Stitch Fix, an online retail and personal styling start-up, experienced unprecedented growth after flatlining during its first day on the NASDAQ.
The e-retailer opened trading with an initial public offering priced at $15 in mid-November — a “discount” from its proposed price range of $18 to $20 — and closed with a disappointing $15.15. Though Stitch Fix has faced intense scrutiny after its failure to launch successfully, TechCrunch reported that the stock rose 24 percent on Cyber Monday and continues to trend upward.
While this growth could be attributed to the holiday season, experts have labeled the turnaround as both rare and unusual. According to data from Dealogic, “US-listed companies that trade flat on the first day or within 1 percent of the IPO price, are up an average of 1.6 percent one month following their IPO.”
Despite the short-term success, Stitch Fix’s value is still being scrutinized by experts who feel that the stock is too risky for the return. This anxiety stems from investors’ focus on the 2017 fiscal year’s decline in revenue growth, following an explosive, 113-percent rise in 2016.
CNBC’s Jim Cramer encouraged investors to use their services but avoid buying stock in Stitch Fix until the uncertainty has cleared.
“I think you need to skip this stock until these guys prove themselves and show us they have a solid plan to keep expanding and have the revenues go higher,” said Cramer on the show “Mad Money.”
Comparisons have been inevitably drawn between Stitch Fix and Blue Apron — an online grocery delivery service — that experienced a similar IPO challenge in June. Stitch Fix’s obstacles seem almost nonexistent in comparison to Blue Apron’s stock plummet of almost 70 percent and apparent inability to recover.
Since the summer, Blue Apron has cut 6 percent of its workforce in an effort to kick-start future growth. In addition to mass layoffs, the grocery company also replaced C-suite executives as an attempt to rebuild public confidence.
Blue Apron’s decline comes as a result of Amazon’s highly publicized merger with grocery giant Whole Foods. With other companies like HelloFresh adding to its competition, it seems as if Blue Apron has been unable to find its footing in the world of grocery delivery services. Investors fear similar competition between Stitch Fix and Nordstrom’s Trunk Club, as well as Amazon’s Prime Wardrobe — still in beta testing — could also drive the e-retailer’s stock to dismal levels.
The antagonism comes as no surprise to Katrina Lake, co-founder and CEO of Stitch Fix, who is notably the youngest woman to ever take a company public, according to NASDAQ.
“We’ve been underestimated before. I feel like we thrive being in this position; we’ve never been an overhyped, overvalued company. And so, we are very happy to prove ourselves in the public markets and show some good results,” Lake said in a recent interview with Recode following the IPO.
Fortune magazine reports that Lake leads a diverse management team equally split in gender, as well as a board of directors in which three out of the seven members are women. With Stitch Fix currently being valued at $1.6 billion, the hostility surrounding Lake’s accomplishments are questionable.
According to a study conducted by Victoria Brescoll, a social psychologist at the Yale School of Management, female executives are judged more harshly than males in the same role. Fortune also mentioned data that shows “Companies with more women in the C-suite tend to be more profitable … and that companies with women CEOs provide higher returns on stocks.”
What this means for Lake and her diverse management team is that the young CEO will be forced to work twice as hard to keep shareholders satisfied and public perception at a stable high. Lake has already been forced to face obstacles that involve the manipulation of gender roles. One of these obstacles include a sexual harassment offense by Justin Caldbeck, an employee of Lightspeed Venture Partners who served as an observer on Stitch Fix’s board of directors. Following the incident, Lake released a statement about the importance of addressing sexual harassment within the tech and finance community.
Lake is wholly aware of her responsibility as a female CEO, and continues to attribute her achievements to the diversity that surrounds her. “It’s a company where we have tons of women. It’s a place where that diversity is reflected in our success,” she said.
While many continue to be wary of Stitch Fix’s growth, optimism seems to be on the rise. Whether the excitement is a result of a holiday stock increase or the confidence Lake conveys in front of the public, the e-retailer is a stock worth watching.