LightInTheBox (LITB) has been pure lightning ever since its early June IPO, nearly doubling, but the storm just turned ugly today after a horrific second-quarter earnings report.
In early Tuesday trading, the global online retailer’s stock was off nearly 40%. As is often the case with IPOs, investors just got too aggressive — and now they’ve paid a big price.
On its face, LITB looks like any ordinary e-commerce site, but there are some interesting wrinkles.
First of all, LightInTheBox’s sourcing is from China, which allows LITB to offer attractive prices.
Its three core product categories include apparel, small accessories/gadgets, and home & garden, and consumers have a lot of room to customize these items — for instance, those shopping from wedding dresses are offered 4,300 distinctive designs.
Finally, LITB sells its products across the world, with its sites available in 17 major languages, though the main focus remains in North America and Europe. The company’s marketing includes heavy doses of online advertising, such as through Google (GOOG) and Facebook (FB).
So there’s clearly plenty to like about LightInTheBox and its interesting platform. But as is too common, Wall Street expectations got way out of whack.
In Q2, LightInTheBox earnings came in at 10 cents a share on revenues that climbed by 53% to $72.2 million — not bad numbers by any means, but well short of expectations for 14 cents of EPS on sales of $75.8 million.
That “weakness” will bleed over to the third quarter, in which LITB is forecasting sales of $68 million to $70 million (with no earnings guidance). Meanwhile, the consensus estimate is for $78.5 million in revenues and 7 cents per share in profits.
It’s true that, for an e-commerce operator, the most critical time for making money is the holiday season, so the other quarters can be a bit dicey.
What’s more, the valuation of LITB shares is much more reasonable now after today’s gutting, with the price-to-sales ratio falling to 4 — though still higher than Groupon’s (GRPN) 2.6 and Amazon’s (AMZN) 2.
Even then, investors should remain wary. A bedrock rule of IPOs is that a company just can’t miss its first quarter as a public company. Management needs to show that it has control over its business and can provide reasonable expectations.
LightInTheBox has failed that in a big way — and as a result, it could be stuck in the penalty box for some time.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.