DTC is a buzzword that attracts capital in the private market.
However, public market usually doesn’t have much patience or appetite for future stories.
Casper, the magical mattress unicorn, which raised $100 million in March 2019, marketing itself as a “Sleep Economy” company, is receiving a market cap of $400 million (EV ~$300 million).
The main problem though, is not about the DTC model.
Brands such as Canada Goose and Lululemon are counting on DTC to grow.
The slowing revenue growth rate is also okay. Public market is not relentlessly looking for 100% or 50% growth.
Indeed, Canada Goose and Lululemon, which grew at sub-25% in the last 12 month, are valued at over 4x and 8x sales respectively.
Casper, which is expected to grow at 23% for 2019, has EV/Revenue below 1x.
The cost structure is where things are different.
From 2019 April to December (FY20Q1-Q3), Canada Goose‘s SG&A expenses are 31.2% of revenue.
From 2019 February to October (FY19Q1-Q3), Lululemon‘s SG&A expenses are 36.4% of revenue.
That ratio is 70.5% for Casper from Jan to Sep 2019.
Plus the differences in gross margin, the unprofitable DTC brand growing at sub-25% still needs additional efforts to prove its business is viable/sustainable.