Zulily: How you can benefit from Stifel’s ‘Horrific call’ ($30 target dives to $12 in 4 months)
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What happened?
1) On January 18, 2015, Stifel told it’s clients to buy Zulily stock (trading at $19.77) because it expected shares to soon be worth $30.00
2) On May 6, 2015, Zulily held its Q1 2015 earnings call to provide analysts with an opportunity for Q&A:
Five investment banks actively participated
Stifel had nothing to say
3) Zulily shares fell to $9.09 on May 7, 2015
4) In Analysts make rare apology for touting Zulily, Caitlin Huston (MarketWatch) reported that a day after Zulily Inc. missed earnings and offered a weak outlook, Stifel analysts took the unusual step of apologizing for what they now say was a “horrific call” on the stock.
5) Stifel cut its price target to $12
How can you benefit?
Short the stock (currently at $11.80)
Why this a good short?
1) Shipping cost are going up. See: As Fedex and UPS change their pricing models, avoid these 9 e-commerce stocks
After reading the disclosures, and hearing the earnings call no one is talking about this problem -- yet
2) I am entirely underwhelmed by the company’s strategic plan as articulated on the Q1 earnings call
How is this a $1 billion dollar market capitalization e-commerce company?
3) A CEO who does business with Zulily told me 2 weeks ago that he thinks there are significant problems in the company’s supply chain payment processes
4) Analysts are telling us they don’t understand the magnitude of distress the company is in
5) Valuation is frothy relative to peers, according to the ‘Moving the e-Markets’ Valuation Index (which I publish)
6) The trend is your friend
Who set the $30 price target 4 months ago?
Scott Devitt (pictured below) is a securities analyst covering the Consumer Internet sector for Stifel. According to LinkedIn, Scott has been following the sector for 17 years. Coverage includes Alibaba, Amazon, ebay, Expedia, Facebook, Google...among others. For more color also see Meet Scott Devitt: Morgan Stanley's Facebook Analyst Who Takes The Bus To Work
