1847 Goedeker (GOED) has filed to raise $11.5 million in an IPO of its common stock, according to an S-1 registration statement.

The firm has created an online e-commerce website that sells home products and appliances.

GOED has produced disappointing financial metrics in the most recent calendar year.

Ballwin, Missouri-based Goedeker was founded to sell third party sourced home appliances and related home products online directly to consumers.

Management is led by Douglas Moore, who has been with the firm since August 2019 and was previously CEO of Med-Air Homecare, a home health equipment and service provider.

The company's site carries major name brand appliances, furniture and other home goods.

GOED sells over 200,000 products and provides what it calls 'expert advice' via online chat or telephone to help users with their purchases seven days per week.

Goedeker has raised at least $1.3 million from investors and 100% of company stock is controlled by CEO Moore and CFO Robert Barry through their holding company 1847 Holdco.

The company markets its site through a variety of paid and organic online channels.

Management says the most effective channel to-date has been paid shopping and paid search.

However, the issue with paid search is that due to its auction type model, prices paid for retaining high positions in the search results over time can increase significantly, making paid search both a short term and a risky basis for business marketing.

Advertising expenses as a percentage of total revenue have been increasing as revenues have decreased, from 4.7% to 5.7% in 2019.

The Advertising efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Advertising spend, was a negative (3.2x) in the most recent reporting period.

According to a 2020 market research report by IBISWorld, the market for online home furnishing sales is expected to reach $9 billion in 2020.

This represents a potential annual growth over 2019 of 2.3%. Historically, the industry grew 7.6% per year from 2015 to 2020, as shown in the chart below:

onlinehomemkt

The main drivers for this expected growth are the level of consumer spending and willingness to purchase durable goods via online means.

Due to the Covid19 pandemic, many consumer shopping behaviors have migrated to online shopping, but that growth may be tempered by the worsening economic environment due to large job losses.

Major competitors include large online retailers such as Walmart (WMT), Best Buy (BBY) and Amazon (AMZN) as well as housewares sellers such as Bed Bath and Beyond (BBB), AJ Madison, Appliance Connection, US Appliance and other similar businesses.

Goedeker’s recent financial results can be summarized as follows:

  • Contracting topline revenue
  • Reduced gross profit and lower gross margin
  • A swing to operating loss
  • A swing to negative cash flow from operations

Below is a snapshot of the firm's operational results, per its S-1 filing:

goedpl

As of December 31, 2019, Goedeker had $64,470 in cash and $15.1 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2019, was a negative ($2.1 million).

Goedeker intends to raise $11.5 million in gross proceeds from an IPO of its common stock, although the final amount may differ.

Management says it will use the net proceeds from the IPO to repay various notes and loans, to increase its advertising and marketing efforts and for working capital and general corporate purposes.

Management’s presentation of the company roadshow is not yet available.

The sole listed bookrunner of the IPO is ThinkEquity.

Commentary

Goedeker is seeking public investment capital to fund its advertising and marketing expansion plans.

The firm’s financials show contracting revenue and other financial metrics worsening in the most recent reporting period.

Advertising expenses have increased as its revenue has contracted; its Advertising efficiency rate turned negative, not a good signal.

The market opportunity for selling appliances and home furnishings online is expected to be a $9 billion market, but expected to grow at a relatively low rate.

Add in the negative effects of the severe recession the U.S. and other economies are experiencing as a result of the Covid19 pandemic and the near-term outlook for sales growth is negative, in my view.

ThinkEquity is the sole listed underwriter and there is no available data for the firm’s IPO involvement over the last 12-month period.

I don’t see a differentiated value proposition from simply distributing appliances and home furnishings online, especially against major retailers who are likely able to achieve economies of scale.

Management also hasn’t shown it can take advantage of an increased consumer propensity to purchase these items online as a result of the pandemic.

When we learn more IPO details, I’ll provide an update.

Expected IPO Pricing Date: To be announced.