You want people to love the numbers when you apply to be public. People shouldn't mock the numbers.
WeWorks' first attempt at public markets was the most extreme example of this obvious truth. The IPO was canceled after everyone saw the results. Box's first attempt to go public was a more modest but still negative reaction.
Both companies did eventually debut. Box was able to launch using normal methods while WeWork had the SPAC wait to get it on the public markets. No, I'm not trying to make any business analogy between Box (a software company run by a rational person) and WeWork ("non-software business managed by someone slightly less trustworthy than Aaron Levie).
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Rent the Runways IPO filing is a recent example of people not liking numbers. Although the company is a great business idea and has built a large user base over time, it's not exactly beautiful from a business standpoint.
Rent the Runways' IPO filing and our notes on its numbers are not required reading. The gist of the matter is that the depreciation cost relating to the clothing Rent the Runway rents customers appears to be so high that the company's overall business profile is unsteady.
Rent the Runway offered adjusted profitability metrics to counter that look. They excluded inventory depreciation. This was not a popular move.
Rent the Runway appears to be charging too much for its product, when you consider all costs involved in providing its services.
Despite our concerns, the company's first IPO price range is north of $1 billion. This means that its IPO will be a landmark. We must take this seriously. Let's quickly calculate the company's IPO valuation range and its multiples. Then, let us compare it to a similar entity to see what the market has to say about the fashion rental unicorn.
Price Rent the Runway
Let me first apologize. I am an unfashionable slacker and have long ignored investments in appearance. This was mostly due to my being both a bore and a boor, but I was also intellectually lazy.
Humans love to express their individuality through clothing, whether it's makeup or cloth. Both physical (clothes, makeup, etc.) and virtual (character skins or NFTs). They will spend a lot to look good.
It is possible that the desire to look good in physical and digital worlds may be very similar. The heart of the League of Legends model (in-game cosmetics and Rent the Runways (renting trendy attire) need to be treated with the same care.
All this to say: We are not mocking Rent the Runways' business results or the market demand that it is trying to satisfy. We are noticing that Rent may be charging too much for its products which can make some numbers look a little shaky.
