How Zulily Is Shifting Its Business Model

In a report published Wednesday, Stifel analysts maintained a Buy rating on

, with a price target of $24. zulily is shifting its business model to address extended delivery times. The company is testing initiatives to reduce shipping times. These include "storing inventory in distribution facilities prior to sales on the platform similar to Amazon's Fulfillment By Amazon (FBA) service," the analysts said. With this, inventory would continue to be mentioned on the vendor's balance sheet, while zulily would charge a fee to store and ship merchandise, using its existing distribution network. This should reduce shipping times and result in a better customer experience. Also, it could lead to an improvement in unit economics. "Additionally, this type of model could open up the possibility for returns as zulily could store items in warehouses instead of shipping them back to the manufacturer," the analysts explained. zulily is scheduled to report its 1Q15 earnings in early May. The analysts expect the company's near-term results to be "mixed as the company focuses on initiatives to improve the customer experience." "Third-party sources indicate slowing growth in unique visitors in 1Q:15, partially due to difficult y/y comparisons in mobile visitor growth." In the report Stifel noted, "…as the company progresses through the transition and faces easier comps in the back half, we expect to see greater visibility into the long-term outcome of changes to the business. Overall, we believe zulily is effectively addressing key issues, though expect that near-term uncertainty will likely lead to better outcomes in 2H:15." The revenue estimates for 1Q15, 2015 and 2016 have been reduced from $316mm to $310mm, from $1.56B to $1.55B and from $1.95B to $1.93B, respectively. The reduction reflects "the near-term transition and changes in the quarterly cadence and growth comparisons related to the $15mm revenue shift from 1Q:14 to 2Q:14." The adj. EBITDA and Non-GAAP EPS estimates for 2015 and 2016 have been reduced to $57.2mm and $68.5mm and $0.23 and $0.26, respectively.