The hottest IPO of the month is a clothing retailer
It’s not just the temperatures that are warming up this month. More than a dozen companies went public in June, and there were far more winners than losers. Only three of this month’s IPOs fell below their initial price, but not all successful newbies fared the same.
Soft, pet food e-tailer Soft, and gig economy market operator Fiverr may be the names making headlines among this month’s newbies, but no June offering has performed as well as revolution group (NYSE:RVLV). The online hub for fashionistas has soared 146% since its $18 IPO two weeks ago. The clothing retailer that’s relying on the growing reach of online influencers to boost sales is growing and profitable, and it even has an unlikely bull in its corner. Things may not end well for new investors looking for the stock, but the momentum is squarely in its corner right now.
Strike a pose
Revolve Group describes itself as a next-gen fashion retailer for Millennials and Gen Z members. In short, it’s an online clothing store targeting anyone born since 1982. Revolve Group achieves this highly volatile audience by striking profitable deals with fashion-forward influencers (you know, young social platform celebrities with heaps of followers).
It would seem like a laughable business model if it weren’t for the fact that it works. Revolve Group posted net revenue of $498.7 million last year, up 25% from the nearly $400 million it generated a year earlier. Revolve Group is also profitable, which many of the recent hot IPOs can’t say. It’s been downright in the black for at least the past three years, including a net profit of $30.7 million in 2018.
Relying on influencers can have its detractors. It’s easy to hate the selfish snappers and laugh through the Fyre Festival documentaries, but it’s hard to deny the simple calculations behind large audiences. Revolve Group’s platform attracted an average of 9.4 million unique monthly visitors last year, and 57% of its sales came from customers visiting its site at least twice a week. These visitors are also not afraid to spend a lot of money in the aspiration to live like an influencer. 79% of Revolve Group’s net sales were made at full price in 2018, with an average order value of $279.
Revenue growth may be slowing down – we went from 28% growth in 2017 to 25% last year and 21% in the first three months of this year – but when you’re net margin north of 6% as an upstart online retailer, you’ll get the benefit of the doubt.
Revolve Group had an unlikely cheerleader when it went public, as noted by the ominous Citron Research in a glowing report on the dot-com youth magnet. Citron has set a short-term price target of $50 on the stock, with more upside beyond that.
It’s true that recent fashion-related IPOs have been mixed. Most of them have been volatile, and there’s no denying that Revolve’s two weeks of euphoria will eventually see some downturns. However, with the IPO likely to draw even more attention to the platform, it’s hard to bet against something that clearly works – and that’s pretty much what the fad is. .
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