.jpg)
Every Tuesday, I write about U.S.-listed stocks trading at a 52-week high or 52-week low. Whether it be momentum stocks that should continue moving higher or falling knives that ought to pull out of their death spirals, I’m looking for interesting bets for readers to consider.
My subject for today’s commentary is a company whose product I saw this past weekend while visiting a local Michaels store with my wife.
I’m talking about Cricut (CRCT), the Utah company whose hardware and software help creative types create all kinds of arts and crafts. It’s not something I’m into, but millions are.
As for Cricut’s stock, it hit its 38th 52-week low of the past year on Monday. It now trades 74% off its 52-week high of $17.89.
This is an excellent value play if you're an aggressive investor. Here’s why.
CRCT Stock Down 77% From IPO
Cricut went public right in the middle of the pandemic on March 24, 2021. It sold 13.25 million shares at $20 to IPO investors. In the first four months as a public company, its shares shot up to over $40 before tumbling back to earth by the middle of 2022 once crafting lost its usefulness and people returned to everyday lives outside the house.
Since June 2022, its shares have moved in a tight range between $5 and $10. Only in 2024 has it fallen into penny-stock status.
Immediately before Cricut went public, Deseret Business Watch founder David Politis wrote about the company's IPO. Interestingly, Politis’ wife owned two Cricut machines, so he already knew about the product and its uses.
As Politis points out, its post-IPO valuation was between $4.4 billion and $4.9 billion based on 221.3 million shares outstanding. Cricut’s 2020 revenue, according to its prospectus, was $959 million, suggesting IPO investors valued its stock at 4.8x sales and 23.1x its operating profit of $201 million.
There’s no question that 2020 was a breakout year for the company. Its revenue and operating profits increased by 97% and 272%, respectively.
Now imagine the valuation at its peak in June 2021 when shares had doubled in price.
What’s Happened in the 3 Years Since
In 2021, the company’s revenue increased 36% to$1.31 billion, with an operating profit of $192.4 million. While its gross margin remained around 35%, its operating margin fell by 620 basis points to 14.7%. It's still decent, but considerably less.
All three line items under operating expenses: research and development, sales and marketing, and general and administrative, doubled between 2020 and 2021.
Fast forward to 2022. Its revenues fell 32% to $886.3 million, with gross and operating profit margins of 39.5% and 9.0%, respectively. Its gross margin increased by 45 basis points, yet its operating margin fell by 570 basis points. Between 2020 and 2022, its operating profit fell by more than half.
Not surprisingly, its shares fell by more than 50% in 2022.
Now, where it gets really interesting is in the first nine months of 2023.
The company reported Q3 2023 results in early November. Revenues were $533.9 million, nearly 12% less than a year ago, with operating profits of $53.5 million, 15.4% lower. Its operating margin was slightly higher than in 2022 at 10%.
Here’s the exciting part of 2023’s results so far. Its gross margin for Q3 2023 was 46.8%. For the first nine months, it was 46.1%, 660 basis points higher than in 2022.
The gross margins are considerably higher due to the increase in its subscription revenue. In the first nine months of 2023, it had subscription revenue of $227.5 million, 13% higher than a year earlier. The gross margin was a whopping 89.5%.
In 2018, it had $31.3 million in subscription revenue. By the end of 2023, it’s likely to be over $300 million, almost equal to its total revenue in 2018. Its subscription revenue has increased every year since 2018.
That’s an important detail.
The Value of its Customers
As of Sept. 30, 2023, Cricut had 8.6 million total users, with paid subscribers of 2.7 million or 31%. As of Dec. 31, 2018, it had 1.69 million users, with 417,000 paid subscribers, or 25%. The subscription ARPU (average revenue per user) has increased from $23.19 in 2018 to approximately $35.92 in 2023.
In 2020, the subscription revenue per paid subscriber was $85.42, based on $111.3 million in revenue and 1.3 million paid subscribers. Based on an estimated 2023 subscription revenue of $302 million and 2.7 million paid subscribers, the 2023 average revenue per paid subscriber would be $111.85, 31% higher than when it went public.
In its IPO prospectus, it had five critical elements to its growth strategy: 1) Reach more users, 2) generate more money from current users, 3) improve user experience, 4) launch new products in new categories, and 5) expand internationally.
It’s achieving 1, 3, and 4. As for monetizing its current users, this tends to ebb and flow as the percentage of users creating products rises and falls. In Q3 2023, it was 42%, 600 basis points down from a year earlier. However, as long as it grows the user base each year, number two isn’t a deal breaker.
As for expansion, its international revenue in the first nine months of 2023 was 19.4% of total revenue, up from 14.6% a year earlier. So, that’s a checkmark as well.
The Bottom Line
As of Sept. 30, Cricut had $173.6 million in cash and marketable securities with no debt. That’s 79 cents per share. At a share price of $4.77, it trades at just 6x cash. By comparison, Etsy (ETSY) trades at nearly 9x cash.
Etsy might be a little more profitable, but it has a net debt of $1.4 billion compared to Cricut’s net cash of $174 million. From a balance sheet perspective, Cricut’s a fortress.
If you’re an aggressive investor, I don’t know how you can’t take Cricut seriously.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
