When You Wish Upon An S-1

2020 has seen a flurry of IPO announcements from the biggest names out of Silicon Valley and tech: AirBnB, Palantir, Snowflake, DoorDash, Affirm, etc. We want to focus on perhaps one that flies under the radar and yet for marketers could provide one of the more interesting stories to unpack - Wish



Palantir a company in the sexiest of all industries, data collection for government agencies, has better brand search volume than Wish in recent months.


If you are unfamiliar with Wish, they are the other logo on the Lakers jerseys and more importantly one of the largest eCommerce companies. We will let the NBA.com website explain:


What if there was a store that had everything you could think of? Now, imagine deals for each item that are so amazing they almost don’t seem real.

Introducing Wish. A mobile app that puts millions of items at your fingertips — at prices so low they’ll shock you.

At Wish, we remove the overhead and mark-ups of other stores, allowing you to shop for items direct from the factory delivered from around the world. Explore millions of products with millions of consumer reviews you can trust.

If you can wait 5-15 days for delivery, you’ll get lower prices than any other retailer. From fashion, to makeup, to home goods, to tech & gadgets— you’ll be the envy of all your friends.

Ready to experience factory-direct shopping on your mobile phone?


We’re ready.


Factory-direct shopping, or more commonly known as dropshipping, is perhaps cheap for the customer but does require startup capital to work. According to Crunchbase, Wish has received north of $2.1 Billion in total funding. Dropshipping is also laden with horror stories since it came onto the scene in early 2010s. Fab.com, and its vocal CEO Jason Goldberg, was the most high profile of these businesses to go bust. 


"We spent $200M in the past 2 years. $200M!" Goldberg's letter read. "We spent $200M and we have not proven out our business model. We spent $200M and we have not proven that we know precisely what our customers want to buy.

"We are the most heavily funded startup in NYC in our life cycle and we have spent 2/3 of the cash ... Holy shit this is a big deal.

Goldberg's rallying cry could not save Fab.

But unlike Goldberg, the CEO of Wish enjoys avoiding the spotlight and has proven out a business model. He and the Wish team have built a firm with some staggering numbers.

We have experienced substantial growth since our founding in 2010. We grew our revenue from $1.1 billion in 2017 to $1.9 billion in 2019 at a compound annual growth rate of 31% and from $1.3 billion for the nine months ended September 30, 2019 to $1.7 billion for the nine months ended September 30, 2020, an increase of 32%.



Now that we all know who Wish is, let’s focus on a different part of the Wish S-1 the income statement. It is staggering how simplistic their statement is and the size of these numbers detailed. 


The first takeaway is the overall size of the Sales and Marketing line item which is for all intents and purposes is their advertising cost as “our advertising costs to acquire new users constituted 96% of our sales and marketing expenses...” 


This means that in 2019, Wish spent 1.4 Billion on advertising!


The second question is perhaps where Wish spends their marketing dollars, “We have historically acquired a significant number of our users through digital advertising on platforms and websites owned by Facebook and Google...” 


From this income statement we can understand that in 2019 Q4, Wish spent $449 MM during the holiday season on advertising which primarily was spread between Facebook and Google.


Using the available information above that 2020 grew by ~13% YoY, then Wish’s rough predicted spend on advertising in 2020 Q4 would be $507 MM. This equates to a total advertising budget of $1.65 Billion for 2020. (That may be conservative as well. We will only know once they IPO and Q4 financials are released.)


This would place them on par with T Mobile, Toyota, Nike and McDonalds advertising budgets! And note that these brands have highly diversified marketing portfolios and would be far from mentioning that Facebook & Google drive significant proportions of their marketing mix.




So What?

100 MM MAU is nothing to scoff at for an eCommerce company. Especially, when they have yet to fully expand their advertising options in the app. This S-1, and the hype of their IPO, of Wish focuses primarily on their eCommerce offering and their valuation is tied heavily to the future growth of their eCommerce offering.


If we review MAU and Market Cap information for public social networks we can understand that the market prices an MAU around $100 to $300 **per ***network. On a weighted average basis, it comes to $255. This would place Wish’s 100 MM MAU having an ad network valuation of $10 - $26 Billion.




Wish though makes money from product sales, and the ad network is an extra source of revenue. What is fascinating is that their IPO price places them at a valuation of $14.07 Billion.  The hype around this IPO centers on the eCommerce business for correct reasons but we find it odd that their native advertising tool, ProductBoost, isn’t priced more into their structure. 


We should assume an app which spends north of $1.5 Billion a year on digital advertising has some first hand knowledge of how to run an ad auction on their 100 MM strong platform.


This assumption doesn’t seem incorrect since ProductBoost drove $291 MM in revenue in 2019 and up 36% from 2018


With 100 MM MAU that means the average revenue per user for ProductBoost alone is $2.91. This places their ProductBoost ARPU roughly 3x higher than Pinterest and about 1/10th that of Facebook. Wish’s actual ARPU is closer to $20 when factoring in their product sales.


That was a lot of very dense balance sheet information, so how about a quick TL;DR 

--

*Quotes regarding Wish financials were sourced from their S-1. Link HERE

** Snapchat reports on DAU instead of MAU. Presumably, this would mean Facebook has the highest price point per MAU at $295.

*** First, Twitter and Pinterest should consider combining forces so they can compete against the juggernaut that is Facebook. Second, it is quite interesting the value the market is giving to a Snapchat DAU. We will let the reader determine if this is an under or over valuation.

Photo by Bogomil Mihaylov on Unsplash


Disclosure:  I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. We wrote this article under our own accord, and it only expresses our own opinions. Dysrupt LLC is not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Do not take this article as investment advice.


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