![]() The share of sales from existing customers has been increasing and reached ~70% in 2018 despite solid growth in the size of the customer base.The DataĪs usual, we were excited to see the Customer Cohort Chart (“C3”) in Revolve’s S-1 filing, breaking down total net sales by customer acquisition cohort: Finally, we will discuss in detail the conclusions summarized here. Next, we summarize the available data, then specify and validate our model for the firm. If we conservatively assume that Revolve is only able to maintain its current margin levels, our valuation estimate would be $1.2-1.4B, which is still at or above the target valuation. Decreasing WACC by 1pp from 12% to 11% increases the firm’s fair value by $300M. If Revolve is able to continue acquiring customers with unit-level performance comparable to what we have seen to-date, unlocking additional operating leverage in the process, we estimate its fair equity value at $1.7-2B or 40-60% above the midpoint of the firm’s target valuation ($1.2B). Justified target valuation with upside potential.Customers’ loyalty to the firm differs considerably across the customer base – while many customers have very low loyalty, we infer that 20-25% of customers will remain active with the firm for many years to come. If this trend persists, the CLV of future customers will go down but nevertheless remain healthily positive. ![]() We estimate that on average, each consecutive monthly acquisition cohort generates ~$2-3 in 12-month sales per customer less than the cohort that preceded it. If there is one thing to watch for in coming quarters, it is degradation in the goodness of customers across cohorts.
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