Liberty Interactive Corp.’s (Nasdaq:QVCB) August 17 announcement that it plans to buy Seattle-based Zulily (Nasdaq:ZU) for US$2.4 billion highlights how fast growing e-commerce companies have valuations far in excess of what many believe, according to those in the sector.
Zulily’s stock price soared more than 48% following the announcement to a price-to-earnings ratio of about 233.
“For anyone who is creating scale in e-commerce, there’s a ton of demand for owning their business,” said Vancouver-based Roger Hardy, who has been rapidly growing the online shoe business Shoes.com.
“Another aspect of the Zulily deal is that Alibaba (Nasdaq:BABA) had been buying up more than 9% of the shares over the last 60 days and then they had to announce that they’d done that. Now Liberty has come in and bought Zulily out so Alibaba couldn’t get a foothold in the U.S.”
Hardy has had his own brush with selling an e-commerce company that investors had undervalued.
He was CEO of online eyewear seller Coastal Contacts last year when French optical giant Essilor International swooped in with an all-cash $430 million offer to buy the venture.
Some pundits had slagged Coastal as being overvalued prior to that transaction, given that it was trading at a 1,300 price-to-earnings ratio.
Still, Essilor’s bid was a 20% premium to what the company’s shares had been trading at.
Shoes.com, which is also known by brands such as Shoeme.ca in Canada and OnlineShoes.com, is on track to generate $320 million in sales in the next year, Hardy said. His aim is to grow to $1 billion in sales by 2020.
Zulily’s niche was in what is known as flash sales, which included limited-time sales for toys, clothing and other merchandise. It had rapidly grown over the past five years and had crossed the US$1billion threshold for sales.
Liberty is known for its QVC division, which sells merchandise on television but also has an e-commerce site. Combined revenue for the two companies is more than US$10 billion annually.
Some analysts had been concerned about slowing sales at Zulily but Hardy dismissed that concern.
“They were growing at 100% a year and had slowed to 25% or 30%,” he said. “Look at what they were bought for: US$2.5 billion. That’s way more than two times sales. It’s a pretty big win for Zulily shareholders.”
