Thread by @MIcapital2

Short THREAD on Pets.com
Formed 2/1999, IPOd 2/10/2000 right before the NASDAQ Peaked 3/10. Raised $82mn at a $330mn valn. <1 yr of financials with a 4Q99 ann rev run rate of ~$20mn w/ 800% Q/Q growth ($500k in revs in 3Q). GMs of -124%. Basically BK by 11/7/2000.

The other posterchild of Tech Bubble 2000 ridiculousness (along with Webvan). To be honest, there isn't as much here as there was with Webvan. Pets.com came and went So quickly (<24 months in operation).

See Webvan here:

https://twitter.com/MIcapital2/status/1354883214435737601?s=20

Key Learning: If you IPO and need to raise shortly thereafter, don't IPO right into a bubble popping. More seriously, don't bite off more than you can chew. The internet is ubiquitous, ie national demand. But with only 1 distro ctr, a more targeted approach was needed.

At the time of the IPO, the Pet.com financials looked like this:
Big growth on tiny numbers. Hugely unprofitable (> -100% GM%).

Pets.com was pretty similar to Webvan. Subscale business that went out way too early. Needed funding due to heavy cash burn and the markets dried up quickly after the company IPOd.

Unlike Webvan, there is a current version of this company that is successful: Chewy.com a $50bn market cap company on pace for $7bn in revenues in CY20.

Notably, Pets.com was brought up during the CHWY IPO as a reason NOT to invest.

No comment on CHWY's current valuation, but the comparisons are silly. #s at the time of IPO:
- Pets.com ~$6mn LTD revenues, -100% GMs.
- CHWY ~$3.5bn in TTM revenues; ~+25% GMs, ~breakeven adj. EBITDA.

The IPO priced at $11, giving it a mkt cap of $330mn or 11X the latest annual rev run rate. The stock pretty much peaked Day1. By the time the company reported its first quarter post IPO, 1Q2000 in May, the stock had already fallen below $3 or 70+% from the IPO price.

And 1Q was NOT good.
- Growth slowed to <50% Q/Q (seems silly to say but on small numbers)
- GMS remained deeply negative at -64%
- Cash, even after IPO proceeds, stood at ~$70mn or enough to get through 2 quarters given the $33mn/qtr burn rate

Quick look at 2Q
- Decelerating revenue growth
- Unit Economics still don't work
- ~1 qtr in cash on balance sheet in an environment where the appetite for money losing internet businesses dried up

Was there a pitch to make the unit economics work?
Yes, with scale and SHIPPING.

Pets.com only had 1 distro center located in the Bay Area but they shipped EVERYwhere. This resulted in Shipping costs of 100-110% of revenues! Product gross margins were 20-25%.

A second distribution center was planned for Indianapolis in 2H20 and would cost $16mn which Pets.com expected to decrease shipping costs to 20-25% of revs.

They also planned on getting into private label.

Management Team
CEO Julia Wainwright started at Pets.com in 03/1999. Prior to that she was CEO of Reel.com for 12 mos.

She is now the founder/CEO of the RealReal ($2bn market cap).

Other Facts
Jan 30, 2000 - Pets.com aired a Super bowl ad for $1.2mn. Or ~20% of LTD revs. For a biz that really didn't want to ship all around the US yet.... Rewatching this ad after 20 years, I forgot just how annoying it was.
superbowl-ads.com/2000-pets-com-…

Other facts:
- Amazon owned a 30% stake after investing in a private round in June 1999.

Resources:
S-1 sec.gov/Archives/edgar…