Unraveling ThredUp’s IPO filing: Slow growth, but a shifting business model

Another day, another venture-backed IPO filing. Today it’s ThredUp, a used-goods marketplace that is approaching the public markets in the wake of Poshmark’s own strong debut.

Both companies have a related market focus, albeit different approaches to selling used goods. Poshmark allows users to sell clothing items through its app. ThredUp, in contrast, acquires goods from users and sells them itself.

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But while Poshmark had profits to brag about in its own IPO filing, ThredUp does not and is also growing more slowly, expanding revenues just 13.6% in 2020. Reading its S-1 filing, it’s clear ThredUp did not have the best 2020, thanks in part to COVID-19.

This morning, let’s get into the numbers posted by the company backed by Trinity Ventures, Redpoint, Highland Capital Partners and Goldman Sachs to decide if it’s just merely to catch Poshmark’s wave, or if its business is a fine machine in its own right.

ThredUp’s model

To understand ThredUp’s business, we have to get into the mechanics of how it sells things. The company has two methods: direct sales and consignment. In the former, ThredUp buys goods and sells them. It then “recognize[s] revenue on a gross basis” and generates gross profit after deducting “inventory cost, inbound shipping and inventory write-downs, as well as outbound shipping, outbound labor and packaging costs.”

That is the model that ThredUp is leaving behind. After shifting to “primarily consignment sales” in 2019, the company’s business has skewed sharply in that direction. Consignment works by having consumers send ThredUp their goods, which it holds, and perhaps sells, remitting to the user a portion of the sale price. The method reduces write-downs and boosts gross margins.

Consignment sales at ThredUp “recognize revenue net of seller payouts,” deducting “outbound shipping, outbound labor and packaging costs” to reach gross profit results.

The revenue-mix focus change can be seen in how ThredUp generated gross profit in 2018, 2019 and 2020. In those years, consignment gross profit came to 38%, 67% and 81% of total gross profit. ThredUp’s business today is effectively a large, digital consignment effort.

What impact has that shift had on the company’s financial health? Let’s find out.

ThredUp’s growth

ThredUp posted $ 129.6 million in 2018 revenue, a figure that grew to $ 163.8 million in 2019 and $ 186.0 million in 2020. The company’s growth slowed from 26.4% in 2019 to 13.6% in 2020, a sharp deceleration. But at the same time, the portion of ThredUp revenues that came from consignment sales grew to 74% from 60%. Did that change have a material impact on the company’s gross margins, thus rendering its slow growth more palatable?

Not really. The company’s gross margins came to 68.7% in 2019 and 68.9% in 2020. That’s about as flat as Texas. And notably the number stayed flat despite the company noting that consignment revenues had stronger gross margins in 2019 and 2020 (77% and 75%, respectively) than its other model (57% and 51%, respectively).

Startups – TechCrunch

After 200% ARR growth in 2020, CourseKey raises $9M to digitize trade schools

When the COVID-19 pandemic hit and forced educational institutions to go virtual, many were scrambling to develop online or blended curriculums.

That struggle was particularly challenging for trade schools, many of which were not designed to teach online and were mostly paper-driven. 

CourseKey, a San Diego-based trade school management SaaS startup, was in a unique position. Demand surged and its ARR grew by 200% in 2020. And now, the company has raised $ 9 million in a Series B led by SignalFire and with participation from existing backer Builders VC to help it continue its momentum. 

Founded in 2015 by Luke Sophinos and Fadee Kannah, CourseKey’s B2B platform is designed to work with organizations that teach some of our most essential workers — from automotive mechanics to electricians to plumbers to nurses, phlebotomists and dental assistants.

CourseKey founders Luke Sophinos (left) and Faddee Kannah (right)

CourseKey founders Luke Sophinos (left) and Fadee Kannah (right)

The goal is to help those organizations boost revenue by improving student retention and graduation rates, helping them maintain regulatory compliance and generally streamline processes. 

“Things really took off last year when the coronavirus hit,” Sophinos said. “So many schools had to adopt a digital arsenal. We saw a massive acceleration trend that was already going to happen. Every industry had been eaten. We just found a space that wasn’t yet.”

CourseKey currently works with over 200 career colleges, including the Paul Mitchell School and the Institute for Business & Technology, among others. Over 100,000 students use its software.

For Sophinos and Kannah, founding CourseKey was more than just a business opportunity. Kannah, who had fled Iraq as a refugee, saw family members going through trade schools that were lacking technology infrastructure and modern software tools. He architected the CourseKey platform. 

Sophinos, frustrated by his own college experience, applied for The Thiel Fellowship – a program that supports students in company building instead of university attending. However, he recognized that not everyone who doesn’t want to go to traditional college has that option.

“While looking at alternatives, our early team began recognizing a market that we felt no one was paying attention to. It was occupied by our friends and by our family members,” Sophinos said. “It was a space that, for some odd reason, was largely being left out of the education conversation.”

In 2017, CourseKey partnered with a large vocational education provider to build and launch what Sophinos describes as “the world’s first trade school management system.”

“We focused on automating daily classroom procedures like attendance and grading, enhancing the student experience through communication tools, helping to identify at-risk students, and simplifying compliance,” he said. “We also visualized data for retention purposes.”

CourseKey also does things like track skill attainment, run evaluations and exams and integrate third-party tools.

Image Credits: CourseKey

The startup’s goal with its new capital is to scale the platform to serve “every trade school in the country” with the mission of changing the narrative that four-year college is the “only option.” It also plans to add new features and capabilities, largely based on customer requests. CourseKey also plans to nearly double its current headcount of just over 50 employees to nearly 100 over the next two years.

“This is a massive market and massive business opportunity,” Sophinos said.

CourseKey has an impressive list of supporters beyond SignalFire and Builders. Steve Altman, former vice chairman and president of Qualcomm, led its $ 3.5 million seed round which also included participation from Larry Rosenberger, former FICO CEO. Dennis Yang, former CEO of edtech giant Udemy, and Altman now serve on its board.

SignalFire Managing Director Wayne Hu, who also took a seat on the startup’s board with the new round, said his firm recognized that vocational schools and their administrators, instructors, and students “suffer from a lack of purpose-built software.”

“Student Information Systems and Learning Management Systems are optimized for traditional K-12 schools and university workflow, but vocational schools are stuck relying on pen and paper or trying to shoe-horn in solutions that aren’t built for them,” Hu wrote in a blog post.

CourseKey, in SignalFire’s view, is reimagining a new education operating system built specifically for experiential, hands-on learning models, which continues to evolve with hybrid/distance learning.  

Hu also pointed out that since many of the jobs that vocational schools are preparing people for “have life or death consequences,” they are highly regulated.

“Not only does CourseKey improve trade school business KPIs, it serves as insurance against this existential risk,” he added.

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