Buy CafePress and a Unique T-Shirt
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
CafePress (NASDAQ: PRSS) provides individuals and businesses the ability to create, buy, and sell customized and personalized products online using proprietary technologies. The company offers a unique opportunity for designers and consumers to meet in the cloud, but does the service provide any unique competitive advantage?
CafePress competes in the general customizable print on-demand sector with the likes of Shutterfly (NASDAQ: SFLY) and Vistaprint Limited (NASDAQ: VPRT). The general sector is profitable and these larger established providers offer a first mover advantage lead over competitors.
All of the stocks in this sector have had meaningfully different stock movements over the last year due to a confluence of different situations. Investors have always been more attached to the customizable photo books of Shutterfly, adorning the stock with a lofty multiple.
CafePress conversely allows designers to hock products on the website, giving them instant access to millions of customers that an independent website might never attract. Even a novice designer can quickly set up a shop, design a shirt, and within literally minutes have a fully functional store with up to hundreds of items for sale. The ability to attract high quality designers could provide a competitive advantage not available elsewhere.
Full Year 2012 Highlights
CafePress provided the following operational highlights for 2012:
- Net revenues totaled $217.8 million, compared to $175.5 million in 2011.
- Adjusted EBITDA was $17.6 million, compared to $18.7 million in 2011.
- Gross profit margin was 41.0% of net revenues, compared to 42.9% in 2011.
- GAAP net loss was $(0.1) million (including stock-based compensation, amortization of intangible assets and acquisition costs), compared to net income of $3.6 million in 2011.
- GAAP net loss per diluted share was $(0.01), compared to net income per diluted share of $0.16 in 2011.
- Non-GAAP net income (excluding stock-based compensation, amortization of intangible assets and acquisition costs) was $8.0 million, compared to $8.4 million in 2011.
- Non-GAAP net income per diluted share was $0.48, compared to $0.56 in 2011.
While the company continues to grow, the growth is not hitting the bottom line, as earnings per share continues to decline. The company guided towards an average of $0.15 for 2013 after 2012 saw a slight drop from the $0.56 earned in 2011.
CafePress completed the acquisition of EZ Prints to drive the expansion of corporate shops that adds to several other deals in the year.
Both Shutterfly and Vistaprint have been favored by the markets with higher valuation multiples.
Shutterfly provides a focus on customizable photo books, cards, and gifts based on personal photos, while Vistaprint empowers small businesses and consumers with affordable, professional options that make an impression, such as business cards and other logo-based items to promote a business.
Both stocks are exceeding profitable, though current revenue growth isn’t leading to higher profits, similar to CafePress. Analysts expect Shutterfly's earnings to drop from $0.61 to $0.49 in 2013 before a jump next year. Likewise, Vistaprint is expected to report virtually flat earnings in FY13 with a big jump to $2.44 in FY14.
If analysts are accurate, 2014 would be a breakout year for all of these stocks, yet nothing is apparent that would justify improving margins next year.
CafePress continues to dramatically underperform the group during the period since the IPO.
All of these companies are growing at a reasonable rate though margins are struggling this year. CafePress appears to offer the most compelling valuation after the recent sell off and would make an ideal pairs trade with shorting Shutterfly, as investors appear wildly ambitious about that stock.
With CafePress trading at only 12x forward earnings, the stock offers an intriguing valuation, especially compared to Shutterfly trading at 54x next year’s estimates. Are customized t-shirts that different from personal photo books? Both services offer incredible abilities to personally design and customize things, but any website could duplicate the service virtually overnight.
If CafePress can figure out how to tap into the designer base to create a long-term competitive advantage, it could create huge long-term value. For now the stock is a solid grower with potential for decent gains.
Mark Holder and Stone Fox Capital Advisors, LLC have no position in any stocks mentioned. The Motley Fool recommends Vistaprint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!