CAFEPRESS INC PRSS
July 23, 2013 - 4:58pm EST by
crestone
2013 2014
Price: 6.70 EPS $0.00 $0.00
Shares Out. (in M): 17 P/E 0.0x 0.0x
Market Cap (in $M): 115 P/FCF 0.0x 0.0x
Net Debt (in $M): -23 EBIT 0 0
TEV ($): 91 TEV/EBIT 0.0x 0.0x

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  • Growth stock
  • Industry Tailwinds
  • Private Equity (PE)
  • VC Owned
  • Consumer Goods
 

Description

CafePress represents a unique opportunity to participate in a revenue growth story with sector tailwinds and embedded margin and multiple expansion potential, at an inexpensive valuation.

In summary, on topline PRSS benefits from double-digit growth in retail-wide e-commerce sales, plus additional growth from the trend toward personalization. On margins PRSS should benefit from a consolidation of six manufacturing locations to a single optimally-located, lower cost facility in Kentucky that will be completed later this year. And on valuation multiples, PRSS has been in the penalty box for significant misses on guidance in its first couple quarters after its IPO last year. These multiples should rebound once the company puts together a string of solid quarters and proves it can deliver on the growth and margin story it has pitched since the IPO. If the company executes on its sizable opportunity, we believe the stock price could more than double in the next 18 months.

About the company:

PRSS is a Sequoia-backed company (they are still the largest shareholder at 17%) that provides customized consumer products, most commonly thought of as t-shirts, mugs, buttons, etc., but actually spanning over 600 kinds of base goods. While they started out as a user-generated, “create and buy” site, they have evolved into a platform that allows individual designers, small shops, and large corporate brands to offer their own custom products, resulting in a marketplace of over 2 million shops, and millions of crowd-sourced designs for consumers and organizations to “find and buy” as well as create and buy. CafePress’ goal is to be the customization engine for e-commerce wherever it occurs, and describe their core competency as building high-quality, customized product efficiently, in very small order sizes (average order size is ~$50).

Why is it down so much?

PRSS’ stock price is down 65% since it IPOed at the end of March, 2012, and its next-year forward multiples have dropped dramatically as well (see table below). The main reason for the significant price decline and multiple compression is the fact that the company, in its first and second quarters immediately following the IPO, slashed forward guidance (8% on revenues, and 39% on ebitda). The reason they cut their guidance was primarily because of search algorithm changes at Google, which hurt revenue at small shops which depend on keyword traffic, but also from declines in political and international revenues. While the change in search algorithms was not something they could have predicted, the other two declines, especially coming in guidance less than 3 months after their IPO, seems like something they should have seen coming. This failure so near to their IPO did major damage to management credibility. While the last two quarters’ (Q4 2012 and Q1 2013) results have been more positive, with the company surpassing the high end of guidance, they have not yet regained investor confidence, especially because they continue to be in a manufacturing consolidation and acquisition integration process, and don’t expect normal margins to resume until the end of this year. The street appears to be waiting to see whether the company can actually deliver consistently on their targets. Below is a table comparing the company’s post IPO multiple with current levels, and with e-commerce industry multiples. For the industry multiple I used a comp set that has essentially the same revenue growth rate of 24%. (For the full comp table see farther below).

 

  fwd multiples
  PRSS post-IPO PRSS current e-commerce average
       
next year p/s 1.1x .4x 1.7x
next year p/e 19.3x 14.0x 29.6x
next year ev/ebitda 8.1x 4.1x 14.5x

 

While future search algorithm changes will continue to be a risk to the company, exposure has declined over the past year, as the percentage of revenue from the small shops that are most affected by algorithm changes has significantly decreased. The overall shops segment makes up less than 15% of total revenues, and the small shops portion has been getting smaller, while the corporate branded shops portion has been growing at 50+%.

Sector tailwinds:

National e-commerce sales have been growing at around 15% a year, much higher than the overall retail growth rate of around 5%. Projections for the next 5 year CAGR for e-commerce range from 10 to 15%*. Meanwhile, the primary product category that PRSS sells into (apparel and accessories) has the highest sub-category growth projections at ~17%. According to second-hand conversations with the current board member from Sequoia, Sequoia’s thesis when they invested in 2005 was that CafePress was a macro play on the growth in e-commerce, and that layering personalization on top of e-commerce results in an even more attractive growth-rate opportunity. That opportunity still appears valid, and is supported by the company’s long-term growth rate target of 20%.

