In episode 49 of the "Acquired" podcast, hosts Ben Gilbert and David Rosenthal discuss Stitch Fix's IPO, providing insights into the company's unique position in the e-commerce space against giants like Amazon. They explore Stitch Fix's business model, which combines data science with personal stylists to offer a tailored shopping experience, and analyze the company's financial health, including its rapid growth, profitability, and challenges in customer acquisition costs. The episode also touches on the potential impact of the IPO on Stitch Fix's future strategies, such as expanding its product lines and leveraging public market capital for growth. With special attention given to the company's efficient use of capital and its ability to attract top talent, the hosts critically assess the timing and outcome of the IPO within the broader context of retail transformation and investor skepticism.
"Today we are covering the Stitch Fix IPO, a one that David and I have been excited to cover since the S-1 came out, because it's a fun read. It's fun to compare and contrast against other S-1s coming out recently. It's an e-commerce leader that is going up against Amazon in Amazon's absolute heyday and rise to prominence."
The quote explains the hosts' interest in Stitch Fix's IPO because of its unique position in the e-commerce market, especially against a giant like Amazon.
"Yeah, and this is one that is really tailor-made for our narratives section, because for the longest time, the narrative when Stitch Fix was a private company was this company is crushing. Know it's all up and to the right, which, as we'll find out, it was. But then it was actually a disappointing IPO in and of itself."
The quote highlights the contrast between Stitch Fix's strong private performance and the less impressive public debut, which is central to the narrative theme.
"Pilot is the one team for all of your company's accounting, tax and bookkeeping needs, and in fact, now is the largest startup-focused accounting firm in the US."
This quote emphasizes Pilot's role as a comprehensive financial services provider for startups, highlighting its growth and market position.
"Now that reminds me, we have a slack now with over 1000 people. If you go to acquire FM, you can join the slack."
The quote serves to inform listeners about the Acquired community on Slack and encourages engagement.
"So, Stitch Fix, before we get into the much discussion that we will have around the narrative section, but first, let's go back just almost exactly seven years ago, in late 2010, to when Stitch Fix was founded."
The quote sets the stage for discussing the origins of Stitch Fix and its evolution over time.
"And the second, and perhaps even more important hire they made is they hire a guy named Eric Coulson. And Eric had been the VP of data science at Netflix and the chief algorithms officer."
This quote underlines the significance of Eric Coulson's role in bringing data science expertise from Netflix to Stitch Fix, which was crucial for the company's strategy.
"And it wasn't entirely obvious when it started. I think a lot of people thought, oh, something like Trunk Club, that makes sense for men. Men don't like to shop, but women, of course, they like to shop."
The quote reflects on initial skepticism about Stitch Fix's model and the revelation that there is a significant market for people who prioritize convenience over the traditional shopping experience.
"every single fix that's sent out is human assembled, and yet they're claiming they're a recommendation engine and that they're the Netflix of clothing."
This quote reflects the hybrid nature of Stitch Fix's service, combining human stylists with data-driven recommendations to personalize clothing selections for customers.
"They store all the measurements about each article of clothing. So when they have a piece of clothing come into the warehouse, they take all the measurements and store it that way."
This quote explains the meticulous approach to inventory management that allows for more accurate and personalized clothing recommendations.
"the first fix they'll send you is a best estimate. But then it's really important as part of the process to constantly give feedback."
Feedback is critical to the system's learning process, allowing for better personalization over time as indicated by this quote.
"a machine is actually way better at doing sizing than a human would be by eyeballing things."
This quote highlights the advantage of using data and algorithms for sizing, which can outperform human estimations, especially at scale.
"Katrina and Aaron Flynn, her co-founder, get into a bit of a dispute that results in Flyn, in Aaron Flyn leaving the company and actually filing a lawsuit against Katrina and the company."
This quote details a significant early challenge for Stitch Fix, with internal conflict leading to legal action.
"Steve Anderson does a $2 million bridge round for the company, bridges them to the series A."
When Stitch Fix was in a critical financial situation, this quote shows how Steve Anderson's bridge funding provided crucial support.
"Bill Gurley... decides right then and there that he wants to invest."
Katrina's financial projections impressed Bill Gurley, leading to a substantial investment from Benchmark, as this quote captures.
"they do 73 million in revenue... then the next year... they do 343,000,000 in revenue and 42 million in EBITDA."
These figures illustrate the remarkable revenue and EBITDA growth of Stitch Fix, showcasing the company's financial success and potential.
"they end up downsizing the ipo, and then on November 16, they do price the IPo at $15 a share under the range that they were shooting for."
This quote indicates the lower-than-expected IPO pricing, suggesting a mismatch between the company's momentum and investor sentiment.
"there's a lot of strategy and there's a lot of different parties who want a lot of different things out of an ipO."
The quote emphasizes the complexity of the IPO process and the varying objectives of stakeholders involved in taking a company public.
"I'm not looking at the drop before the IPO or the trading immediately afterwards as significantly disappointing."
Despite the IPO's initial performance not meeting expectations, this quote reflects a perspective that the outcome was not necessarily negative for Stitch Fix.
"Stitch fix is fairly mature in terms of saturating their target customer base. And you can see that it's worth."
This quote highlights the maturity of Stitch Fix in terms of market penetration within its target demographic, suggesting limited growth potential within that segment.
