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Gilding the Zulily

17 August 2015 By Robert Cyran

John Malone is taking home shopping over the top. Buying Zulily, a flash-sale site for moms, would increase online revenue at the cable mogul’s QVC broadcast arm from about 40 percent to half. The target’s growth is already slowing quickly, however. And at $2.4 billion, or 38 times estimated 2015 EBITDA, the deal reveals the high cost of chasing Amazon.

Zulily’s ascent is impressive. It went from a startup in 2010 to $1.2 billion in revenue last year by selling clothing for mothers and their kids at big discounts. It undercuts rivals by offering limited items for a short time. Zulily also hasn’t needed much capital to grow, as it doesn’t carry inventory.

The company’s limitations are becoming more visible, however. Top-line growth is projected by analysts to slow from over 70 percent last year to less than 15 percent in 2015. The downside of its ordering-on-demand business model means merchandise can take longer to get to customers. Meanwhile, the cost of acquiring new ones is rising and may explain why Zulily is tinkering with a more Amazonian approach that includes easier returns and stocking some items.

Plugging Zulily into QVC, part of Malone’s Liberty Interactive arm, will offer “tens of millions” of dollars of savings on procurement, shipping and the like. That’s not enough to make the acquisition entirely appealing. Even after factoring in these benefits, QVC – which began life in 1986 as a television home-shopping network – would be paying about 25 times EBITDA. If QVC can propel Zulily’s overseas expansion and Zulily helps QVC convert more of its graying viewers to online buyers, the deal might hold more promise.

At $18.75 a share, Liberty Interactive is paying a 15 percent discount to Zulily’s 2013 initial public offering price of $22. The stock also once surpassed $70. Flash-sale sites, though, have a habit of flaming out. Rival Fab went out of business, while Groupon and Gilt Groupe have faded. It’s too easy a business to replicate and too hard to attract new customers and keep old ones coming back. QVC may have got a bargain of sorts, but one that probably wasn’t big enough.


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