to $1Trillion depending on which category of products and which geographies one includes. Today, PRSS is mostly a domestic business with only 15% of the business overseas, mostly in Europe. The business is highly seasonal with about 40% of business coming in the fourth quarter. There is a large retail component and of course holiday giving is a big season.
Growth Strategy
PRSS has grown both internally and through acquisitions. Over the past 3 years, the company has acquired a number of businesses to expand its categories (i.e., canvasondemand.com), customers (logo sportswear - to offer personalized apparel for groups and organizations), and technology offerings (EZ Prints). The EZ Prints acquisition is significant as it offers proprietary software that helps power the customization services for third party retailers. EZ Prints had over 130 partners (including Disney) using its end to end customization solution at the time of acquisition. PRSS has used a combination of upfront payments and earn outs to complete these deals. There was a time that the backend earn out liability was significant. The company has worked through much of this at this point including writing off part due to underperformance from the EZ Prints acquisition. EZ Prints had some legacy business that has underperformed, but this d oesnt change the power of and importance of the technology.
Management
Top management has been with the company for some time now. Key members include: Bob Marino is the CEO. He joined the company in 2005 and the board in 2011. He started in operations and grew up from there. Prior to joining PRSS, he served as CEO of Cuisine Innovations and a VP of Tyson Foods. Monica Johnson has been the CFO since 2005. Prior to joining PRSS, she was the CFO of ARC International, and VP of Finance at Webvan. Fred Durham is the co-founder of PRSS and the Chief Product Officer. He is a serial entrepreneur and has extensive experience in the e-commerce industry. He owns about 10% of the company. Another 16% of the company is owned by the original VC, Sequoia Capital. I cant imagine they are happy with the stock performance and must be considering all ways to get fair value here.
4. 5. 6. 7. 8.
9.
3. 4. 5. 6.
PRSS is building a powerful e-commerce platform focused on best-in-class scalable technology. The CEO is a visionary with a strong marketing and operating background. The company is starting to develop appropriate financial disciplines and a focused business model. The company is consolidating redundant facilities to create a more streamlined and profitable business with room to scale. 7. Key acquisitions like EZ Prints has broadened the business model and opened up opportunities for additional b2b partnerships. 8. The company continues to be ebitda positive despite short-term operational issues and incremental investments. 9. PRSS has licensing agreements with major entertainment players like Marvel. This offers a huge new opportunity. 10. The company is launching a number of new sites with Fortune 500 companies that will add new business in 2014 and beyond. 11. With $250MM in revenues, the companys size makes it an attractive acquisition candidate by a larger ecommerce player. 12. Positive ROI on new customer acquisition investments.
Speed Commerce (NASDAQ: SPDC): This company recently changed its name from Navar (NAVR). SPDC also is a provider of end to end ecommerce solutions with no proprietary content. SPDC has a very small international business. Navar originally bought Speed Commerce for about 1.1x sales and 9x EBITDA. SPDC today consists of its e-commerce business plus a product distribution business. The products business is by far the majority of its sales so the comparisons are not quite apples to apples. At the beginning of 2012, before Navar acquired Speed, it was trading at an EV/sales of about 0.1X. That is how little the street valued the business. Today, the company is trading at an EV/sales of 0.45X (with still the majority of its sales in the old products business) and 12x EBITDA. Vistaprint (NASDAQ: VPRT): VPRT is an online supplier of graphic design and customized printed products to small businesses and consumers. This is one of a very few public companies that offers its customers the ability to truly customize the end product. The company does have high gross margins (65%) as it pays no royalties and its cost of goods is very low. Customer acquisition cost is more than twice what PRSS pays, so the net contribution of a new customer is similar to that of PRSS. VPRT trades for 1.5x sales and 10x EBITDA. Shutterfly (NASDAQ: SFLY): SFLY produces and sells professionally-bound photo books, greeting and stationery cards, personalized calendars, and other photo-based merchandise. This company also offers customization features to its customers, although it is very narrow in its photo niche. Gross margins are also high at 54%, yet customer acquisition cost is also much higher than that of PRSS. The company trades for 2.2x sales and 11x EBITDA. Shutterstock (NYSE: SSTK): SSTK is a global provider of licensed photographs, illustrations and videos to businesses and marketing agencies. The company does license proprietary content and allows its use in a customized fashion. Again, this is a high gross margin business at almost 62%. The company trades for 10x sales and 48x EBITDA.
One can see how this business could be much larger than it is today while maintaining its leadership position. The company should complete its integration and restructuring this year. If it can continue to add new customers profitably and grow incremental profits, this wont continue to trade at its current valuation. And it very well may not remain an independent public company forever. The company feels strongly that it can grow internally double digits. As the new social and mobile efforts take hold, internal growth will improve. The company has reduced the number of flash sales (i.e., Groupon-type business) which has hurt sales in the short term but will help margins in the long run. The new partnerships like Marvel and other top companies will add to growth as they are launched. Signing of these happened a while ago, but the timing of launch has been unpredictable due to the initial work and customers timing. Many new seeds have been planted which should start to show up next year. Gross margins have been hurt by over 300 basis points due to the interruption from the integration and running of duplicative facilities, and the inclusion of the EZ Prints business. The integration will be complete by year end and the company has just anniversaried the acquisition, so the negative margin compares should be behind them. Additionally, capital expenditures are elevated this year at $14MM to complete the integration. As earnings recover and capex resorts to normalized levels, cash flows should improve.
2014 Analysis
For arguments sake, I assume the company only improves profitability on current business by 200bp s due to a higher gross margin. This should be easy to do as the expense on the restructuring will be behind it.
2013E $250.0 $5.0 (2% margin improvement) $97.0
Revenue Assumed Growth % Incremental Value: Incremental Sales Gross Profit Margin % Sales & Mkting Exp @ 25% Gen & Admin Exp @ 8% Incremental EBIT
EBITDA Build-Up 2013E EBITDA One-time Investment Improvement 2014E Base Case EBITDA Incremental EBIT Incremental D&A 2014E Incremental EBITDA 2014E Upside EBITDA
Price Target
At ~$6 per share, PRSS is trading at 3.6x 2014 EBITDA. Given, the companys market position, proprietary content, technology innovation, corporate partnerships and so much more, this seems a little extreme. I do believe PRSS has earned a discounted valuation to the comps listed earlier until it proves out consistent sales and earnings growth. But the seeds are planted to begin to see that next year. A fair valuation for PRSS might be 0.6x Sales and 7x EBITDA which puts the stock next year at $10.50. And if the company should be approached by a suitor, a valuation of 1x sales or 8-10x EBITDA is possible.
Financial Summary
($ in millio ns, except per share data)
FY end Dec 31: Total Revenue % Growth COGS % of Sales Gross Profit Gross Margin % Operating Income % of Sales EPS EPS Growth %
2011 175
LTM 242
$ 0.48 (18.6%)
Sum m ary Cash Flow EBITDA EBITDA M argin Cash Interest Cash Taxes Capital Expenditures Free Cash Flow as % Sales
16 $ 14 $ 10 $ 11 9.1% 6.4% 4.1% 4.5% (2) 1 (3) (8) (7) (6) 11 6.3% $ 6 2.8% $ 3 1.2% $ 6 2.4%
Sum m ary Balance Sheet Cash & Equivalents Total Debt Net Debt / EBITDA
$ $
36 -2.3x
$ $
41 -2.9x
$ $
37 -3.7x
$ $
35 -3.2x