*a comparison of 6 different projections, as well as sub-category projections can be found at http://www.emarketer.com/Article/Retail-Ecommerce-Set-Keep-Strong-Pace-Through-2017/1009836

Competitive advantage?:

Determining if the company can have a competitive advantage is important in a category which has no real technical barrier to entry in the actual production of customized t-shirts, coffee mugs, buttons, canvas paintings, etc. The company believes their evolution into a platform that focuses on quality and efficiency is their source of competitive advantage, for several reasons. As a platform they benefit from having a very large community of sellers and a long-tail of unique find-and-buy products. This broad reach creates network effects and a pool of demand for both CafePress and independent sellers on their platform, and an important advantage to scale for the company. For example, CafePress has over 500k followers on Facebook, and over 8,000 people currently talking about CafePress, versus their nearest-sized competitor, Zazzle, which has 79k followers, and some 600 people talking about it. Unlike for some vendors, this social presence actually drives real revenue for CafePress (revenues from social media channels were up 122% yoy in the most recent quarter). Clearly there is a virtuous circle here where the more people talk about, buy, and sell on CafePress, the more others will as well, so it’s up to the company to leverage the lead they currently have as the #1 consumer product customization company.

Additionally, CafePress has benefited from a focus on quality, which differentiates them from many other customized product vendors, which sell products that are often used just once and tossed aside (for example, a corporate event t-shirt). The CEO and CFO told us they believe their focus on building high-quality product has enabled them to win major corporate partners (such as ESPN, ABC, Paramount, Marvel, and Michael’s), which have their own shops on the platform, and represent one of the fastest growing segments of the business.

Finally, while it’s not hard from a technical perspective to build customized consumer products, building millions of them, most of them as a unit order of one, at low cost, is difficult, and while we don’t know the financials of their smaller private competitors, can reasonably conclude that CafePress’ size and soon-to-be centralized manufacturing location in Kentucky (where they have low cost of labor, tax incentives, and are co-located with UPS) provides them an opportunity for better margins than smaller competitors. Their largest competitor Zazzle builds some products in San Jose and outsources others. CafePress believes that of the products built in San Jose they clearly have a production cost advantage with their operations in Kentucky, and have higher quality than the outsourced products.

Margin and multiple expansion potential:

The company is currently consolidating six scattered manufacturing locations into one facility in Kentucky, and is investing about $6 mm of ebitda to complete this during the fourth quarter of this year. They expect a margin rebound after Q4 when this is complete, due to lower shipping and labor costs. Pre-IPO they said their long-term targets were 20% annual growth rates and mid-to-high teens ebitda margins. Despite the disappointments of last year, they still stand by these targets, and on the Q4 earnings call, they said they believe they can return to double-digit margins next year, as a result of the manufacturing consolidation. We asked the CEO and CFO why they haven’t reached their long-term margin targets in recent years (they claim they did in 2009, presumably on an adjusted basis), and they said that they have been investing for growth for the last several years. We think they will continue to have to invest in growth and will likely face pricing pressure, so we take the mid-to-high teens margin target with a grain of salt, but there is clear room for expansion from current levels of around 5% (on guidance this year, excluding the $6 mm consolidation expense, they would reach 7.7% ebitda margin), back toward historic, unadjusted levels near 10%.

As discussed above, because of the major guidance revisions immediately post IPO, trading multiples have significantly compressed. Should the company put together another couple quarters of meeting guidance, as they have begun to do with the last two, we believe investors will accord them a higher multiple. Based on e-commerce comparables and the company’s own multiples before it began slashing guidance, there is considerable room for expansion for a company growing at their rate. See the table below for a set of e-commerce comparables:

 

name

mkt cap

ev

rev growth yoy

ev/ebitda nxt yr

p/e nxt yr

p/s nxt yr

             

Average

      21,299

      20,265

23.2%

14.5x

29.6x

1.7x

CAFEPRESS INC

           116

              93

24.1%

4.1x

14.0x

.4x

             

AMAZON.COM INC

   138,157

   133,954

27.1%

21.1x

54.3x

1.5x

EBAY INC

      67,717

      61,814

20.8%

10.0x

16.4x

3.6x

SHUTTERFLY INC

        2,117

        1,953

35.4%

10.9x

25.5x

2.4x

VISTAPRINT NV

        1,650

        1,837

24.9%

11.0x

19.6x

1.3x

ANGIE'S LIST INC

        1,548

        1,500

73.0%

49.0x

79.0x

4.5x

OVERSTOCK.COM INC

           790

           706

4.3%

14.3x

27.4x

.6x

1-800-FLOWERS.COM INC-CL A

           451

           452

6.6%

8.6x

26.2x

.6x

PETMED EXPRESS INC

           345

           295

-4.4%

9.5x

17.6x

1.4x

GEEKNET INC

              98

              47

20.0%

6.4x

15.8x

.6x

 

Target price:

