Dotcoms, Unicorns, Business Valuation and Dollar Shave Club

dollarshaveclubYesterday Unilever announced the intended purchase of Dollar Shave Club, an online razor and related men’s items merchant, for $1B. A few years ago I wrote about the hype surrounding this company. I would like to say that I am shocked by the purchase, but not really.

Dollar Shave Club has a self-reported 3.4MM members (up from 200,000 a few years ago). Those members are expected to generate a company projected $240MM in revenue in 2016. This represents about $70/customer. And the company has yet to make a profit, even at these revenue rates. Unilever is paying over $290/customer for the acquisition, plus the site and its position in the market. How does this make any sense?

To be fair, Unilever apparently had been a strategic investor in the company for some time, so it really isn’t costing them $1B, but it is still a LOT of money. How does the Board of Unilever justify spending $290/customer to acquire customers who spend on average $70/year? Is the rest of their revenue production system so bad that they can’t do better than this in other ways? Maybe not.

This deal, like many unicorn deals (start-ups with over a $1B valuation), make no sense to me. However, it may be that short-term revenue is critical to Unilever. They likely believe they can lower the costs of serving these customers. They can increase the customer base more rapidly than Dollar Shave Club has done before. Maybe so, but so what? How many more customers would they need to ever earn a decent return on their $1B investment?

Pressure to grow in the short-term drives too many bad decisions in my opinion. All that being said, congrats to Michael Dubin, the founder of Dollar Shave Club, on the over-priced sale and a contract to continue as CEO.

Mitch

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