E-Commerce Darling Zulily Grows Furiously Fast

Many analysts believe that flash sales sites are a passing fad. But, if one looks at players like Zulily and Gilt Groupe, that may not be true. By identifying a niche market space, addressing the target demographic and carefully selecting products to put on sale, both Zulily and Gilt Groupe have become the poster children for flash sales sites.

Zulily’s Financials
Seattle-based Zulily (Nasdaq: ZU) recently announced their second quarter results which were significantly ahead of the market’s expectations. The company reported revenue growth of 97% over the year to $285 million, compared with the Street’s target of $272 million. EPS of $0.06 was also ahead of the market’s estimated earnings of $0.04 per share.

Among operating metrics, active customer base improved 86% over the year to 4.1 million and the total number of orders placed grew 92% to 5.4 million. Average value per order inched 1% upwards to $53.85. Mobile device penetration is on the rise as they accounted for 49% of their orders in North America, compared with 47% contribution a quarter ago.

For the current quarter, Zulily expects revenues of $275 million-$287.5 million, compared with the analyst consensus of $283 million. They projected to end the year with revenues at $1.2 billion-$1.23 billion.

Zulily’s Expansion
After remaining focused on mom- and child-based offerings, Zulily has recently expanded to home products as well. They plan to add bedding and kitchenware including appliances and dishes to their range and offer Fab.com some competition. It is surprising to see that where Fab.com decided to move out of flash sales into traditional e-commerce model, Zulily is going the other way and offering home décor products as part of flash sales. Zulily will also have tough competition in this segment from players like One Kings Lane and Wayfair.com have been in the space for a while now.

Zulily continues to invest in expanding their operations and are now looking to open a third fulfilment center by early next year. Last week, they announced plans to open this 800,000 square feet warehouse in Bethlehem, Pennsylvania. Their second fulfilment center is a 707,000 square foot warehouse that will open in Nevada by September this year.

Where most flash sales sites are struggling, Zulily is able to operate a successful model, becoming one of the fastest growing online retailer ever. Analysts attribute this to their focus on merchandising. The company’s merchandising team, which accounted for nearly a third of their total employee base as of last year, is responsible for seeking out smaller boutique firms and helping Zulily enter into partnerships with them. These firms enable Zulily to offer to their member base a selection of unique products that may not be available through traditional retailers and e-tailers.

Additionally, these agreements help Zulily source these products at a highly discounted price. Once an order is placed on Zulily, they acquire the product from the seller and ship it to the consumer. Unfortunately, while the process helps Zulily maintain low inventories and thus lower associated costs, shipping times take a beating. For the first quarter of the year, average shipping times for the site were 13 days. But given the choice selection of products, Zulily is easily forgiven by their consumers.

Their stock is trading at $37.23 with a market capitalization of $4.65 billion. It touched a 52-week high of $73.50 in February this year after the announcement of their first quarter results as a public company. Despite the swing in its price within the year, the stock is still trading significantly above its last year’s list price of $22.