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ThredUp IPO: 5 things to know about used e-commerce site before it goes public


Online reseller based in Oakland, California, ThredUp Inc.
TDUP,
,
which one has submitted it prospectus for the first public offering with the Securities and Exchange Commission after submitting the first application to go public in secret in January, said it will offer to sell 12 million shares at the start of the transaction. Expected price will be in the range $ 12 to $ 14.

ThredUp plans to trade on the Nasdaq Global Options Market under the ticker “TDUP”. There are nine banks underwriting the deal, led by Goldman Sachs, Morgan Stanley and Barclays.

ThredUp specializes in used clothing and accessories for women and children. Founded in 2009, the company says it had 1.24 million active buyers as of December 31, 2020, a 24% increase from the same period last year and 428,000 active sellers.

The number of employees has also increased. ThredUp had 1,862 employees and contractors as of December 31, 2020, up from 1,076 employees and professional contractors on December 31, 2018.

The company was founded by James Reinhart, who is currently the chief executive officer and Christopher Homer, who is currently the chief executive officer. Reinhart is also a co-founder of a California low-income charter management group. And Homer used to be a mid-range consultant at Microsoft Corp.
MSFT,
+ 0.67%

from July 2005 to August 2007.

ThredUp CEO James Reinhart included his “Good Work Flywheel” in the CEO letter in the company’s prospectus.

“In my opinion, it is not the introduction of new discount stores that have a new paradigm to disrupt the structure of the retail sector,” Reinhart wrote in his letter, which is in ThredUp prospectus.

Read: Ross Stores opens 60 new stores in fiscal year 2021

ThredUp hit revenue of $ 186.02 million in 2020, up from $ 163.81 million the year before. But the company recorded a net loss of $ 47.8 million in 2020, broader than the $ 38.2 million loss announced in 2019.

ThredUp is classified as an “emerging growth company,” meaning it doesn’t need to be disclosed like the larger public companies. A business remains an emerging growth company until it hits a number of key milestones, including more than $ 1.07 billion in annual sales.

One of the risk factors that ThredUp lists is its loss history: “We expect to continue to suffer net losses for the foreseeable future and we may not be able to achieve or maintain profits during future, ”the company said in its filing documents.

“Because the second-hand market is growing, especially the online resale of second-hand goods, it’s very difficult to predict future performance or the limit of market opportunity. We expect our operating costs to increase significantly as we expand our operations and infrastructure, invest substantially in marketing initiatives, develop and introduce new technologies, automation and hiring more personnel “.

ThredUp is one of several online retailers driving the wave of digital shopping accelerating during the COVID-19. Other recent online retailers that went public include parent company Wish ContextLogic Inc.
WANT,
-7.90%
,
Poshmark Inc.
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-3.94%

and European luxury retailer Mytheresa
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+ 5.47%
.

ThredUp is also part of the thriving second-hand sector, which is experiencing a surge as customers look for budget-conscious and eco-friendly options to fill their wardrobes. .

ThredUp’s prospectus cites GlobalData Market Survey data, which estimates resale market growth to $ 36 billion by 2024 from $ 7 billion in 2019.

ThredUp’s 2020 resale report estimates a 69% growth in online resales between 2019 and 2021. And in 2019, 40% of resale shoppers are Generation Z, a large demographic. Best to shop for this category.

Also: The Yeezy Gap collection will launch in the first half of 2021

“As these consumers mature, generate more disposable income and become a larger share of the consumer wallet market share, we expect that second hand will benefit,” the prospectus said.

ThredUp calls the fashion industry “one of the most environmentally damaging industries in the global economy” and aims to reduce energy and water use by selling used goods and clothing. use.

The company offers items at many different prices and over thousands of brands. Merchants can ship the items to ThredUp using one of the site’s “Cleaning Kits”, and the company will prepare the items for resale. In 2018, the company expanded its market to brands and retailers. ThredUp’s proprietary operating system can handle up to 100,000 items per day, and the company created a real-time database to categorize and price items.

Here are five other things to know about ThredUp before it goes public:

The company can use some of the proceeds from the IPO to invest in or buy back other businesses

First of all, ThredUp will use the proceeds from the deal to develop the company and for general business purposes.

“We have not signed any agreement or commitment regarding any acquisitions or investments at this time,” the prospectus said.

The company will also use $ 500,000 to launch an environmental policy function.

Like many companies that went public for the first time, ThredUp has no intention of paying dividends at this time.

ThredUp’s software can help to create effective images

ThredUp says it has developed software that can choose the best photo to drive interaction with buyers, one of the biggest costs of selling items online.

“This specialized image selection capability allows us to produce hundreds of thousands of high-quality images every day without the need for a professional photographer,” the prospectus says. “We can automatically sharpen, colorize and enhance photos as needed, prior to uploading to our marketplace in a continuous process, 24 hours a day, 7 days a week.”

Growth is affected by the pandemic

ThredUp warns that its development has been hampered by the uncertainty created by the pandemic and that could continue for a while. The prospectus says that by March 2020, the company has reduced orders by 10% on average monthly compared to February 2020 ”.

“Although average monthly orders have generally returned to pre-pandemic COVID-19 levels, we have not seen sustained growth in orders in recent periods, which we believe. that is mainly due to the effects of the COVID-19 pandemic. As a result, we experienced a slowdown in overall revenue growth in Q2, 3 and 4 of 2020, and our slowdown in revenue growth is likely to continue due to ongoing effects. by COVID-19. ”

In 2020, the company has adopted a number of cost-saving measures, including a 20% pay cut for most of its employees, and in June the company laid off employees at three of its small stores. when they closed for good reason.

Furthermore, the company is growing as well as a burgeoning online resale industry, which makes forecasting difficult.

ThredUp is operating in a highly competitive market

Among the competitors that ThredUp lists in the prospectus is RealReal Inc.
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-3.13%
,
eBay Inc.
EBAY,
+ 0.03%

and other used online retailers; Major e-commerce companies like Amazon.com Inc.
AMZN,
+ 0.86%
,
Walmart Inc.
WMT,
+ 1.19%

and Kohl’s Corp.
KSS,
-5.45%

; and discount retailers such as TJX Cos mother of TJ Maxx.
TJX,
-2.96%

and Burlington Stores Inc.
BURL,
-3.15%

Read: Kohl’s group of active investors are ‘skeptical’ that Amazon’s return program is good for income

And: Kohl’s says it has added 2 million new customers by 2020 due to Amazon’s return program

The company depends on prices set by national brands and retailers

“The promotional pricing of these parties may adversely affect the relative value of second-hand items offered for resale to us, and, therefore, revenue,” the prospectus says. our performance and financial conditions.

That means in an effort to stay competitive, ThredUp may have to lower prices.

“We have experienced a decline in sales in the past due to a drop in prices of new retail items sold by national retailers and brands and we anticipate a similar drop and volatility in in the future, for example, due to declines in the prices of new retail goods amid an economic downturn caused by the COVID-19 pandemic, ”said the prospectus.

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