Zulily’s Soft Q4 Points To Significantly Slower Growth, Says Canaccord

In a research report issued today, Canaccord Genuity analyst Michael Graham downgraded shares of Zulily (NASDAQ:ZU) to Hold from Buy and cut the price target to $18 from $38, which still implies an upside of 24% from current levels.

The report comes after the company reported soft fourth-quarter results marked by weakness on most metrics, including customer growth and order frequency.

Graham highlighted a few key points:

  • Customer net adds were below expectations.
  • Oorders per active customer fell ~13% y/y.
  • Total orders placed decelerated to 42% y/y growth in Q4/14 from 106% y/y growth in Q4/13.
  • Gross margin fell ~170 bps sequentially and ~75 bps y/y.
  • Full year revenue guidance was 13% below our estimates, leading to growth rates of 30% in 2015 and 26% in 2016, which are significantly below our prior estimates.”

On the bright side:

  • Growth in average order value accelerated to 3.3% in Q4 from 2.1% in Q3, reaching $58.09; the implied backlog fell to a 2 year low; reduced marketing spend led to ~150 bps of leverage.
  • The Board of Directors authorized a $250M stock repurchase program over the next 2 years.

Bottom line, “While we still see a potentially big opportunity ahead for zulily, we believe there is enough near-term uncertainty to warrant a lower rating.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Michael Graham has a total average return of 17.1% and a 58.6% success rate. Graham has a -46.6% average return when recommending ZU, and is ranked #136 out of 3510 analysts.

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