In the largest US private company eCommerce acquisition ever (larger than the initial $928m stock offer for Zappos), the market is suggesting Dollar Shave Club “hit the jackpot” with their $1bn price tag. However, I believe the valuation for such a brand is just and that this is the start of unique brands both IPOing and being acquired.
The $1bn acquisition price represents ~4x sales this year (or 6.5x the $152m sales Unilever reported Dollar Shave Club did in 2015). This is significantly higher than then 1–2x sales on historical levels that eCommerce companies have traded at. It begs the question whether true brands, such as Dollar Shave Club, should be analyzed and valued less as eCommerce companies and more as real consumer brands, which trade on 5–10x sales.
Having covered Unilever from an equity research perspective at Morgan Stanley for 8 years, I see this as a long term positive move for Unilever. Dollar Shave Club has transformed the razor market, become a key lifestyle company and a strong brand. Unilever got the opportunity to take on Gillette and meaningfully enter the razor market, all for 1/140th of their market cap.
What I specifically admire about what founder, Michael Dubin, has done is:
→ Found a real pain point and a product which consumers loved & wanted
→ Created a brand through inexpensive advertising that went viral
→ Achieved high LTV driven by repeat purchases
→ Personalized their subscriptions, emails & offers to the individual
What are the implications for other true eCommerce brands?
What stands out to my partners at Lightspeed & I are eCommerce companies that are able to quickly & efficiently build a brand, as mentioned in a past blog: 10 Reasons E-commerce Companies Will E-xplode
Many say eCommerce is not back and that Dollar Shave Club are a unique example. I would argue they created a brand quickly and inexpensively (by using YouTube for free advertising) but other companies have also executed well on this front to become real brands. Consider subscription brands such as Ipsy and The Honest Company* or pure eCommerce brands such as Casper and Warby’s. It’s companies such as these 17 (now 16) that I continue to believe should see strong exits.
The acquirers are sitting on the sidelines. On the CPG side alone, Unilever Colgate and P&G (with market caps: $140bn, $67bn & $224bn respectively) have significant cash ($10.3bn between them) sitting on their Balance Sheets, which presents huge opportunities for future acquisitions.
Whether it be through acquisitions or IPOs, I expect eCommerce companies that have created true brands to start trading on multiples higher than their 1x sales historical level and closer to that of real consumer brands.
*Denotes a Lightspeed portfolio company
Sources: Bloomberg, Marketwatch & Unilever, Colgate & P&G annual reports
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