From the Bachelor to Wall St., here's why Revolve Group has a bright future ahead of itself
Revolve Group sells high-end fashion apparel focused on millennial and Gen Z women.
In mid-2019, Revolve Group went public on the New York Stock Exchange (NYSE). Since then, the stock fell 75% from its IPO to March of 2020 at the peak of the COVID-19 pessimism and from there, its stock price surged nearly 752% from its all-time low.
Revolve Group is an online fashion retailer that targets millennial and Gen Z women. When you go on Revolve's website, you'll find that most of its clothes are dresses and other occasion-wear that people typically use to dress up for festivals, concerts, parties, and other social occasions. It's no wonder why the ladies in the Bachelor got to go on a shopping spree on Revolve.
During the pandemic, Revolve Group saw its sales plunge as people didn't have a need to buy dresses and other occasion-wear since everything was locked down. Once things started reopening and Tik Tok started featuring videos where people show off their different outfits for different occasions, that's when Revolve saw sales surge.
When analyzing Revolve Group, it's important that this is a company that has 2 brands: Revolve and Forward. Revolve is the biggest out of the two and targets a wide variety of customers. Meanwhile, Forward is more niche and is focused on selling higher-end products (with each piece costing on average $1,000).
Over the past few years, the markets have seen a surge in companies going public, with that trend accelerating during the pandemic thanks to the SPAC boom. Believe it or not, Revolve Group isn't one of those fashion startups that are unprofitable. Rather, they are quite profitable. During the pandemic, Revolve Group saw its net income grow by 59% as it reaped cost savings from reducing its marketing and travel expenses while making its inventory management system more efficient.
Despite the huge run-up in Revolve Group's stock price, there are many positive catalysts on the horizon for this business. Firstly, consumers have seen their savings surge during the pandemic. This means that they'll have more money to spend. Second, with the pandemic nearly over, there's going to be a surge of events like weddings, parties, and other occasions. This means that people will have to start spending more on nice clothes for going out, which means more sales for Revolve Group. While the stock is currently expensive, note that the company has gross margins of 53%, which makes the company insanely profitable.
Besides the reopening of the economy, there are reasons why investors will love Revolve Group.
Firstly, Revolve works with over 3,500 influencers and brand partners with various follower counts. In other words, they work with the big influencers as well as micro-influencers. Revolve Group is getting the best of both worlds in the world of influencer marketing. Because Revolve Group has a huge network of influencers that work with them, Revolve Group sources over 70% of its sales from influencers.
When relying on influencers to market your products, there are two ways influencers can get paid: paid posts and affiliate marketing. When you pay to have an influencer post about your product for you, you pay a one-time payment to that influencer and you reap all the benefits that post provides without paying anything extra. The second way is through affiliate marketing where the influencer gets paid for every sale they make (as long as the purchaser uses their discount code). Sometimes, influencers get paid both ways where they get paid to make a post and then get paid for every sale they make.
In their S-1, Revolve Group noted:
"In the 12 months ended March 31, 2019, we drove 56% of traffic for REVOLVE from free and low-cost sources"
By taking advantage of influencer marketing, Revolve has seen most of its traffic being acquired through free or cheaper means. This is fantastic considering how expensive it is to drive traffic to your website.
But with all of the traffic and influencer marketing deals that Revolve Group does, one has to wonder whether their unit economics is healthy or not. According to an analysis by Theta Equity Partners, Revolve spends about $100 to acquire customers and makes about $300 after the acquisition. While those unit economics are healthy and a lot better than what most e-commerce businesses have, it's equally impressive that Revolve Group also has strong customer loyalty. Plus, the healthy unit economics is why Revolve Group has been profitable for nearly its entire operating history.
There are more statistics that show that Revolve Group is a fantastic business. Firstly, sales of products at full retail price represented approximately 79% of total net sales. Second, Revolve Group retained 89% of net sales from the prior year’s customers. And finally, approximately 57% of the company's net sales came from customers that visited our sites at least twice each week.
Believe it or not, while Revolve has over 500 fashion brands on its platform, eight out of the top ten brands selling on the Revolve platform are its owned brands. Owned brands generate 27% of sales for Revolve Group. In their S-1, Revolve notes that:
"Owned brands are some of the most sought-after items on our platform....Owned brands are significantly more productive on a unit sold per style basis, have higher average unit revenue than third-party brands, and generate meaningfully higher gross margins as compared to third-party brands."
In other words, eight of the ten most popular brands on its platform, which generate around 27% of the company's sales, are more profitable than the company's third-party brands. Since the private label is more profitable than selling third-party goods, many retailers have been pushing to create more private-label goods and adding them onto their shelves over the past several years. This explains why Revolve Group's owned brands, which are their own private label products, are more profitable than its third-party goods.
After going over the many great things about Revolve Group, I can see Revolve Group becoming a fashion giant in the future. While Revolve Group is currently a $4.7 billion business today, I can see it becoming a $100+ billion business in the future.
The bulls will note that Revolve Group uses a lot of data science and other technology to make its operations more efficient and more profitable. The reason why I didn't make an entire paragraph about it is that I know that all businesses use technology for similar reasons. Overall, Revolve has seen higher success with its technology use than most fashion brands.
One thing I will say is that if Revolve Group focuses more on growing its Forward brand, it's possible that Forward could one day become a close competitor to LVMH, assuming that Revolve will become a close competitor to Capri Holdings or Tapestry.
In the meantime, all I have to say is that you should always do your research, have an open mind, talk to your financial advisor before making any investment decisions, and continue to practice patience. Explore the world and you'll find great ideas.
The future is concerning. But at the same time, there are many things to be optimistic about.
*All views expressed in my articles are my own. Please do your own research and talk to a financial advisor before making any decisions.