Stitch Fix, the online shopping service that’s aiming to compete with the likes of Amazon (NASDAQ:AMZN), downgraded expectations on Thursday ahead of its forthcoming IPO. Stitch Fix (NASDAQ:SFIX) has caught investor’s attentions with its consistent profitability, but is facing a myriad of issues as it forays into the market for the first time.
For starters, Stitch Fix’s pricing of its IPO at $15 a share on Thursday falls short of its previously expected $18 to $20 per share range. That price gave the company an impressive $1.5 billion valuation, though it remains to be seen if investors are totally sold on the idea of attempting to dethrone Amazon, which currently rules the online retail market like a behemoth.
The San Francisco-based company, which launched in 2011, has collected nearly a billion dollars in annual revenue in fiscal year 2017 already, and has shown consistent profitability regardless of its lackluster share pricing. Stitch Fix’s ability to make a buck or two off of online retailing, which is rapidly growing to encompass the entire market, could serve to ignite serious investor passion if it shows itself to be viable alternative to companies like Amazon and Walmart (NYSE:WMT), which is also getting in on today’s digital shopping sprees.
Nonetheless, the company isn’t in for smooth sailing yet. Stitch Fix sold only 8 million shares during its IPO, a far cry from the original 9 to 10 million it was aiming for, a fact likely to linger in investors’ minds as they weigh the decision whether to back the online clothing retailer. The company’s history of posting impressive profitability figures may be coming to an end, too, thanks to one-time item sales.
Stitch Fix reported some $61 million in earnings in 2017, for instance, down from the $73 million it posted in 2016. Given that its ability to bring in profits is perhaps the only reason investors cautious to go against established giants like Amazon would back Stitch Fix, it needs to do more to ensure its revenue remains steady and growing, rather than dwindling over time. The company’s subscription based model could nonetheless prove enticing to today’s digital customers, who enjoy subscription-based services now more than ever, and are constantly on the lookout for the latest, trendiest fashion gear.
The company isn’t entirely without a paddle, though. Its total sales rose to $977 thus far in 2017, up from the $730 million it raked in in 2016, meaning while its final profits and its property development finance may be shrinking, Stitch Fix has shown that it can grow its business given time. Now that it’s succeeded in reeling in new customers, however, the company will need to do more to ensure its digital shopping service keeps them consistently shopping for higher priced fashion items.
After Stitch Fix announced in August that it’s adding more popular brands to its lineup, it may just succeed in luring in fashionistas eager for more variety. While it will be hard for the company to compete with the likes of Amazon when it comes to sheer scale, it could find success in specializing its services further, and by marketing exclusive products unavailable or uninteresting to the mass retailers it’s competing with.
The company certainly has underdog written all over it; founded and initially operation from an apartment, Stitch Fix has already defied the odds to get where it is today, meaning it would be foolish to dismissively write off the company’s prospects due to declining revenue figures – which, for now, remain very much in the black. Provided that Stitch Fix can prove to investors that it will use the capital gained from its IPO to retrofit its business with new services and an enhanced strategy to take on big-name competitors in the online retail market, it could very well survive and thrive for years to come.
Stitch Fix’s future may rely on its ability to use algorithms and other IoT-centered approaches to locate personalized outfits tailored and targeted for specific customers. While the company wouldn’t be the only one embracing tech to make its job easier, its ability to grow its customer base while improving profitability could combine to separate it from the pack, and give it a real fighting shot as it goes against today’s biggest established brands.