> Our advertising costs to acquire new users constituted 96% of our sales and marketing expenses, and sales and marketing expenses constituted 91% of our operating expenses, in 2019.
That's pretty astounding. In 2019 they spent $1.46 billion on sales and marketing, of which $1.41 billion went to new user acquisition. According to the quarterly breakdown of metrics on p108, their LTM Active Buyers went from 61m in March 2019 to 63 million in March 2020, implying they spent nearly a billion and a half to increase their purchasing base by 2 million users... even looking at their peak of June 30 2020, they still only have 70 LTM buyers, implying a CAC for "quality" users of at least $150, and very likely more. Their discussion of CAC payback and LTV / CAC only includes numbers from 2016, which looks like their best year in terms of LTM Active Buyer growth, both on a percentage basis and on an absolute basis... For me to have any faith in this business, I would need to see some kind of analysis of "organic" purchasing behavior. If they turn off the ad spend, will people continue to use the product?
This is the same as Blue Apron that had heavy marketing spend to acquire new customers because old customers were churning very quickly.
If you had a scalable channel you would expect to accrue more customers as old cohorts retained customers, but this instead just looks like exchanging ad dollars for one, two-time purchase customers which is why the ad spend is so high and the life blood of the company.
Hard to imagine this company not getting hammered by the street unless they have a one-time lift from COVID shopping, but long term hard to bullish on this company especially when comparing their S&M expense vs R&D expense.
> Our advertising costs to acquire new users constituted 96% of our sales and marketing expenses, and sales and marketing expenses constituted 91% of our operating expenses, in 2019.
That's pretty astounding. In 2019 they spent $1.46 billion on sales and marketing, of which $1.41 billion went to new user acquisition. According to the quarterly breakdown of metrics on p108, their LTM Active Buyers went from 61m in March 2019 to 63 million in March 2020, implying they spent nearly a billion and a half to increase their purchasing base by 2 million users... even looking at their peak of June 30 2020, they still only have 70 LTM buyers, implying a CAC for "quality" users of at least $150, and very likely more. Their discussion of CAC payback and LTV / CAC only includes numbers from 2016, which looks like their best year in terms of LTM Active Buyer growth, both on a percentage basis and on an absolute basis... For me to have any faith in this business, I would need to see some kind of analysis of "organic" purchasing behavior. If they turn off the ad spend, will people continue to use the product?