VCs = Hypebeasts? Finding Value in StockX
StockX – the Detroit-based sneaker, apparel, and collectibles marketplace for hypebeasts and wannabe trend setters, closed its $275M Series E financing round, boosting the Company to a whopping $2.8B post-money valuation. Existing investor Tiger Global Management lead the round, with participation from Altimeter Capital, Sands Capital and Whale Rock Capital Management.
Management indicated that the injection of capital will be put towards accelerating international growth efforts, product development, and expanding the product portfolio. The Company has already begun to pursue these initiatives. Since its inception in 2016, the Company has recorded more than 13M transactions across 200 countries, with 50% of those transactions occurring in the past twelve months. On the international front, Q3 2020 non-U.S. trades increased 260% as compared to the same period in 2019.
The Company’s lineup of goods has also expanded past sneakers with the introduction of streetwear, electronics, collectibles, handbags, and watches. Users can now buy authentic Air Jordans, Off-White Fanny Packs, and even a 1995 BMX Dirt Bike from Supreme. Therefore, it comes as no surprise that the Company surpassed $2.5B in lifetime gross merchandise value in June 2020.
A pair of Jordan 1 Retro High Diors (pictured above) is listed for $7,800 on StockX - a 290% increase from it’s $2,000 retail price.
Finding Value Amongst the Hype
With a $2.8B valuation and $490M in funding to date, hypebeasts are not the only ones excited about what StockX has to offer.
From a macro perspective, StockX is operating in a market with a high TAM. It is estimated that the sneaker reselling market will grow at a CAGR of 28% between 2019 and 2030, reaching a value of $30B. Concurrently, the apparel reselling market is on track to be valued at $64B by 2025. As the Company expands into new verticals, the revenue opportunity will increase, further heightening the already astronomical ceiling.
In a narrower sense, the Company is bridging gaps in the market by providing a real solution. Buyers want verified, authenticated items especially with the proliferation of knockoffs. Prior to StockX, buyers would have to peruse hundreds of listings with the risk of receiving a counterfeit. Simultaneously, sellers would list their items according to the few readily available data points they had on hand. StockX addresses both these issues through their service offering. The Company authenticates items at their verification centers, ensuring the legitimacy of each item sold and establishing buyer confidence. For sellers, StockX captures relevant data points, such as historical sales data and fluctuations in bid/ask spreads, to inform the value of their listing. Furthermore, StockX eliminates the need to take photos, include items details, and communicate back-and-forth with bidders. For these reasons, StockX provides real value to both buyers and sellers.
The benefits StockX brings to the table reinforces their business model and has turbo boosted growth. The ability to authenticate items has driven buyers to the platform, and in turn, attracted sellers – igniting a flywheel effect and demonstrating network effects. It is worth noting that buyers and sellers are not mutually exclusive, as resellers can both actively purchase and resell items on the platform. Furthermore, same-side networks effects also benefit the Company’s service offering as more users leads to more transactions and therefore greater pricing accuracy.
In addition to establishing buyer confidence, the authentication process increases market share through inventory lockup. Specifically, when buyers ship items to StockX’s warehouse for authentication, buyers can no longer list the items on other platforms as they are in StockX’s possession. This “lockup” of inventory permanently takes away market share from other resale websites and establishes StockX as the dominant player in the space.
Looking Ahead
With dry powder in hand, there are more than a few growth avenues for the Company to pursue. As mentioned prior, management will be aiming to increase the number of product verticals offered on the platform. In fact, the Company can look to include any supply-constrained product so long as the authentication centers are equipped.
Management will also be looking to build out their IPO feature, in which products launch on their website using a blind Dutch auction format. Companies planning to sell limited release products at below-market prices can alternatively launch their items through StockX, thereby capturing the real market value while retaining the rarity that arises from low volume product runs. In fact, the Company has already completed a successful IPO with Adidas Campus 80s and Ben Baller slides, proving the effectiveness of the IPO process and signaling the opportunity for future launches.
StockX has evolved from a sneaker reselling platform for sneakerheads to a reselling rocket ship that has the fuel to propel it towards a potential IPO and unicorn status. I will be surely keeping a tab on the Company’s development but would love to hear your thoughts below!
By Gyan Kandhari