Public DTC ecommerce companies are now trading at ~1x revenue, down about 80% from peak. Growing businesses get a small premium. Shrinking businesses are closing in on 0.

Here’s a representative list of public DTC companies:

Growing:

  • HelloFresh (Food). 2022 Revenue: $7.6B. Growth Rate: 27%. Market Cap: $4.3B. Revenue Multiple: 0.57x
  • Brilliant Earth (Jewelry): ‘22 R: $440mm. GR: 16%. MC: $378mm. RM: 0.86x
  • FIGS (Fashionable scrubs): ‘22 R: $506mm. GR: 20%. MC: $1.4B. RM: 2.73x
  • Rent the Runway (Clothing rental): ‘22 R: $203mm. GR: 28%. MC: $158mm. RM: 0.78x
  • Allbirds (Shoes): ‘22 R: $298mm. GR: 8%. MC: $188mm. RM: 0.63x
  • Warby Parker (Glasses): ‘22 R: $598mm. GR: 11%. MC: $1.3B. RM: 2.24x
  • Hims (Telemedicine): ‘22 R: $527mm. GR: 94%. MC: $2.2B. RM: 4.25x
  • Bark (Pets):‘22 R: $507mm. GR: 34%. MC: $197mm. RM: 0.39x

Shrinking:

  • Purple (Mattresses):‘22 R: $576mm. GR: -21%. MC: $262mm. RM: 0.45x
  • Grove (Bathroom products): ‘22 R: $321mm. GR: -16%. MC: $82mm. RM: 0.26x
  • Smile Direct Club (Teeth aligners): ‘22 R: $471mm. GR: -26%. MC: $170mm. RM: 0.36x
  • Honest Co (Eco-friendly products): ‘22 R: $314mm. GR: -2%. MC: $201mm. RM: 0.64x
  • Blue Apron (Food): ‘22 R: $458mm. GR: -3%. MC: $32mm. RM: 0.07x

The first observation is the average revenue multiple is 1.1x. In late 2021, it was ~5x+. Public DTC multiples have crashed.

Surprisingly, profitability is not a key factor. Of the above, the first 3 businesses are profitable. It’s low N but other than maybe FIGS, these businesses are not trading meaningfully above the others. This likely reflects the fact that these businesses are only barely profitable, averaging 2.1% net income margins. They also are not growing particularly quickly.

The market, even now, still seems to care most about growth. Really the only standout is Hims, which grew 94% last year, is closing in on profitability, and has by far the highest multiple at 4.25x. More generally, the growing DTC businesses above trade at a five times higher multiple (1.55x) than the shrinking ones (0.36x).

What’s the upshot of all of this?

The first conclusion is you shouldn’t expect investors to be ignorant of current DTC multiples. I chat often with DTC founders trying to raise money from VCs. Most aren’t successful because their valuation expectations are often 5-7x revenue and that’s now just…way off. Sorry, but it’s not 2021 anymore.

Second, you shouldn’t expect to grow into a higher multiple. It’s true that larger businesses usually command higher multiples. But it also gets much harder to grow as you get larger. As the public comps show, if anything you should expect to have a lower multiple as you scale because your growth rate will slow.

Finally, it’s striking that the market isn’t rewarding DTC businesses that are just marginally profitable. Any profitability is crucial–it gives you unlimited runway to improve your business–but ultimately you need to show meaningful profitability to be valued for it.