"The amount of money that you have to spend in marketing to then go acquire further customers ends up being a lot more because those customers are much harder to reach and acquire because they're not your target customers."
This explains the increasing customer acquisition costs (CAC) as the company tries to reach beyond its core customer base, which is more difficult and expensive.
"That jumps almost three x the advertising spend up to over 70 million and revenue again grows nicely, but not nearly at the same rate that it had grown in the past."
This quote indicates a significant increase in advertising spend that did not correlate with a similar increase in revenue growth, suggesting less efficient customer acquisition.
"The sections that are required in an s one are not actually congruent anymore with understanding exactly how that business is doing."
This quote criticizes the current S-1 filing requirements for not providing a clear understanding of a company's performance, suggesting the need for more relevant metrics.
"This is a cash flow positive business with really meaningfully positive EBITDA."
This quote emphasizes Stitch Fix's financial stability and profitability, which is a key part of the company's narrative and justification for its IPO.
"They're contribution margin positive, profitable on the first order that a new customer makes with them."
This quote highlights the company's effective cost management, where they profit from the first transaction with a new customer, supporting the argument for their IPO.
"They're going to have to become even more like Netflix, where they're making their own quote unquote content as well."
This analogy suggests that Stitch Fix's success may depend on its ability to produce its own unique products, similar to how Netflix creates original content, to differentiate from competitors.
"One other thing to discuss here before we move on to tech themes is they went the IPO route."
This quote raises the strategic decision for Stitch Fix to pursue an IPO, suggesting alternative paths like acquisition were possible but not chosen, which may have implications for the company's long-term strategy and independence.
"of sister brother company got acquired by mean. I assumed along the way there were opportunities to do, you know, clearly stayed the course and put the stake in the ground that we believe that this is an enduring thing that should be an independent know."
This quote suggests that despite potential opportunities to change course, there was a strong commitment to maintaining the sister brother company's independence and long-term vision.
"It's a little bit like, how much do you believe that? I'm remembering your quote on our episode about the Snapchat IPO, because if you really believe that this is the route to go, I mean, if you don't, you should take stock, right?"
The quote addresses the significance of confidence in a company's trajectory when making decisions about stock options, drawing a parallel with the Snapchat IPO discussion.
"You know, don't take AOL stock."
This quote serves as a warning, implying that taking stock in a company like AOL might not be a wise decision, possibly due to its historical performance.
"Our sponsor for this episode is a brand new one for us, Statsig."
The quote announces Statsig as a new sponsor, indicating a partnership between the podcast and the company.
"Before founding Statsig, Vijay spent ten years at Facebook where he led the development of their mobile app ad product, which, as you all know, went on to become a huge part of their business."
The quote provides context on Vijay's expertise and the potential value he brings to Statsig, based on his successful tenure at Facebook.
"Statsig is a feature management and experimentation platform that helps product teams ship faster, automate A/B testing, and see the impact every feature is having on the core business metrics."
This quote explains Statsig's functions, emphasizing its role in enhancing product development efficiency and data-driven decision-making.
"Customers include Notion, Brex, OpenAI, Flipkart, Figma, Microsoft and Cruise Automation."
The quote lists some of Statsig's notable customers, showcasing the platform's adoption across various industries and suggesting its effectiveness.
"The decline of brick and mortar and the rise of ecommerce. This is one where it's in every freaking ibanking deck that you see now and research report that you see now."
This quote discusses the significant industry shift from physical retail to e-commerce, a trend that Stitch Fix correctly anticipated and leveraged.
"A fast cost of customer acquisition payback period. It's tough to see exactly what it is from the s one, but the bottom line is that it's really fast and this is a combination. It's on the order of nine to 18 months."
The quote underlines Stitch Fix's efficient customer acquisition strategy, with a rapid return on investment, contributing to the company's growth.
"Is the stock market a voting machine or a weighing machine? And I actually mean based on the amount of buzz that Stitch Fix the company has had in Silicon Valley over the past few years, they have a great team."
This quote introduces the debate on whether the stock market values companies based on short-term hype or long-term fundamentals, using Stitch Fix as an example.
"And Lake picked up 17 million in cash the morning the IPO, she owns 15% of the company. So post IPO, her shares were worth about $250,000,000."
The quote provides specific figures regarding Katrina Lake's earnings from Stitch Fix's IPO, illustrating the substantial monetary benefits for company leadership following a public offering.
"Super high variance, because the way that we grade on this show is, did doing this thing, the IPO or the acquisition, was it a long run, good move for them and did it enable them to do something that they wouldn't have otherwise been able to do?"
This quote reflects on the criteria used for grading an IPO's success, emphasizing the importance of long-term strategic benefits over immediate outcomes.
"It's the iPhone X. David and I talked about how you were getting the iPhone se, and there was nothing impressive about the X that you could tell."
The quote reveals a personal endorsement of the iPhone X, contrasting initial skepticism with the actual experience of using the device.
"So Crusoe, as listeners know by now, is a clean compute cloud provider specifically built for AI workloads."
This quote introduces Crusoe as a specialized cloud provider for AI, emphasizing its commitment to clean and efficient energy use for computing.
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The quote encourages listeners to engage with the podcast by subscribing and providing feedback through reviews, fostering a sense of community and ongoing dialogue.