Stitch Fix's most recent private valuation was a modest $300 million. So is it really worthy of a unicorn valuation?
Even with strong numbers, the try-before-you-buy retailer has a tough road ahead. In its S-1, Stitch Fix acknowledged, "We have a short operating history in an evolving industry and, as a result, our past results may not be indicative of future operating performance."
It's true that there isn't much history of similar retail services IPOs to reference, and Blue Apron's public offering, for example, has not been encouraging. The meal-kit subscription service also priced below its initial target and has seen its shares fall about 73% from its post-IPO high. Subscription-based businesses are a new phenomenon, and there's no clear roadmap to success.
Ben Thompson of Stratechery noted that Stitch Fix's revenue per client has actually decreased over time, as customers have become more expensive to acquire and revenue growth has slowed. "The problem for Stitch Fix is the same bugaboo encountered by the majority of consumer companies: the lack of a scalable advantage in customer acquisition costs," he wrote.
Moreover, Amazon recently launched its own try-before-you-buy service called Prime Wardrobe. It's just like Stitch Fix and, having seen how Amazon copycat services affect incumbents, it has the potential to hurt the company. And while the number of online shoppers is increasing—ecommerce makes up 15% of the shoes and accessories market—Stitch Fix may still be betting too heavily on a "significant paradigm shift" within the retail industry, per Goodwater Capital.
However, none of these are fatal flaws. Even an underwhelming IPO more than quadruples the company's valuation. As for how Stitch Fix performs in the long run, that remains to be seen.
Related read: The 18 most valuable ecommerce startups in the US