For our target price we assume the company reaches guidance on revenues of $255 mm this year, and grows in the low teens in 2014 resulting in ~$288 mm of revenues. On margins we assume that they get back the $6 mm (2.4% of revenues) they are spending on consolidation this year, and benefit by another couple million from higher efficiencies next year, resulting in $24 mm of ebitda or an 8.4% ebitda margin, significantly more conservative than their projection of double-digit margins next year. Applying a 10x 2014 ebitda multiple (comps are 14.5x), and assuming only moderate cash generation of $10 mm, results in a target price of $16.05, and upside of 140%. The fact that our revenue growth and margin assumptions are more conservative than management’s, and our target multiple is well below industry comps shows how much this name has been punished, and how little trust is currently being placed in the company—and how much upside there may be should they execute.

Risks

Management execution. While the CEO and CFO talk as though they have learned lessons from the guidance disappointments of last year, and their business is diversified away from and has less exposure to the same issues, management still comes across as promotional on calls, leaving us with less confidence.

Competition. Even though Zazzle appears to be smaller and generating less online buzz, and likely has higher costs of production, their online merchandising appears very good—see their website. If they out-execute, they could cut CafePress’ growth. Additionally, high-end custom product marketplaces like Etsy could move downstream and cut into wallet/mind-share for CafePress. Or Amazon could decide to enter this space. Clearly Amazon’s distribution network and technology expertise would make it a strong competitor, though it does seem that certain processes and know-how that CafePress has developed over the years in building small orders efficiently would take cost and effort to replicate. Additionally, Amazon is a big sales partner of CafePress, listing and selling a lot of CafePress merchandise. At these prices, it probably would make more sense to acquire CafePress than to build it.

Cost of customer acquisition. Due to a variety of issues, such as further search algorithm changes, market saturation, etc., customer acquisition costs may go up significantly, preventing CafePress from reaching its promised margins.

Market trends/popularity for customization. Growth could be limited by changes in the popularity of customization or the manner in which it is delivered (like 3-D printers).

Major disposition by VC’s. According to second-hand conversations with Sequoia’s board member, a sale for them at these price levels seems unlikely, but could become more likely if the stock returns to double-digit levels.

I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

A couple more quarters of hitting guidance.

Successful completion of manufacturing consolidation, expected during Q4 of this year, and subsequent margin rebound.

    sort by   Expand   New

    Description

    CafePress represents a unique opportunity to participate in a revenue growth story with sector tailwinds and embedded margin and multiple expansion potential, at an inexpensive valuation.

    In summary, on topline PRSS benefits from double-digit growth in retail-wide e-commerce sales, plus additional growth from the trend toward personalization. On margins PRSS should benefit from a consolidation of six manufacturing locations to a single optimally-located, lower cost facility in Kentucky that will be completed later this year. And on valuation multiples, PRSS has been in the penalty box for significant misses on guidance in its first couple quarters after its IPO last year. These multiples should rebound once the company puts together a string of solid quarters and proves it can deliver on the growth and margin story it has pitched since the IPO. If the company executes on its sizable opportunity, we believe the stock price could more than double in the next 18 months.

    About the company:

    PRSS is a Sequoia-backed company (they are still the largest shareholder at 17%) that provides customized consumer products, most commonly thought of as t-shirts, mugs, buttons, etc., but actually spanning over 600 kinds of base goods. While they started out as a user-generated, “create and buy” site, they have evolved into a platform that allows individual designers, small shops, and large corporate brands to offer their own custom products, resulting in a marketplace of over 2 million shops, and millions of crowd-sourced designs for consumers and organizations to “find and buy” as well as create and buy. CafePress’ goal is to be the customization engine for e-commerce wherever it occurs, and describe their core competency as building high-quality, customized product efficiently, in very small order sizes (average order size is ~$50).

    Why is it down so much?

    PRSS’ stock price is down 65% since it IPOed at the end of March, 2012, and its next-year forward multiples have dropped dramatically as well (see table below). The main reason for the significant price decline and multiple compression is the fact that the company, in its first and second quarters immediately following the IPO, slashed forward guidance (8% on revenues, and 39% on ebitda). The reason they cut their guidance was primarily because of search algorithm changes at Google, which hurt revenue at small shops which depend on keyword traffic, but also from declines in political and international revenues. While the change in search algorithms was not something they could have predicted, the other two declines, especially coming in guidance less than 3 months after their IPO, seems like something they should have seen coming. This failure so near to their IPO did major damage to management credibility. While the last two quarters’ (Q4 2012 and Q1 2013) results have been more positive, with the company surpassing the high end of guidance, they have not yet regained investor confidence, especially because they continue to be in a manufacturing consolidation and acquisition integration process, and don’t expect normal margins to resume until the end of this year. The street appears to be waiting to see whether the company can actually deliver consistently on their targets. Below is a table comparing the company’s post IPO multiple with current levels, and with e-commerce industry multiples. For the industry multiple I used a comp set that has essentially the same revenue growth rate of 24%. (For the full comp table see farther below).

     

      fwd multiples
      PRSS post-IPO PRSS current e-commerce average
           
    next year p/s 1.1x .4x 1.7x
    next year p/e 19.3x 14.0x 29.6x
    next year ev/ebitda 8.1x 4.1x 14.5x

     

    While future search algorithm changes will continue to be a risk to the company, exposure has declined over the past year, as the percentage of revenue from the small shops that are most affected by algorithm changes has significantly decreased. The overall shops segment makes up less than 15% of total revenues, and the small shops portion has been getting smaller, while the corporate branded shops portion has been growing at 50+%.

    Sector tailwinds:

    National e-commerce sales have been growing at around 15% a year, much higher than the overall retail growth rate of around 5%. Projections for the next 5 year CAGR for e-commerce range from 10 to 15%*. Meanwhile, the primary product category that PRSS sells into (apparel and accessories) has the highest sub-category growth projections at ~17%. According to second-hand conversations with the current board member from Sequoia, Sequoia’s thesis when they invested in 2005 was that CafePress was a macro play on the growth in e-commerce, and that layering personalization on top of e-commerce results in an even more attractive growth-rate opportunity. That opportunity still appears valid, and is supported by the company’s long-term growth rate target of 20%.

    *a comparison of 6 different projections, as well as sub-category projections can be found at http://www.emarketer.com/Article/Retail-Ecommerce-Set-Keep-Strong-Pace-Through-2017/1009836

    Competitive advantage?:

    Determining if the company can have a competitive advantage is important in a category which has no real technical barrier to entry in the actual production of customized t-shirts, coffee mugs, buttons, canvas paintings, etc. The company believes their evolution into a platform that focuses on quality and efficiency is their source of competitive advantage, for several reasons. As a platform they benefit from having a very large community of sellers and a long-tail of unique find-and-buy products. This broad reach creates network effects and a pool of demand for both CafePress and independent sellers on their platform, and an important advantage to scale for the company. For example, CafePress has over 500k followers on Facebook, and over 8,000 people currently talking about CafePress, versus their nearest-sized competitor, Zazzle, which has 79k followers, and some 600 people talking about it. Unlike for some vendors, this social presence actually drives real revenue for CafePress (revenues from social media channels were up 122% yoy in the most recent quarter). Clearly there is a virtuous circle here where the more people talk about, buy, and sell on CafePress, the more others will as well, so it’s up to the company to leverage the lead they currently have as the #1 consumer product customization company.

    Additionally, CafePress has benefited from a focus on quality, which differentiates them from many other customized product vendors, which sell products that are often used just once and tossed aside (for example, a corporate event t-shirt). The CEO and CFO told us they believe their focus on building high-quality product has enabled them to win major corporate partners (such as ESPN, ABC, Paramount, Marvel, and Michael’s), which have their own shops on the platform, and represent one of the fastest growing segments of the business.

    Finally, while it’s not hard from a technical perspective to build customized consumer products, building millions of them, most of them as a unit order of one, at low cost, is difficult, and while we don’t know the financials of their smaller private competitors, can reasonably conclude that CafePress’ size and soon-to-be centralized manufacturing location in Kentucky (where they have low cost of labor, tax incentives, and are co-located with UPS) provides them an opportunity for better margins than smaller competitors. Their largest competitor Zazzle builds some products in San Jose and outsources others. CafePress believes that of the products built in San Jose they clearly have a production cost advantage with their operations in Kentucky, and have higher quality than the outsourced products.

    Margin and multiple expansion potential:

    The company is currently consolidating six scattered manufacturing locations into one facility in Kentucky, and is investing about $6 mm of ebitda to complete this during the fourth quarter of this year. They expect a margin rebound after Q4 when this is complete, due to lower shipping and labor costs. Pre-IPO they said their long-term targets were 20% annual growth rates and mid-to-high teens ebitda margins. Despite the disappointments of last year, they still stand by these targets, and on the Q4 earnings call, they said they believe they can return to double-digit margins next year, as a result of the manufacturing consolidation. We asked the CEO and CFO why they haven’t reached their long-term margin targets in recent years (they claim they did in 2009, presumably on an adjusted basis), and they said that they have been investing for growth for the last several years. We think they will continue to have to invest in growth and will likely face pricing pressure, so we take the mid-to-high teens margin target with a grain of salt, but there is clear room for expansion from current levels of around 5% (on guidance this year, excluding the $6 mm consolidation expense, they would reach 7.7% ebitda margin), back toward historic, unadjusted levels near 10%.

    As discussed above, because of the major guidance revisions immediately post IPO, trading multiples have significantly compressed. Should the company put together another couple quarters of meeting guidance, as they have begun to do with the last two, we believe investors will accord them a higher multiple. Based on e-commerce comparables and the company’s own multiples before it began slashing guidance, there is considerable room for expansion for a company growing at their rate. See the table below for a set of e-commerce comparables:

     

    name

    mkt cap

    ev

    rev growth yoy

    ev/ebitda nxt yr

    p/e nxt yr

    p/s nxt yr

                 

    Average

          21,299

          20,265

    23.2%

    14.5x

    29.6x

    1.7x

    CAFEPRESS INC

               116

                  93

    24.1%

    4.1x

    14.0x

    .4x

                 

    AMAZON.COM INC

       138,157

       133,954

    27.1%

    21.1x

    54.3x

    1.5x

    EBAY INC

          67,717

          61,814

    20.8%

    10.0x

    16.4x

    3.6x

    SHUTTERFLY INC

            2,117

            1,953

    35.4%

    10.9x

    25.5x

    2.4x

    VISTAPRINT NV

            1,650

            1,837

    24.9%

    11.0x

    19.6x

    1.3x

    ANGIE'S LIST INC

            1,548

            1,500

    73.0%

    49.0x

    79.0x

    4.5x

    OVERSTOCK.COM INC

               790

               706

    4.3%

    14.3x

    27.4x

    .6x

    1-800-FLOWERS.COM INC-CL A

               451

               452

    6.6%

    8.6x

    26.2x

    .6x

    PETMED EXPRESS INC

               345

               295

    -4.4%

    9.5x

    17.6x

    1.4x

    GEEKNET INC

                  98

                  47

    20.0%

    6.4x

    15.8x

    .6x

     

    Target price:

    For our target price we assume the company reaches guidance on revenues of $255 mm this year, and grows in the low teens in 2014 resulting in ~$288 mm of revenues. On margins we assume that they get back the $6 mm (2.4% of revenues) they are spending on consolidation this year, and benefit by another couple million from higher efficiencies next year, resulting in $24 mm of ebitda or an 8.4% ebitda margin, significantly more conservative than their projection of double-digit margins next year. Applying a 10x 2014 ebitda multiple (comps are 14.5x), and assuming only moderate cash generation of $10 mm, results in a target price of $16.05, and upside of 140%. The fact that our revenue growth and margin assumptions are more conservative than management’s, and our target multiple is well below industry comps shows how much this name has been punished, and how little trust is currently being placed in the company—and how much upside there may be should they execute.

    Risks

    Management execution. While the CEO and CFO talk as though they have learned lessons from the guidance disappointments of last year, and their business is diversified away from and has less exposure to the same issues, management still comes across as promotional on calls, leaving us with less confidence.

    Competition. Even though Zazzle appears to be smaller and generating less online buzz, and likely has higher costs of production, their online merchandising appears very good—see their website. If they out-execute, they could cut CafePress’ growth. Additionally, high-end custom product marketplaces like Etsy could move downstream and cut into wallet/mind-share for CafePress. Or Amazon could decide to enter this space. Clearly Amazon’s distribution network and technology expertise would make it a strong competitor, though it does seem that certain processes and know-how that CafePress has developed over the years in building small orders efficiently would take cost and effort to replicate. Additionally, Amazon is a big sales partner of CafePress, listing and selling a lot of CafePress merchandise. At these prices, it probably would make more sense to acquire CafePress than to build it.

    Cost of customer acquisition. Due to a variety of issues, such as further search algorithm changes, market saturation, etc., customer acquisition costs may go up significantly, preventing CafePress from reaching its promised margins.

    Market trends/popularity for customization. Growth could be limited by changes in the popularity of customization or the manner in which it is delivered (like 3-D printers).

    Major disposition by VC’s. According to second-hand conversations with Sequoia’s board member, a sale for them at these price levels seems unlikely, but could become more likely if the stock returns to double-digit levels.

    I do not hold a position of employment, directorship, or consultancy with the issuer.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    A couple more quarters of hitting guidance.

    Successful completion of manufacturing consolidation, expected during Q4 of this year, and subsequent margin rebound.

    Messages


    Subjectcouple more bull case points
    Entry07/23/2013 06:41 PM
    MemberMason
    nice writeup but I would like to add a couple more reasons to be long:
     
    1) they are not just consolidating the manufacturing footprint.  they are investing in the new KY facility so currently have duplicative investments in manufacturing that will go away at the end of the year which is one of the reasons why they are so confident that margins should rebound.    
    2) the manufacturing consolidation will actually also help revenue growth.  today, because products are made and shipped from different factories, they have a limited ability to upsell customers other products.  when everything is made in one place, they can try to sell you a mug with your corporate logo if you are buying pens with your company logo, for example.  therefore, you should have a tailwind to revenue growth while at the same time margins should be improving.  
    3) the CEO actually bought a little bit of stock at the end of 2012. 

    SubjectUpdated thoughts?
    Entry12/10/2014 11:40 AM
    Membermaggie1002

    Crestone, know this hasn't worked as envisioned (yet) but curious if still following and, if so, any updated perspective on fundamentals and your outlook.  Volume in the stock is quite high today/yesterday and microcap focused Lloyd Miller appears to be in accumulation mode.  It appears that numerous changes have been to mgmt recently and clearly lots of tax-loss selling pressure but wondering if medium/longer-term is worthy of consideration.  Thanks in advance for your thoughts.


    SubjectRe: Updated thoughts?
    Entry12/10/2014 12:44 PM
    Membercuyler1903

    Not my thread, but I noticed same thing.  From what I can tell, Lloyd doesn't lose much.  Usually wins huge.

    I've initiated a long here too over last few days.  Tax loss selling has exacerbated the problem.

    Figure this goes private at $4, maybe $5.  New CEO is big help here, and gross margins are already just fine, probably rising from here back to 40s.

    At ~0.28x TEV/GP, it doesn't take much to double or triple your money here. 

    Cuyler


    SubjectRe: Re: Updated thoughts?
    Entry12/11/2014 09:18 AM
    Membercrestone

    Maggie and any others, indeed, many apologies for how this hasn't worked. I haven't followed closely recently, so thank you Cuyler for commenting.

    One thing I have seen recently, a bit to my surprise, as my impression of the quality and opportunity in this space has fallen, is that the category is actually attracting startups. Teespring, a Y Combinator company, recently raised $56 mm from Andreessen Horowitz and Khosla Ventures, and from what I've heard, they are growing insanely fast. It appears that designers can earn more from Teespring than they can from Zazzle and CafePress, as Teespring only charges a flat fee for each shirt sold. You can see how rapidly they've become a player with this simple google trends chart: http://www.google.com/trends/explore#q=cafepress%2C%20teespring%2C%20zazzle&cmpt=q

    I agree with Cuyler that there is acquisition potential, and Zazzle has recently acquired another company in the space http://techcrunch.com/2014/12/05/come-at-tee-bro/


    SubjectRe: Re: Re: Updated thoughts?
    Entry12/11/2014 09:41 AM
    Membercuyler1903

    PRSS is a company with $240 million of revenue, $90 million of gross profit and a $26 million TEV.  

    Teespring has raised $55 million of venture capital in 2014, presumably owning a fraction of the company with very little revenue.

    These are not great businesses but at this price it's worth owning IMO.

    Cuyler


    SubjectLloyd's buying continues, now owns 15% of company
    Entry12/17/2014 11:45 AM
    Membercuyler1903

    Since December 3rd, Lloyd Miller has bot 826,000 shares of PRSS, bringing his total stake to 2.6mm shares, or 15% of the company.

    I've been buying too.

    Think this is $3+ by January as tax loss selling is gone and people start doing the math.  (kind of looks like heavy selling is finished or has at least taken a break, as volume has fallen off a cliff...)

    Kind of feels like the III situation for those who remember when Carlson Capital dumped their stake around $1.25 while insiders were buying...

    Cuyler


    SubjectRe: Lloyd's buying continues, now owns 15% of company
    Entry12/17/2014 12:05 PM
    Membersurf1680

    I screened for stocks that went down in share price every month of the year last year (my weird way of looking for Jan. effect contenders).   While doing due diligence I bought a custom printed shower curtain from them for $59 that will a have a giant picture of my 9-year old daughter on it.   

    This whole thing seems a little too good to be true.   Fingers crossed - either the shower curtain or the stock should work out.


    SubjectRe: Re: Lloyd's buying continues, now owns 15% of company
    Entry12/17/2014 12:26 PM
    Membercuyler1903

    You can't lose with that shower curtain.

    I figure if the founder, now that he's back in the CEO chair, can simply figure out how to get a 5% EBITDA margin out of this, which shouldn't be too hard with a 37% GM, then the stock is trading at about 2x EBITDA.

    Plus, Lloyd Miller always seems to win big.  Unusual to have a chance to buy around same price as him.

    Plus, with $10mm of net cash we have a nice balance sheet for a distressed stock.

