Zulily IPO: the Dirty Details

NEW YORK (TheStreet -- What hot IPO company filed a confidential order with the SEC the day it went public? Zulily (ZU), that's who.

The order states that it excluded information from the exhibits from its S-1 filing with the Securities & Exchange Commission. Zulily asks that the information not be disclosed until 2015, with the SEC granting the request. What's Zulily hiding that they don't want shareholders to know about for 2 years, filed the very day they go public? This is highly unusual.

Facebook (FB) filed for such an order shortly after it went public, hiding information about a Zynga (ZNGA) deal. While Zulily is a hot IPO, it isn't the big powerhouse that Facebook is.

The online apparel children's store initially planned to price its shares between $16 and $18.00 a share. It increased the range to $18.00 to $20 a share, finally pricing it at $22 a share. Shares opened for trading at $39, up 77.2% over the offering price.

Zulily says the children's boutique market is fragmented, but children's clothing is available just about everywhere. If it's discounted designer wear you want, you can go to Gilt's children section and find designer deals for kids. Zulily claims it is transforming the way moms shop online, and that it is a "disruptor." There is nothing unique or new about a discount online apparel store. What these new shareholders seemed to have overlooked are the numbers.

While Zulily is shouting about its huge sales growth, with revenue per active customer increasing 16.7% from 2011 to 2012, the company has also incurred significant losses. $11 million in 2011, $10 million in 2012 and racked up a deficit of $57 million as of September 2013. Its expenses are skyrocketing as well. The company warns that it may not be able to keep up this growth or have enough sales to cover the rising expenses.

Zulily depends on the flash sale model, and we've seen how well that has worked for Groupon (GRPN). Zulily itself called the flash model challenging. Wait, you say you depend on this model and then you say it's challenging?

Another real problem that many shareholders may not realize is they have no voting power, as 99% of the voting power lies with company executives. If you don't like the CEO, guess what shareholders you can't do anything about it. You have no vote.

Investors are probably looking at the executives and board members and figure that it looks like a good lineup, so this must be a good deal. Zulily's co-founders come from Blue Nile (NILE), up 25% year-to-date, and Internet winner Zillow (Z) CEO Spencer Rascoff is on the board.

Despite those benefits, that doesn't change the facts that new shareholders have no voting rights, the company loses money, has significant debt and is keeping information from its shareholders with the blessing of the SEC.

Is Zulily the newest sign of the Internet IPO bubble? The stock may become a flash sale when investors realize just what they've bought.

--Written by Debra Borchardt in New York.

>To contact the writer of this article, click here: Debra Borchardt.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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