Are we in a bubble? More than 50% of industry leaders in a recent study have cited that valuations in their industry are unsustainable.
Dollar Shave Club had about $152MM in revenue last year. Idk if this is right but with an EBITDA margin of, let's say, 20%, this company has only about 30MM in EBITDA. That means the multiple paid is more than 30x for a company with just 3.2 million active customers.
This can't be making sense
Low fixed costs and high scalability means top line and earnings growth is probably huge, maybe 1h 2016 looked particularly good and it's only 10-15 times on a ntm forward multiple
My thoughts on the acquisition, I'm not in the industry so I may be completely off, but this is how I look at it. Companies like these dont focus on a simple EBITDA multiple or whatever, i think they focus more on recurring subscribers and total subscribers. Think about it like with Netflix, they have a subscription based model so the more recurring subscribers they can keep, the more revenue they can count on at the beginning of each month without any additional acquisition costs for those subscribers. So yea, the 3.2M users + potential synergies of expanding to new countries (unilever is a big boy) + Shave club raised $160M at a $540M valuation about 8 months ago, I think $1B sounds right.
I completely agree...Unilever sees that this company sells consumable goods through a subscription based service creating recurring CF. I am sure that they view this through the lens of their massive distribution network, resulting in substantial growth potential. All of that combined with their 3.2mm users makes sense.
I'd almost guarantee their margins are higher than 20%. They're essentially a reseller of Dorco blades, which until recently (when Dorco hiked prices near in-line with DSC) were dirt cheap, and I'm sure DSC is getting a fat discount for buying wholesale. Not to mention anchoring with $1/month blades results in people saying "Screw that, I'm better than $1 blades. I'm going for the better package." - higher margin.
They said they were on track for $200M+ in sales this year. At a 20% margin that's $40M in EBITDA, or 25x. At 25%, that's $50M, or 20x EBITDA. Combine that with synergies and Unilever's global expertise (DSC is only in 3 countries) and $1B is a very real price for this business.
H/t to the seed round guys - Andreesen, Kleiner, Shasta, and Felicis. They crushed it on this one.
I highly doubt they are profitable at all. You get subscribers by keeping costs low, usually by subsidizing the consumer's cost through profit loss. There's a reason they needed to raise money.
Valuation is probably 100% based upon potential.
This gives Unilever a good direct competitor for the battle against Procter and Gamble (owner of Gillette).
While I think its high - granted I haven't penciled out the numbers - I wouldn't look at it from an EBITDA multiple standpoint. Do a LTV on a per subscriber basis that factors in average monthly revenue, contribution margin, churn, customer acquisition cost, discount rate, etc. At $1bn and 3.2mm subs its around $315 per sub, which seems a tad high without knowing the numbers. That said I'm assuming they are factoring in a substantial growth in the sub base.
major props to M.Dubin
WSO should start it's own crowdfunding platform, charging 1% equity stake for every campaign. Then wait until some "Peer to Peer Condom Club" get acquired for a 10 billion and off you got to Honolulu for the rest of your life.
ha, not a bad idea...i have thought about taking minority stakes in startups from other finance professionals passionate about certain niches that want to piggy back off of WSOs platform (saving them a boatload of headache).
Would help share the dev cost, etc, but it's hard to find the right people to back and people serious enough to make it a success. Plus, most niches already have a dominant online community already, so it is a very tough business to start/compete on avg.
What I'm looking at in this more resolves around the current lawsuit. In the past P&G has been able to beat Unilever in some big cases. Might this just be Unilever getting involved to spank P&G? Regardless of that they got a steal on DSG. European expansion is going to bring their per subscriber acquisition cost down by what I expect to be more than 50%.
I wonder how DSC compared to Harry's Razor which seems to provider "better" quality products and manufactures their own blades in addition to a host of shaving creams, razor handles, and other products.
I don't know the financial performance of Harry's but I feel they would've been a much better buy because of the manufacturing and expertise they've acquired in making razor blades.
OP, what study are you referring to? And can you link it?
https://info.kpmg.us/ma-survey/index.html
It's actually higher than I remembered at 69%
Thanks! Just wanted to check it out.
The real question here is who in the hell cares that much to buy razors from a special club? My generation is so odd.
Have you looked at the cost of Gillette razor blades?
They're what... $25? Dollar shave club is $10 a month. I don't get it.
I guess more importantly, I haven't looked at the price of Gillette razor blades because 1. A pack lasts so long I literally don't remember, and 2. It's nowhere near a meaningful amount of money.
50% of industry leaders think valuations are too high....the other 50% therefore must think valuations are too low. Sounds like equilibrium to me!
Not sure where you got your percentages, but even if they are accurate, your logic isn't. I'm sure a % think valuations are accurate.
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