    Cuyler


    SubjectRe: Re: Re: Lloyd's buying continues, now owns 15% of company
    Entry12/17/2014 12:51 PM
    MemberMJS27

    any thoughts on where GM goes as the company picks up more and more licensing business? i'd have to imagine lower.

    and any reason someone won't just open a similar operation in a low(er) cost location that KY?  China, Vietnam etc?  Is cafepress enough of a brand to keep someone from going to an overseas producer?  and/or is speed to market important enough to keep people from going overseas?

    any thoughts appreciated


    SubjectRe: Re: Re: Re: Lloyd's buying continues, now owns 15% of company
    Entry12/17/2014 01:00 PM
    Membercuyler1903

    here are my thoughts:

    - the company has $238mm of LTM revenue and $89mm of gross profit

    - the company has a $25mm enterprise value with $10mm of net cash

    - the company has a ridiculously successful small cap activist who has quickly accumulated a 15% stake

    - at this valuation, I don't care if they decide to start licensing herbalife mix.

    As the new CEO/founder said on last call:  "After a few months of due diligence, I am even more confident that it is unnecessary complexity that most ails our business. I believe the antidote to complexity is simplicity. And while simple is not always easy, I am confident that over time I can successfully lead our management team to return CafePress to growth and profitability."

    Cuyler


    SubjectRe: Re: Re: Re: Re: Lloyd's buying continues, now owns 15% of company
    Entry12/17/2014 02:19 PM
    MemberMJS27

    don't short change yourself!  the company also has the cuyler promotion machine behind it too ;)

     

    just trying to get comfortable with the fact that revenue is declining.  its great to point out revenue and gross profit, but lets not forget they are losing money as well.  i like the founder coming back, and i like the small cap activist... i'm just getting started here but so far i haven't come across the easily pullable levers that will get cash flow positive.


    SubjectRe: Re: Re: Re: Re: Lloyd's buying continues, now owns 15% of company
    Entry12/17/2014 02:19 PM
    MemberMJS27

    don't short change yourself!  the company also has the cuyler promotion machine behind it too ;)

     

    just trying to get comfortable with the fact that revenue is declining.  its great to point out revenue and gross profit, but lets not forget they are losing money as well.  i like the founder coming back, and i like the small cap activist... i'm just getting started here but so far i haven't come across the easily pullable levers that will get cash flow positive.


    SubjectRe: Re: Re: Re: Re: Re: Lloyd's buying continues, now owns 15% of company
    Entry12/17/2014 02:42 PM
    Membercuyler1903

    MJS - Do you ever do your own very simple screens, perhaps look for insider buying, stocks down a lot, cheap EV/Sales, etc?  It's a good way to find ideas like this.  

    As for generating profit here, my grandmother could generate a 5% ebitda margin with a 37% GM, and her specialty was baking Christmas cookies.  As it is, maint capex is only $2mm and I think they can probably get to 7% EBITDA margin, so call it $15mm of EBITDA.  At 6x you have a $90mm TEV and a $4.60 stock price.

    The fact is that commentary here is useless if it isn't accurate and credible.  Investing in many cases is about pattern recognition and situational awareness, hence the comparison to III.  This company is no juggernaut like IBKR (for instance), but it is way too cheap at this price.  

    Cuyler

     

     


    SubjectPRSS
    Entry01/06/2015 02:44 PM
    Membercuyler1903

    ...holding up well so far in a poor tape.  Feels like the tax loss selling was a big contributor to year end declines.  Any "not horrible" news should take this stock up nicely, if the company isn't sold first.  Now that the founder is CEO again that seems like a distinct possibility.  We'll see.  Good video explaining business here.  http://www.cafepress.com/cp/info/about/ 

    Cuyler

     


    SubjectStock +19%, still too cheap
    Entry02/11/2015 12:47 PM
    Membercuyler1903

    PRSS announced it sold its art business, which comprised 20% of total revenue, for $31.5mm.  All else equal, the company now has a pro forma TEV of $1.5mm with the stock at $1.50.

    So, at $1.50 stock price you are getting a $180-185mm revenue company for only $1.5mm TEV.  I don't know what the profit dynamic looks like on a pro forma basis given the preannouncement, but I'm pretty sure this revenue is worth a lot more than $1.5mm.

    Stock should easily be in the 3s right now.  Angus, did you hold onto your stock?  MJS, did you buy some?

    http://www.marketwatch.com/story/cafepress-announces-definitive-agreement-to-sell-art-business-to-circle-graphics-inc-2015-02-11 

    Cuyler

     


    SubjectPRSS
    Entry02/11/2015 12:52 PM
    Memberjhu2000

    TEV is actually negative if you figure in the sale and Dec 31 cash balance.


    SubjectRe: Re: Stock +19%, still too cheap
    Entry02/11/2015 03:09 PM
    Membercuyler1903

    Cool.  "In Lloyd we trust" on this one.  Nice thing is a lot of situations he's been involved in seem to turn into very profitable liquidations.

    Cuyler


    SubjectRe: Re: Re: Stock +19%, still too cheap
    Entry02/11/2015 05:03 PM
    Membersurf1680

    Ole Lloyd also been tinkering with our old fav IKAN!


    SubjectEV appears ~$(10)mm for $180mm revs
    Entry02/12/2015 09:24 AM
    Membercuyler1903

    JHU is probably right.  I suspect there's good chance that this is just step 1, whereby the buyers for the Art business and core business would be different.  With Raymond James presumably continuing to manage the process, seems incentive to sell the rest?

    Also, could easily see a special dividend in the amount of the entire sale proceeds once deal closes, which is only a matter of weeks (they said during Q1).

    Big special dividends are another Lloyd Miller hallmark.

    Cuyler


    SubjectRe: Re: Lloyd's buying continues, now owns 15% of company
    Entry02/13/2015 08:42 AM
    Membercuyler1903

    Toby - Not sure about maintenance capex, but in a strategic sale that's less important.  As PRSS almost certainly appears to be a liquidation at this point, all that matters is what revenues and cost structure a strategic is acquiring.

    Art just sold for 1.1x TEV/sales.  Because I don't know what the remaining business is worth, I've just done some very basic math around this to quantify my upside/downside, which (hopefully very conservatively) discounts the cash balance by $15mm.  Notably, even Raymond James analyst hasn't published any sale math, probably because they are the company's investment banker.

    Sales 180 180 180 180 180
    Mult 0.2 0.4 0.6 0.8 1
    Core business value 36 72 108 144 180
               
    Dec cash 30 30 30 30 30
    Art proceeds 31.5 31.5 31.5 31.5 31.5
    Cash burn -15 -15 -15 -15 -15
               
    Equity value 82.5 118.5 154.5 190.5 226.5
    Shares 17.4 17.4 17.4 17.4 17.4
    Value/share 4.741379 6.810345 8.87931 10.94828 13.01724

     

    Cuyler


    SubjectProbably worth adding
    Entry02/17/2015 10:04 AM
    Membercuyler1903

    Market cap only +10mm despite taking in 31.5mm of cash from sale nobody thought would happen, EV negative.

    Maybe I'm wrong, but I added this morning.

    Cuyler


    SubjectAnother asset sale
    Entry02/20/2015 09:35 AM
    Membercuyler1903

    Seems Lloyd's latest liquidation is proceeding quite well.  I can't wait to see how much we end up getting in total.

    Today's proceeds add another 60c/share in cash, and this was <10% of PRSS revenues.

    Cuyler 


    SubjectPro Forma EV now ~$(10)mm @ $3.57 share price
    Entry02/20/2015 12:49 PM
    Membercuyler1903

    At current price of $3.57, stock has pro forma EV of $(10)mm by my math, with $162mm of pro forma revenue remaining.

    My go-forward valuation based on very low multiples, and I think the most likely outcome is tht the core business commands a valuation of 0.5-0.7x revenue, giving us a total share value of $8.80 assuming $15mm of interim cash burn, and $9.70 if no cash burn.  There obv will be transaction expenses, etc., so I include the $15mm in my math.

    Guessing we get a $2.00+ special dividend ann'd at end of qtr after deals close.

    2014 Sales 231 231 231 231 231
    Less:  Art Sales (20%) -46.2 -46.2 -46.2 -46.2 -46.2
    Less:  Group Sales (<10%) -23.1 -23.1 -23.1 -23.1 -23.1
    Pro Forma Sales 161.7 161.7 161.7 161.7 161.7
    Mult 0.2 0.4 0.6 0.8 1
    Core business value 32.34 64.68 97.02 129.36 161.7
               
    Dec cash 30 30 30 30 30
    Art proceeds 31.5 31.5 31.5 31.5 31.5
    Groups proceeds 10.3 10.3 10.3 10.3 10.3
    Cash burn -15 -15 -15 -15 -15
               
    Equity value 89.14 121.48 153.82 186.16 218.5
    Shares 17.4 17.4 17.4 17.4 17.4
    Value/share 5.122989 6.981609 8.84023 10.69885 12.55747
               
               
    Stock 3.57        
    Shares 17.4        
    Mkt Cap 62.118        
    Cash -71.8        
    TEV -9.682        

    SubjectStock has more than doubled, may do so again
    Entry05/04/2015 09:41 AM
    Membercuyler1903

    20% share buyback announced.  Very significant.  They are going to do this in next 12 months.  

    After which, they probably sell rest of company if I had to guess.

    Cuyler

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