Goat Group (the parent company of GOAT and Flight Club) recently raised $195 million at a $3.7 billion valuation. That might sound rich for a sneaker marketplace business, especially one that raised $100 million at “just” a $1.75 billion valuation last September. But as early investor Greg Bettinelli (partner, Upfront Ventures) explained, “The business is roughly twice as big as it was [9 months ago].”
The company is also not being valued as a typical online marketplace business would be. Dylan Dittrich (author, Sneakonomic Growth) explained that because the Goat Group “sits at the center of everything people expect the future of high-end fashion retail to look like, investors are valuing it more like a tech stock” (think: valuations based on their ever-expanding, increasingly high-end TAM). More than 350 highly curated luxury brands sell retail apparel and accessories alongside the secondary sneaker marketplace.
Our Take: None of the industry insiders we spoke to were surprised to learn investors bought into Goat Group at nearly a $4 billion valuation. For starters, fellow sneaker reseller StockX raised $255 million at a $3.8 billion valuation in April. “The first place anybody was going to look for a comp was StockX,” Dittrich said.
Hedgeye Risk Management managing director Brian McGough was similarly unsurprised by the valuation. “[Goat Group] will [receive] a Poshmark-like multiple when it IPOs, and [the market cap] will be worth a hell of a lot more than $3.7 billion. [A business] with an asset-light model, billions of dollars in gross merchandise value [within the luxury space], that is growing 100% YoY, can literally just pull a multiple out of the air.” As of March 31, that social commerce marketplace ($POSH) had an EV/sales multiple of 8.54x.
It is worth mentioning that private market valuations often reflect how big investors believe the company can grow. “The thinking isn’t necessarily about [what the company is worth] today, as much as what it can be worth tomorrow,” Bettinelli said. “Nike is a $240 billion company. Foot Locker (an investor in Goat Group) is a $6 billion company. Farfetch is a $19 billion company. Etsy is a $25 billion company. So, you have some valuations [in the footwear and marketplace space] that far exceed the amount of Goat’s.”
For the record, Goat Group declined to specify how they arrived at the $3.7 billion valuation. Sen Sugano, the company’s Chief Brand Officer said the figure “reflects the value GOAT Group delivers to its investor group and validates our successful strategy and strong performance.”
While the valuation did not raise eyebrows, McGough took note of who invested in Goat Group’s latest round. “The guys at Park West Asset Management [who led the round] are no dummies,” he said. “They seeded ThredUp, a secondhand seller of clothing that IPO’d earlier this year. [That company] has taken the space by storm and the stock ($TDUP) has done really well (+35% YTD). What Park West touches tends to turn to gold.” Large, publicly traded institutions (see: T. Rowe Price and Franklin Templeton Investments) also invested in Goat Group’s Series F round.
Sneaker resale platforms have gained popularity because they “are really the only way for sneakerheads to get [limited release] shoes—even if it is at exorbitant prices,” McGough said. “[For the most part], you cannot walk into Foot Locker or Hibbett Sports to buy these things. You have to buy them directly from the company and if you are not lucky enough to get them from Nike, Jordan or Adidas, then you’re going to have to go to a secondary portal [to buy them]. And as of now, there are only [three] games in town; Goat, StockX [and eBay].”
Considering Cowen & Co. only pegged the North American sneaker and streetwear resale market to be worth about $2 billion last year, it is fair to wonder if there is room for more than one resale site. But the investor, analyst and industry observers we spoke to all believe there is. The market is expected to grow exponentially (see: Cowen & Co. have predicted sneaker and streetwear will be a $30 billion global industry by 2030), and there are far more differences among the three players than similarities. StockX stands to be “the stock market of things,” Dittrich explained. “They’re data-driven and looking to provide a more efficient marketplace for goods, whether it is sneakers, trading cards, comic books or streetwear (think: a premium eBay). That’s different from Goat, who has really tried to transform the resale experience and blur the lines with retail to provide what many expect the future of high-end, fashion [and lifestyle] retail to look like” (think: ability to buy limited Air Jordans in the same place as a piece of apparel from Comme des Garçons). As he explained, placing the products next to each other “legitimizes and amplifies the popularity of both brands.”
While Goat Group’s approach is unique, Dittrich argues its reputation as a “trusted curator” really separates it from the competition (and is the reason why the company commands a premium valuation). Bettinelli agreed, saying, “Goat has figured out how to be relevant and authentic to its target customers on the demand side and how to protect and enhance those [brands] on the supply side.”
Goat Group reported that sneaker sales on the platform doubled in 2020, but consumers had excess funds to spend last year (see: trading cards and stock markets). Now that the great reopening has begun, one would expect budgets to tighten again. If that is the case, it is fair to wonder if Park West and Co. are buying in at the company’s peak. McGough doesn’t see it that way. He views sneakers as a “bulletproof category” that has plenty of room to grow—particularly abroad (see: Nike business in Asia), where the company intends to invest a large portion of the capital raised.
Bettinelli makes the argument that Goat Group may have been a “net loser” as a result of the pandemic (despite the macro shifts in consumer shopping behavior and the additional money in consumer pockets) and that a return to normalcy will be a tailwind for the company—even if it means more competition for the consumer’s dollar. “We sell a lot of premium sneakers, and people weren’t going out and showing off their sneakers [over the last 15 months]. I don’t know about you, but I wasn’t wearing Jordans on my Zoom meetings.” Remember, the company’s three Flight Club stores were closed during the pandemic.
Considering the company’s valuation and the investors participating in the latest round, a public listing would seem to be on the horizon (think: 12-24 months). “There aren’t too many more stops that can be taken before an IPO,” Dittrich said (the same could be said for StockX). Park West, T. Rowe and Franklin also aren’t private market investors; they are expecting Goat to go public.