![]() ![]() The model that we use is essentially the same model that we applied in our analysis of Farfetch and Ly ft and is an extended version of the model we used in our paper on valuing non-subscription businesses ( SSRN) published in the Journal of Marketing Research. While we have all the usual reservations about conflating historical profitability with LTV (e.g., what Revolve calls a “3 Year LTV” we would call historically realized value over 3 years), these disclosures indicate that management is focused on the right metrics, and has done a good job to date in managing those metrics relative to their peers.īesides the C3, Revolve also disclosed active customers, total orders placed, and net sales, providing us with enough customer-level data to apply our CBCV models to infer unit economics and overall company valuation. For example, it showed that customers acquired in 2014 generated $188 in contribution profits on average over the next four years, which was 6.2 times higher than their customer acquisition cost (CAC) of $30 in 2014: Revolve went even further and also disclosed some of its customer value metrics as well. Our modeling results confirm this observation (more on this below). While some customers drop out quickly, there’s a segment of highly loyal customers who will stay with the company for many years to come. We also observe that each cohort demonstrates remarkable revenue stability after the first year of acquisition.This implies the firm is not so reliant on new customer acquisition and therefore its ability to keep marketing expense under control (it has done a good job to date in this regard, as marketing expense is less than 15% of net sales). ![]() The share of sales from existing customers has been increasing and reached ~70% in 2018 despite solid growth in the size of the customer base. ![]() The DataĪs usual, we were excited to see the Customer Cohort Chart (“C3”) in Revolve’s S-1 filing, breaking down total net sales by customer acquisition cohort: Finally, we will discuss in detail the conclusions summarized here. Next, we summarize the available data, then specify and validate our model for the firm. If we conservatively assume that Revolve is only able to maintain its current margin levels, our valuation estimate would be $1.2-1.4B, which is still at or above the target valuation. Decreasing WACC by 1pp from 12% to 11% increases the firm’s fair value by $300M. If Revolve is able to continue acquiring customers with unit-level performance comparable to what we have seen to-date, unlocking additional operating leverage in the process, we estimate its fair equity value at $1.7-2B or 40-60% above the midpoint of the firm’s target valuation ($1.2B). Justified target valuation with upside potential. ![]() Customers’ loyalty to the firm differs considerably across the customer base – while many customers have very low loyalty, we infer that 20-25% of customers will remain active with the firm for many years to come. If this trend persists, the CLV of future customers will go down but nevertheless remain healthily positive. We estimate that on average, each consecutive monthly acquisition cohort generates ~$2-3 in 12-month sales per customer less than the cohort that preceded it. If there is one thing to watch for in coming quarters, it is degradation in the goodness of customers across cohorts.
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