What’s the Deal With Zulily?

Shares of Zulily have been under pressure, but according to two analysts those days may be coming to an end. Are they right?

Jul 2, 2014 at 9:00AM

Throughout most of 2014, Zulily (NASDAQ:ZU) has been the black sheep of e-commerce, falling from a high of over $70 to as low as $30. However, over a two-day period the shares have soared over 15% on the back of two upgrades. With Zulily still far off of its 52-week highs, does the stock present more upside than peer Overstock.com (NASDAQ:OSTK) and juggernaut Amazon (NASDAQ:AMZN)?

What are the analysts saying?
Zulily is an e-commerce flash-selling company that buys products in bulk and then sells them to its customers at specific times at low prices, also in bulk. The company specializes in women's and children's products.

At the end of the first quarter Zulily had 3.7 million active customers, which represented a rise of 1.8 million over the prior-year figure.    Goldman Sachs believes the company can sustain this impressive rate of customer growth. In fact, Goldman's expectations for stronger-than-expected customer growth led to a Buy rating and a $50 price target.

Also, RBC is bullish  on Zulily with a Buy rating, and likes the company's opportunity to expand beyond children's and infant clothing. If so, Zulily would clearly become more appealing to a broad number of consumers, which would thus spark revenue and customer growth. Notably, Zulily's revenue grew 87% year-over-year to $237.9 million in its last quarter. 

A strategic buy, sell, and ship model
Essentially, Zulily is about the same size as Overstock.com; analysts expect that Zulily and Overstock.com will finish 2014 with revenue of $1.2 billion  and $1.4  billion, respectively. The difference is that Zulily will grow revenue nearly 75% while Overstock.com's revenue growth will be much slower at 8%.

The growth disconnection brings up a good point in favor of Zulily and that's the lack of direct competition against the likes of Amazon.com. Specifically, Zulily has a niche market in the children and women's category, while companies like Overstock.com and Amazon.com cater to all categories within e-commerce. This puts Overstock.com at a real disadvantage in trying to match Amazon's aggressive pricing while keeping inventory at competitive levels even though it is a fraction of Amazon's size.

Zulily's buy, sell, and ship in bulk model gives it pricing power and cost synergies. As a result of this Zulily forecasts a profit margin of over 1.5%  for the full year despite heavy spending on infrastructure, fulfillment centers, and marketing.

Meanwhile, Overstock.com must be thriftier because of its large inventories. Its stock price is down almost 60% from last year's high partially because it has increased its spending and fulfillment expense has grown as a percentage of total revenue to nearly 89%, which creates the need for further investments.

Zulily has a business model that creates strong pricing leverage and gives the company maximum operating efficiency. E-commerce is an industry that's not built to create high margins, as even Amazon.com with revenue of nearly $80 billion still has an operating margin below 1%. Investors must like Zulily's opportunity to not only grow rapidly in the years ahead, but also to create rare profits in this space.

Foolish thoughts
While Zulily's not cheap at 6 times sales, and it likely won't become the next Amazon.com, this is a company that could still grow significantly larger with higher margins over a period of several years. In other words, it seems to have many years of growth ahead, unlike Overstock.com, and likely has far more investment value than a $150 billion Amazon.com, a company that faces increased e-commerce competition as the U.S. leader in this space.

With all things considered, RBC and Goldman make good points. If Zulily expands both horizontally and vertically while growing customers and new product segments, respectively, then investors should like the stock's opportunity to trade significantly higher in the long term.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Brian Nichols owns shares of ZULILY, INC. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers