Yet Another Value Podcast - Optimist Fund's Jordan McNamee on ThredUp's value proposition $TDUP

Episode Date: March 19, 2025

Jordan McNamee, Founder and CIO of Optimist Fund, joins the podcast to share his thesis on ThredUp Inc. (Nasdaq: TDUP, LTSE: TDUP), one of the largest online resale platforms for apparel, shoes, and accessories.For more information about Optimist Fund, please visit: https://www.optimistfund.com/Chapters:[0:00] Introduction + Episode sponsor: Daloopa[1:39] What is ThredUp $TDUP and why they are interesting to Jordan[13:45] Why is this going to be a good business in the long-term[18:16] Why are customers choosing $TDUP over eBay or other competitors / why is this enough of an opportunity (from an investment perspective) / comparison to DoorDash[30:50] Growth potential that Jordan sees[35:15] Rhymes of other marketplaces; what's different with $TDUP[41:18] What would break the $TDUP thesis for Jordan[47:17] Insider ownership[53:46] Final thoughts / current stock priceToday's sponsor: DaloopaPost-earnings reports are more than just a data dump—they’re a goldmine of opportunities waiting to be unlocked. And with Daloopa, you can turn those opportunities into actionable insights.Daloopa’s dynamic scenario-building tools integrate updated earnings data, letting you model multiple strategic outcomes, like what happens if a company revises guidance upward. And with automated sensitivity analysis, you can quickly understand the impact of key variables like cost pressures, currency fluctuations, or interest rate changes.This means you’ll deliver more actionable insights for your clients, helping them navigate risks and seize opportunities faster. Ready to enrich your post-earnings narratives? Visit http://daloopa.com/YAV today to get started.

Today's podcast is brought to you by Delupa. Post-Earnings reports are more than just a data dump. There are a gold line of opportunities waiting to be unlocked, and with Delupa, you can turn those opportunities into actionable insights. Delupa's dynamic scenario building tools integrate updated earnings data, letting you model multiple strategic outcomes, like what happens if a company revises guidance upwards, and with automated sensitivity analysis, you can quickly understand the impact of key variables, like cost pressures, currency fluctuations, or interest rate changes.

This means you'll deliver more actionable insights for your clients, helping them navigate risks and seize opportunities faster. Ready to enrich your post-earnings narratives, visit dilupa.com-Y-A-V today to get started. That's the L-L-O-O-O-P-A dot com slash Y-A-V or visit the link in the show notes. All right, hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, it would mean a lot if you could rate, subscribe, review wherever you're watching or listening to it.

With me today, I'm happy to have on for the first time. Jordan McNamee from the Optimist Fund. Jordan, how's it going? Good, good. Happy to be on the show. I'm a big fan of watching it. So yeah, it's fun to be on it. Well, super excited to have you on. You reached out and I read your letters and stuff and as soon as I read it, I knew we were going to have an interesting conversation. But we have, we're going to talk to specific stock before we get there. Disclaimer, remind everyone, nothing on this podcast is investing advice. Please consult financial advisor, do your own diligence. Always true, maybe particularly true today

because we're going to talk about one of the smaller market cap companies in Jordan's fund, if I'm not mistaken, the company is Threat Up. The ticker is T-D-U-P, and they are about 250 million market-cap companies. So I say extra disclaimer because, you know, that's on the smaller, more liquid side. So keep that in mind, extra risks, all that sort of stuff.

But, I know, Jordan, I'll toss it over to you. What is Threat Up and why are they so interesting? Yeah, so ThreatUp is a marketplace for used clothing, for women specifically. And this has been an industry that I've been interested in, I would say, for since like 2019, I had just been interested in like seeing what Poshmark and pretty much just seeing how a lot of people started to wear used clothing as like, a fashion statement and it was like not like a like in canada we have value village uh you guys have savers i believe i think savers is like the value village of the u.s but like you obviously have goodwill you have all the use clothing is not a new industry use clothing's been around for a long time

and it's savers and value village i think they're owned by the same the same company are they are yeah yeah they are that so so like the used clothing industry is always you know interesting to me From the standpoint, you're looking at like sabres, it's like people are literally donating clothing and then the company is selling it. So they have no costs effectively. And then and then you look at the fact that it's not only just like very low-income people that are buying used clothing anymore. But my sister-in-law who at the time, I guess, was like 14, was like, all she wanted to do is buy used clothing. He's going goodwill and like as a teenager, like everyone was everyone was, everyone was. was doing this and like proud of it, which was foreign to me, but interesting.

So then I started looking into this, into the space a lot. And then in 2021, a bunch of them went public, like Poshmark went public, Threatup went public. And the interesting thing about Threatup is that there's like a lot of different companies where you can like buy and sell used stuff and including used clothing. and typically they're just marketplace businesses where you have sellers that are just posting stuff online and there's a lot of buyers

who are there looking for that particular item and then the marketplace charges some sort of commission but doesn't actually do anything operational really just like a typical like Etsy type marketplace that has good commission rates good EBITL margins not really any CAPEX

typical marketplace business but thread up was very different So Threatup, they decided to go about the, their business model is really quite unique in the sense that they actually have like single skew logistics. So they have these facilities that are taking people's clothing. Effectively, people order a bag. The bag gets sent to your house. You fill it up with stuff that you don't want anymore, that you think you would like some value for. You send it to ThreatUp, ThreatUp receives it at their DC, open it up, see what's garbage, frankly, or what's like something that's sellable.

They see the stuff that's sellable, they throw it on a mannequin, they take a bunch of pictures of it. They make it so that it is going to have enough information that they can put it on the website and people will be interested in buying it. Then they throw it on this huge conveyor belt, which is like the thing that's so unique about it, frankly, is that they're logistics centers, it's single skew, right? Like, if I sold this shirt, not that I would because they only do women's clothing, but like this shirt, it would be, there's only one of them. There's not 10 of the same item because this one might have a stain on the shoulder or a knot somewhere or whatnot. So, like, it's very different from traditional e-commerce. No one had built the logistics infrastructure to do what they do. And so the business was just completely

different, operationally so hard because they've got to find a way to make money by having you set, by having inbound freight, processing, storage, marketing to get people to come to the website, outbound freight,

and you're selling $40 shirts. So it's just really, really hard. So when I went public, it was like losing a ton of money. It was a typical 2021 IPO story, growing a lot. losing money, investing for the next 20 years to build this, like, incredible company that would, you know, save the world because fast fashion is horrible for the environment and everyone should be buying used clothing.

So Threatup was just going to be this game-changing company that would improve the environmental footprint. Fast fashion was horrible for the environment. So Threatup was going to grow, build all these DCs. Everyone was going to send their, the clothes that they're not using anymore, send them to thread up, and eventually it was going to be this big business. Then 2022 happened, and that was not, number one, the stock, you know, got crushed because every type of company that was anything similar to threat up was completely abandoned. and they were, and they were burning cash, too. So, like, they had, it's not like their business model was, it wasn't self-sufficient yet.

And then people, and then the stock went down so much. So then obviously, you know, the equity matters when you were burning cash. So they needed to go into a mode where it was, okay, we need to prove that this business model actually works at its existing scale. and not that it's just like some sort of like long-term dream that we're funding that eventually could work if we're like 20 times a size. So then from 2022 to 2024, beginning at 2024, they went on like a hardcore efficiency kick and dramatically improved all of their core profit metrics and got the U.S. business

to positive adjusted EBDA. and the international business was getting close to it. And so it was like early 2024. It was like the last two years, they kind of showed that, oh, if we just like fill up our existing fulfillment centers and don't reinvest and they're dramatically underutilized that we're going to start generating cash. we're going to show that this is actually a really good business. And we have like, we've built this like differentiated what they call managed marketplace that actually has a competitive mode because there's all this logistic stuff that they've had to build out. And so the stock was like around two bucks.

It went from 27 bucks to two bucks over from 2021 to like early 2024. And then they were finally like, okay, we're now going to, we're going to generate positive free cash flow in 2024. and we're going to generate, you know, 10 million of a just deed, duh. And it was like the turn of like, this is like the moment where it was all of a sudden going to be like, the economics of this makes sense. We can actually think about this business

over a longer period of time. And then they had six months where they just honestly kick themselves in the face. In this, so they, they guided. like I said, to positive free cash flow and positive adjusted ebida and that this was like the inflection. And then a quarter later, they came out and they announced that they hadn't to sell off their European division because it was underperforming dramatically, that they, that the macro for the low end consumer had deteriorated further.

So that drove a downside to their estimates. And then on top of that, that early 2024, they were changing their new customer marketing strategy from being like, oh, the first buyer gets 50% off to try instead saying, oh, first buyer gets $20 off. And they were experimenting with this. And it ended up having very poor results that created a hole in their revenue. So it pretty much like literally went from, hey, guys, we've just worked really hard for the last two and a half years to kind of show you guys that there's like a lot of operating leverage in this business that we're like just at the point of inflecting towards and you guys being like, oh, this business model makes sense to a quarter later saying, oh, yeah, yeah, everything we said we believe, but now we're dropping numbers, materially, we're looking to divest Europe because it's actually going to take way more capital

to get it to the healthy position. And we screwed up our marketing and the macros worse. And so the stock just got absolutely annihilated, as you would imagine, because it already went through this, like, it was already annihilated from 2021 to early 2024. And then it looked like it was on the bend. And then they came out with just like the worst results ever. and so then the stock went from like two bucks to 53 cents or so and I had literally just like it was a minimum like generally like my position sizing will be like my largest positions carb on it's like 20% of the fund my smallest positions will be like a percent and a half two percent of the fund I had literally just bought it

at like a two percent being like okay it looks like had been following it for whatever three years since then I'm public was like okay it looks like it looks like it's evident that this business has like really attractive operating leverage and they're like at this point and then literally the first quarter all this bad news so it's like okay what in god's name's going on here like is this did I just literally I literally just step on the landline I'm laughing because I've had more than my fair share so obviously reach out to them dig into like you got to dig into each piece so the you know I said there was like three core elements that were like the screw-ups right like europe was the drag

has always been the drag since they bought the european division in 2021 which in hindsight was a horrible mistake but so the the u. like late 2023 the u.s business was growing the fastest and had positive justice to and was like showing the best on every metric where europe was still like They were, it was still, they needed to improve it and get it to a place where it was self-funding. But it's still, even in the initial guide, was like not there. It was going to be close to self-funding, exiting 2024. And so that went from them coming out and saying, okay, this business is, it doesn't make sense for us to keep trying to improve this. because it's going to take more capital, frankly,

to get it to be as strong of a business as the U.S. business. And so that, although that sucked, it, like, frankly made sense. And I think that is the right decision. Because at the end of the day, they just need to prove out the U.S. business, prove out the economics. And then not only will people realize that the business should be worth a lot more, but then they'll have, like, you know,

the U.S. is a huge market. Like, they could be an enormous company just in the U.S. Let me pause you there. I think that's a nice place. So Europe, I mean, I'm with you, right? Like, this is, it's thrift, right? So it's a thrift market. There's no real economy as a scale.

Aside from, you could argue, like, tech economy is a scale. But Carvana, which you mentioned is your largest position, their U.S. focus, right? Like, going over to the U.K., they're going to have, like, basically, no advantages if they go over to the U.K. But let's just talk about a few things. I guess when I look at this business, the first thing that jumped out to me was you mentioned it. You know, there's Goodwill. There's, I live in New York City, so there's some

higher end, like, thrifts and everything there. I looked at this business, and the first thing that jumped out to me was like, hey, and we can talk some of the other consulate. Interesting tech. I could see how it's better to ship online, like ship these. You don't have to go to the store and everything. But they're competing against local thrift stores in all varieties. And you mentioned some of the other competitors, the one that I think was Apollo owned them, or no, Aries and it's super value. But why is this business? Like, Why is this going to be a good business in the long term? Because I guess there's a few things.

A, the thrifting, like it does feel like the type of things where people like to go, especially the buyers like to go in person and look at and see like, oh, that stain on the shirt. Is that like too large a stain? Is it super noticeable? Oh, like, you know, it does feel like the type of thing that's tangible. But I guess the other thing else up there and then there's some other piece of the economics that I kind of want to walk through. Yeah.

So on, so it's a there's actually more. There's actually several similarities. thread up and and Carvano, to be honest, because they actually both sell used items. So if you just think about it as like buying used items, but you bring up a good point. There's tons of competition. And that's the thing about ThreatUp that at the end of the day, it is like a supply driven business in the sense that if you're only getting horrible clothing, you're not going to be a good marketplace. And so you need to get access to good supply. and the competition for supply, for the most part, is less so one website or one store versus the other.

It's more about like stimulating someone to clean out their closet, stimulating something to actually do it. And so from a threat up's perspective, the fact that you just fill a bag and send it to them, that is a very convenient um that is very convenient for people and a lot of people are interested in doing that and again the market is so enormous that like like front up this year did like 460 million of GMB in the US it's tiny like it is a tiny niche business uh would you really look at like the scale of of the industry and you look at the scale of retail it's it's tiny They, my view is not that this is like a carbana of used clothing, to be clear, where it makes sense for everyone to use threat up. My view is that they have a model that they have built thus far that is convenient to a lot of people.

They have a lot of customers that use the product or buy stuff from the platform. They have a lot of customers that are selling stuff to the platform because of the ease of use and the value proposition they're offering today. and what they do today is an economically attractive business, which is not priced as such right now. So, yeah, it's less of it. Like, I actually view it more of like people think this business is pure roadkill and garbage. And I think that it has a differentiated proposition and will be a highly profitable niche marketplace. Today's podcast is brought to you by DeLupa.

Post-Sernance reports are more than just. to data dump. There are a gold line of opportunities waiting to be unlocked, and with Delupa, you can turn those opportunities into actionable insights. Delupa's dynamic scenario building tools integrate updated earnings data, letting you model multiple strategic outcomes, like what happens if a company revises guidance upwards, and with automated sensitivity analysis, you can quickly understand the impact of key variables, like cost pressures, currency fluctuations, or interest rate changes. This means you'll deliver more actionable insights for your clients, helping them navigate risks and seize opportunities faster.

Ready to enrich your post-earnings narratives, visit dilupa.com slash y-A-V today to get started. That's the L-L-O-O-O-P-A-D-A-O-P-A-V or visit the link in the show notes. Walk me through, you know, the other thing that jumps out to me when I first look at this business, you know, you look at it and you say, okay, why does someone choose to go with Thread-Up? Thread-Up sends you, the model is Threat-Up will, you go online, you order the bag. I think Threatup started charging $2.99 per bag that you get delivered that you

would put your clothes in. But they basically send you the bag. You fill it up with your used clothes and then you ship it back to them. And then they kind of take it. It's on consignment, right? If they decide to trash it, you can get the stuff back if you want the stuff they're going to trash. And I think over 50% of the stuff is trash. You have to pay them a fee now if you do that. But basically they say, all right, half this stuff we're going to take. We're going to sell. And you get all of it less our commission once you saw. Right. So why does someone choose to go with thread up versus there's two other places, right? A, they could go to their local goodwill or thrift store and sell it there. Or B, they could go to eBay. Why are they

deciding to go with thread up over eBay or their local community store? Because I think that's really interesting. It's much more, man. So it's way easier to deal with thread up because you don't do it. So you can let's use eBay as like eBay poshmark or Facebook marketplace anywhere. Like tons of people. There's selling used clothing. There's people who it's mostly thrifters, people who are actually making money selling used clothing, which is someone who's like going to Goodwill, going to Value Village, going to Savers and saying like, ooh, I found a Patagonia sweater for $5 that I can sell online on Poshmark for $40. And they're just trying to find cheap supply that they can flip. And so that Poshmark seller or that Facebook marketplace

or that Instagram account seller that's selling used clothing, they would never sell on Threatup. Yep. They would never sell on Threatup. What they're doing is they're trying to source cheap goods and then sell them on those secondhand marketplaces where they can be sold for much higher prices. Where ThreatUp is focused on, like

the customer they're getting is this person who brings something to Value Village. The person who gives something away or gives or possibly gives the item on consignment to another Thrift store or gives it to like a Plato's closet or a one

support like all like what's the any any consignment store where the take rates are very very small generally um so you don't get much but you're like cleaning out you're you're getting rid of stuff you're either getting you're either getting rid of it getting no money for it or you're getting a very small amount of money and that and to do that what you have to do is decide okay i'm going to fill up a bag or i'm going to fill up this bin and like throw it in my car and then i need to like drive there I need to go into the store and then the items need to be processed while I'm there generally

so it actually takes some time some items will give you cash up front and they'll give you a very very low price some of them will do consignment as well but regardless it's like a lot more work you know it's just way more like the long and short like I'm going into the nitty gritty detail of it but like the long of the short of it is it's just a lot more work

where a threat up you literally stuff the bag send it to them and then they handle everything else. And then, like, there's a processing timeline. So it's not something where it's just like all of a sudden you're going to get the money like two days later. Because they're getting bags shipped to them constantly. And then they need people to actually like process those bags. And so there's like a processing timeline.

Then it finally gets to the website. And then you'll be notified, oh, the items that you had sold for X price. This is your payout. You can have it as credit to potentially buy something on thread up. And then you'd be like, oh, maybe I'm going to buy this item or you just take it as cash. But it really is, it's, it's the comparison is like, if you had a neighbor that ran a poshmark store, that all they did was sell used clothing, you probably would not use threat up. You probably just, you're, because your neighbor would probably be like, hey, like, just give me your stuff.

I'll sell them to for you on Instagram and like, you don't need to do anything anyways. I'll just drop money off in your mailbox. But not every neighbor obviously does that. And so that is, that's why their business has existed. It's trying to unlock supply that isn't moving because the dollar values are so low. Like the dollar you can earn on these items is so low that it economically makes no sense for anyone to sell these items individually. Let me stop you right there. So that is the key.

I've looked at several of these things. businesses before where like the dollar value is so low and you're trying to unlock it. And it's really interesting, right? As you're saying, if you can unlock it, they're so, such a big potential market if you can take like, it's kind of like the nickels and dimes and people's couches and figure out a way to monetize that, right? Like it's such a big market and it's so interesting and it's so, in many ways it's so moody, you know, and we can talk about it is. They've got an interesting thing where they say, hey, we all love Lulu Lemon. They have 900 skews. We have 4.5 million skews because as you mentioned, every skews individual

So I guess my question is like, it's hard for me to look at this and say they talk about long term, 20% adjusted, 20% plus adjusted EBITO margins, if I remember correctly. The CAPX, at least right now is pretty minimal because they built out their DCs and everything. There is some stock comp we can talk about and everything. But when I look at that, I say, hey, they're selling, you know, the short off Jordan's back or Jordan's wife back. They're selling it for 20 bucks, right? That's their ASB 20 bucks or so. I look at it like, man, I just, is there enough, and this could dive into what you're seeing at the market's missing question.

I always like to ask, like, why is this an awful opportunity? But I just look at it like, man, is there enough here? Like, it seems like the volume and scale they need is so high. Is there really enough here to build a profitable business with data scientists and the technician and all that type of stuff? That's why. Yeah. And that is why it's exciting right now because that's what we're like, that's what we're like,

that's what we're realizing with the incremental margins that they've been putting up. And so the operating leverage is really coming. Like, Q, like, we're still talking about the business model, so I don't want to get into this necessarily the specifics right now. But, like, the last, we've seen recently some very attractive incremental margins proving out the leverage of the operating model. And it's exactly what you said. Like, their average order values, you know, at least pre, like, when they're in public,

over like 70 bucks. So you added inflation and they've gone more high up market like order values are below $100. As you said, average items in the ballpark of 20 bucks on average, it's like four items per there's like four items being purchased per order. So yeah, you're dealing with small numbers. But so is like there's a lot of companies that are dealing with small numbers and that's what makes that's what makes them like a really strong note frankly. Like what does DoorDash make like $2 a order or something like that really at the end of the day. Well, so it's an interesting comp. I do hear you on that, but like DoorDash, such a mention it. They do make a small amount, but DoorDash is relying on, hey, you know, I have had times in my life where I'm using DoorDash. If there's seven days a

week, I'm using it for 10 meals a week or something, right? So they're relying on you're going to use it a lot and there's lots of restaurants and the distribution costs, right? It's the restaurant 10 blocks down from a year, two miles on the road that's delivering it. Whereas this is, you're going to use it, I don't know, if you've got a big closet, maybe people are using it more than me to sell. But how often do people buy clothes? I don't, I wouldn't compare, I wouldn't compare frequency, though, necessarily. Like, in the DoorDash example, to me, it's more like, what are the economics of you being able to deliver $20 to someone, like $20 worth of food to someone while everyone still makes money and it's a decent price? I wouldn't say, like, if you do

it, like, if you order DoorDash once a week versus once a month, I don't necessarily know that, like, that obviously helps the scale of the business to deal with, like, the fixed cost overhead, but for, like, in terms of, like, thread up of, like, does it make sense on an per order basis? That's really what I think is more important versus, like, getting scale on overhead expenses. That still matters, obviously. But it's really, to me, the core question was like, can you sell $70 worth of used items and the person who's giving you the items, the people who are working processing the items, the company and the shareholder all making sense. It all makes sense. And I think it does. I think it does now. And that's what

we're, that's what we're seeing now. Perfect. Yes. That's what I was driving to you because I guess with the DoorDash like, hey, it needs, obviously there's overhead, but it needs to go two miles down the road, right? The guy needs to get it on a bike and go from point eight to point B. That doesn't cost a lot. Have you delivered for Nordash before though? again. Have you delivered for DoorDash before? I have not. Have you? Yeah, because I own DoorDash. So I have done it. And it does make you realize this is harder than it seems like in a spreadsheet. Like, if you, uh, yeah, you can just the friction of waiting around, getting an order from one restaurant and then having to drive to this person's house and you don't have five other orders on that same

street. Yeah. Like, everything's point to point. So, like, I remember before I had ever delivered for a food delivery company as a part of due diligence. Like, you'd run the math of being like, oh, yeah, they just deliver like five packages an hour.

This is going to like mint money. And then you do it. And you're like, five is like, you can't do that unless, unless your stacking orders all from the same place. But anyways, we're digressing. Yeah. So, so the, the core economic. economics is like the inbound processing and the freight obviously are the key cost bribers.

But then they had to they actually have to have demand too. And as you probably know, given I know you look at other marketplaces like to build up demand to a marketplace. Obviously cost money, cost marketing expense. And so they to build this is just really hard and it costs a lot of money. Like the company's raised almost $600 million in the US and it's a $250 million market gap. So they've raised a lot of capital. And now, and again, it comes back to like, I'm not saying this business is going to like change the world or anything, but they have a clear value prop in a growing market that is differentiated that is financially getting materially better than it was. And so even like, even the stock comp element, yeah, of course, stock comp is an expense.

It's not a cash expense, but it is an expense. And so, you know, people, if people are religious about saying, like, I never want to, I always want to treat Stockholm as a cash expense, then obviously you're going to say that, like, it's going to take longer for them to get to free cash flow break even at stockcom. But it doesn't actually change, like, that actually doesn't change like the long term view of the value of the company. It just means that you don't think it's cheap on your term free cash. Yeah, it's a expense question. And if you believe it levers up, like, whether you- Exactly. Then it's just like, it's just going to be a couple of years from now

versus it happening at this very moment. Like, they're free cash flow positive for the last two quarters. And so like, even when they're saying now on the call, like, oh, we're going to be free cash for a full year. They've been free cashel positive for the last two quarters, excluding some, excluding the one-off payment for the divesture. And in Q4, they guided the quarter to negative 4% revenue growth and 1% EBITU margins.

And they did plus nine and six and seven percent even up margins, which if you go through the delta to what they did in the US, the Q4 before, like that's 30, that's 42% incremental EBITO margins at a business that in October, they weren't really growing and then they grew nine for the full quarter. So they probably grew 15 to 20% in December. So if you assume the business grows 10 to 15% and they have incremental margins above 25%, which is what they've been able to show. now for a decent amount of time, it's going to start, like, you're going to look at the model

and say, this is definitely moving in the direction of making economic sense and people are increasingly spending more money here. The business is getting way better. So speaking of growth, now you mentioned they did have the growth issues, the marketing issues at the start of the year as well as a few other issues. But just when I was reviewing their Q4 earnings call and they say, hey, active buyers reach 1.3 million. a decline of 6% year-over-year. Now, order growth was up 2% year-over-year. But I was kind of surprised, right? Like, this feels like the type of business where we can talk macro. Like, I know they've said, hey, macro is tough. And it feels like this should be a business kind of benefited by a weaker

macro environment. But I was just surprised with this upside. They're getting people in the market like a 6% year-over-year decline in active buyers is no joke. So I just kind of wanted to ask about that and square it with the growth potential you see. Yeah, so 90,000 buyers was, the marketing screw up was 90,000 buyers. So that's about like 7% or so of a headwind. And the macro, so the, but beneath the surface, the business, the GMV of the business actually grew, uh, in between 7% and 9% for last year. Um, and so they actually did a lot better than the headline numbers say because of, number one, the marketing screw up.

And if you just look at the retail categories as well, like they, like seven, seven percent GMV growth is actually like pretty incredible relative to most retailers. And then, and then lastly, they, their customer base is like mid market or very low end. And so if you look at like when they talked about how things. were trending relative to how like five below or other like dollar store companies like their customer has been absolutely decimated and you would think so because i know you would think oh things are tougher so we should see them like accelerate through that moment but that's the same case for the dollar stores and i think the key key reason for why it wasn't is that the economic sensitivity

we've had in the last two years has been like so different than previous recessions where previous recessions people who make a little like not a lot of money have actually like on balance kind of done better because you had like deflation in prices you had like you you generally didn't have a huge step up in unemployment and then everyone else becomes actually a little bit richer because pricing there's more discounting prices go down versus in this environment, where prices all went up 30% pretty much over a multi-year period. Like, people who make minimum wage got absolutely decimated. How much do you think, just you brought it to the dollar stores,

how much do you think of it was Timu, Shine, like kind of the de minimis, the people drop shipping from China with the de minimis. How much do you think that impacted them as well? I don't know. I don't think it was, I don't think it was, like massively material but it obviously has had some impact like it has to have had some impact but like if you were going to buy i don't know if you're if you're buying uh a used loo lemon long sleeve shirt like are you instead buying something from she and like i think i'm

sure there's cases right i'm sure there's i'm sure there's cases where you do i'm sure there's cases where you do um so i i'm definitely not like you know the person who just thinks oh no there's no chance it's had any impact, it for sure has had some impact. I just don't know if it's, I don't think that's been the predominant impact. I think the predominant impact has been more, their customer base has been decimated. Apparel has been not a good spot to be in general. And then they actually grew GMV 7%. So they, so they actually did quite well.

From like that person, from a customer demand perspective, it's more like, they're screw up is more self-inflicted screw-ups versus like it's a macro element, but I do think we could start having some macro tailwinds because of the fact that like the low-income, low-income consumer seems to be actually doing much better than they were. It seems to have bottomed in July. Let me ask you, I guess, the question that was just, to be explicit, the question that was on the back of my mind the whole time I was like this is the type of story I like, right? Like a broken marketplace trading for kind of less than invested capital, interesting distribution centers, like you could see the moat here. Now, as mentioned, one worry I have, and look, I've done a day of work on this.

I'd need to do more. One worry I have is the low order values and everything. Like, can you make something profitable? And I think you've addressed that nicely. But the other way I have, I will tell you, the stitch fix pitch and some of these pitches from three years ago, right? Where it was, hey, you get the. customer. This is a really unique distribution model for the clothing brands where they're selling things at full price. They've got this incredible data on the people and everything. And they had

great distribution centers. They had all these different models. That went terribly, right, for a bunch of different reasons. And it is, it is different, right? Stitchfix was literally full price brand clothing and this is secondhand discount clothing. But I can see a lot of the similarities, right, where they say, hey, Stitchfix would know for Jordan, like, hey, Jordan, and your arms are a little bigger than the average guy. So these are the type of shirts that really fit nicely on you. We've got that data advantage. Threadup has, we'll probably talk AI in a second,

but ThreatUp says they've got a lot of data advantages, a lot of the photos of them. And when I see this, again, completely different businesses, but I'm just seeing a lot of the rhymes of marketplaces that people in the past have gotten really excited about and that have flamed out. And I'll even caveat that with people were really excited about Threatup and it's flamed out. So, you know, if we, if this was $20 per share, it's probably a different story than when we're talking about.

Yes, we wouldn't be talking about if it was $20 for share. So like, I think that's, so I think that's one point that you bring up is, you have your, what you brought up is scar tissue in different business models that address clothing in some manner. And the Stitchvick story for sure is scar tissue, largely scar tissue that was like a 2022 scar tissue as well as they truly implode. of the business. Like, those guys did, they did sell people a dream that weren't. I think they, I think they sold the model to people who don't buy clothing, like, who don't generate most of revenue in the clothing industry, which is mostly just women who love to shop. I think we're a lot of time on Stitch Fix. And in hindsight, I, like, right when I started to ask me, I was like, hey, have you ever used it? Do you like it? And she's like, yeah, I used it. It's not great. It's not

for me. And in hindsight, I could have just like canceled all the due diligence right then. Yeah. Yeah. It's so true, like women, like, first off, Frontup sells women's clothing. So it's a good point of like, if I think this business model makes a lot of sense because of like some sort of financial element, I would say I should. And there's like not consistency on women actually thinking the value makes sense. Then I would be skeptical to court. And so one thing, drop is completely different from Stichick's made a market that was unique and they were like the ones doing that type of shopping. buying used clothing is not a new market and thread up is actually a very small player doing it

like poshmark's gmv is multiple times bigger than thread up you have depop you have obviously facebook marketplace you obviously have instagram like so many different like there are there's so much there's so many people buying used clothing um and so And so you're not saying threat up is going to be successful because of a change in user activity. And like this, their innovation is like driving women to think about buying clothing differently. You're not saying that. You're saying use clothing is increasingly a growth area. Like more and more people are buying used clothing, which is happening.

It's a very big market, but more more people are doing it. It's important to get supply. You have to have differentiated ways of having supply. Threatup has that by being able to economically have people send them their items and then take care of absolutely everything. So you do nothing. That's the key element on the consumer side. Then you obviously have the resale side that they have the relationships with brands where more brands want to have opportunities where if you bring in a piece of clothing to the store, they will take that. and potentially give you some sort of value for it

and then ThreadUp can give that brand some sort of value for it. So about 25% of Threatup supply is through these brand partnerships and that is only enabled because of the logistics, the operational platform they've built. And then it's, does the business model makes it,

the most thing that makes me most intrigued about it is it's, it's not like a, oh, well, people want to shop this way. Well, people want to, it's, does this, can this thing make any money. Yep. Can what they've done generate decent margins so that employees, consigning, the people who are consigning clothing, customers, and shareholders can all make something, get something worthwhile.

That's literally, that is the, that's the question, in my opinion. And I think on the incremental and the incrementals that we've seen, and what we've seen that's been happening so far, I think that proves that they can. Now, they just need to keep doing it. If they just keep doing it for a couple years, then it would be very obvious to everyone that they can. I think it's very similar. Like, it's kind of like when Carvona Olson spiked their unit economics like two years ago. And it was like, these are these are amazing unit economics, but like we sell this massive fixed cost. And so it's evident that they can make a lot of money on a per unit basis. But like, we just need them to keep doing this for two years. And then everyone

will be like, oh, this business model suite. I think the same thing is what threat up right now. So let me ask you a question on that thing. So they reported Q4 results. They early report. They reported Q4 results. And it sounds, I guess what I'm trying to. It sounds to me like you think the inflection is here, right?

And one thing I've been thinking about is like, for me, the place I've lost the most money has been like, I have a thesis. And then it breaks, but the stock's cheaper. So I'm like, oh, you know, it was at 12 X and I thought it was accelerating. But now it's at ADAC, so like I've got a cheapness, a margin of cheapness safety here. With thread up, like it feels to me like you're saying, hey, the business is inflecting, right? Like we've hit adjusted EBITDA, forget break even, adjusted even profitable, free cash flow, profitable. We can talk about stock com, people can if they want.

But you're saying if I said, hey, Jordan, this year, 2025, the business did not grow. Would that break your thesis? What would kind of break the thesis to you? It would, well, if it did not grow, so my specific, like, I guess it depends on how you break up the thesis. The thesis that it's a business that can make money, I, there would have to be a significant deterioration in their current unit economics for that, for it to not be able to make money at some level. but what like why it's why i think it's it's going to be a very good stock is because of the fact that we're in this inflection right now and no one and like i think in over the next year it's like almost going to be like a new IPO because no one knows like whenever i pitch this company

pitch car pitch carvana talk about door dash everyone obviously knows these companies talk about threat up no one not a soul ever talks about this company because why and why didn't they it was an absolutely disastrous IPO and then pull up your Bloomberg to do go on Bloomberg and hit FAA and look at the historical results and you're not going to see a lot of things you actually like like it's there's not there was not a lot to actually like about this thing it's definitely on the on the further like hairier side but if I told you that this business can now grow 10% plus for the foreseeable future at 25 plus percent incremental EBITDA margin

at a flax cap and have flat cap x in a market that's you know a secular growth market frankly if you just run that math now on a go for basis and you look at what's happened most recently to give you some evidence of like whether or not that makes sense i think you'll be like ooh this thing could actually end up making some decent amount of money and like it could be a multi-billion dollar company like i that i can run a scenario where they do a hundred million in free cash in 2029, 2030 time horizon, and it won't be like a marketplace business where it's easily copied. It'll be like actually a differentiated one because of the logistics.

Like Amazon's not going to do this. It makes no economic sense we're going to do this. It's just funny because you mentioned pull up Bloomberg. And the funny thing is, and I probably had this a little bit when I was researching too. If you pull up Bloomberg year today, right, the stock is from $1.50 to $2.30. Or, you know, as you mentioned, it drops down to almost 50 cents over the summer last November and everything before this. And I know me. I won't even put it on the listeners, though.

It's the listeners as well. But I know me. I look at that. I'm like, damn, a four bagger in six months. I missed it. But then the two things you say are, I guess the three things I would counter with are, A, as you mentioned, you need to look where the puck's going. And if this business has achieved sustainability, then there's a lot of upside. But, B, if you look at a five-year chart, you don't, this 4X over the past, it's nothing.

You don't even notice it. You literally can't even notice. And then C, you know, Corbana, very bull or bear stock. I know you have a position. I recently did a really interesting podcast I thought with Aaron Chen on it. Yep, I know him well. You know, I've had people pitch it to me and maybe it wasn't for me, but I know people pitched it to me at 20 and then at 40 and then at 60. And each time I kept being like, look at that stock chart.

I don't know if that's the type of stock truck I buy. And it's 180 right now. Who knows in the current market? But, you know, it's like 180 right now. Hey, just because it went from, I mean, in Carvonna's case, from three to 20 does not mean in the next two years. It can't go from 20 to 180. You know, like if you get these things right. So I guess what I'm saying is to myself mainly, but also to my listeners, a little like, hey, you'll look at the chart and be like, I missed it.

The answer is no. like if Jordan's right, there's a huge upside. Yeah, it could be a $20 stock in five years. Like that's like it's very possible. And again, to do, for that to happen, what needs to happen is they need to grow revenue 15 to 20% annually for the next five years. And they need to have incremental margins in the 25 plus range. And they've been able to do that. And so, yeah, it's, it's, again, it doesn't mean it's for sure going to happen.

They need to keep doing what. they're doing right now obviously um but like the increment like we're it's it's at a point where you have an incredibly low uh valuation if you were to just like if this is a marketplace business and it's going to do 25 percent ebbed up margins like it's what is it now the evs like 230 million and the revenue for this year is going to be you know they guide into 270 it's It's sub one-time's revenue for a business that should have 20% plus free cash flow margins at scale. So this is very, very cheap. There's very little priced in that this is actually a good business.

And in two years, if they keep doing exactly what they're planning on doing this year, people will at least say it's a half decent business. Insider ownership is quite good here. Dual-class stock and I've been coming with the IPL. I guess I have just a double bearer of question to end on this. Should this be a public company at this point, right? Like, I'm kind of surprised it hasn't been taken over. I don't think there's a criticism to choose this.

But then the other thing, I look at the insider transaction table, and there's one director who's been selling pretty consistently since November with the stock this low. Not a ton of insider buying. There was one director who bought a little bit last year. But, you know, this is generally a lot of- There's a couple directors. A couple directors were buying stock in the fall of last year.

year. Yeah, I see Ian Friedman and Daniel Nova, who I know nothing about, but and there's a little insider buying, but you know, I just look at him like, hey, you've got one director like pounding out at $2 per share. Yes, there's insider ownership, but I'm kind of surprised the CEO hasn't stepped in for a $2 million slug or something. So people get annoyed when I don't ask about insider buying selling and it's kind of hitting you over the face here. So I thought I'd kind of end with that. Yeah, the CEO has everything in this company. This literally is his everything. And I, so I spoke to him in note. He's very handsome.

Have you seen him? He's very handsome. I saw him on the website. I was like, oh, that is a fit, handsome CEO. I wouldn't mind if he was my CEO. Oh, man. I'm going to send him this podcast so that, or at least this snippet. I hope I wasn't, I'm not misremembering the thing, but I'll look while you can respond.

But, so he owns a lot of stock, as well. as well as his other co-founder owns a lot of stock uh other managers that have been with the business for like five plus years like they were they got in at like two dollars like that like no one has made money like everyone has seen a lot of their wealth evaporate over the last three years and uh like james is this is everything to him this is all of his assets and so if he could buy like he doesn't have a commercial real estate portfolio that is like are you calling cogent out specifically right now am i am i calling cogent no no i'm not but i know that guy's super wealthy he's that guy's also a lot older so it makes more sense why he would have that

and that's in that stock sell it has a dividend so he actually has capital to be to read a point but the point is is that the fact like I asked in like the summer why no one was buying internally and if and if I and if they expect anyone to and they're like we don't know but everyone's all in on this already so I wouldn't say it's an expectation and then a quarter later two directors were like consistently buying stock not huge amounts but like still over a hundred grand worth of stock which for a company that was at a 70 million market cap was actually like a decent amount of the trading volume, to be clear. And I asked, again, oh, are you surprised that this happened?

And they're like, yeah, because no one ever buys stock. And I don't know how much, like a lot of the companies I get involved with have a lot of share-based compensation. So people are getting stock every quarter. Every quarter of their compensation's vesting. They're getting stock. So it is unusual for people to actually then put money back in and buy. buy stock when you're getting more stock every quarter. But that was actually happening with

Threatta. And so James, the CEO, like, there's no part of me that thinks he is lacking alignment. And trust me, I thought, I thought of the same thing of like, how are you not like just like throwing in 150 grand here? If you think the economics work, this is going to be a absolute monster of a stock. And I mean, the response and the feedback I've gotten has been pretty consistent where yeah, like if you already own 10% of the company, that delta is irrelevant pretty much. No. Look, I mean, like you like it really doesn't matter. It's like, oh, okay, I'll make an extra $2 million on top of the 200 million that I'm already going to get because I already own such a hard, a big slug in the business. As I kind of comes, I love insider buying

obviously, but as it kind of comes to learn like just because their insiders aren't buying like there's a thousand different reasons. They could be in a process right now, but it's really easy for you as particularly one is it's really easy for you and I to write a check out of someone else's checkbook and be like hey you should be buying stocks but as you said like for him he owns 10% of the company he's worked here for 15 years if this goes belly up it's like cool he's a founder levels CEO level founder like is there another job or something yes I'm sure everyone and look how much he sold look how look how much he sold since it went public like his his his net worth was like at the peak was like over $200 million.

He's sold since it's going public, like under $10 million with the shares. Like it's not a lot. And then just to close the loop on it, like as he's saying, hey, this goes to $2 billion market cap, whatever, where are you going to pay? Yes. I own 10%. So I'm worth $200 million. I buy another million dollars right now.

Cool. I get another $10 million like that. Yes, $10 million is real money. But also I'm the CEO of a $2 million company. Like I might be making $5 million per year. But, you know, I've increasingly come to realize, like, Insider Biden is a great signal. I love it, but there's a thousand different reasons. And I've heard, like, the two directors buying stock in the public market in the fall was the sign, in my opinion.

Like, that was, in hindsight, that was a sign. This is a business that you never see insider buying in a business that has this much stockcom, to be perfectly fair, to be perfectly candid. Like, when a company is diluting their shareholders this much from paying people, People are getting so much stock already, and the stock goes down 97% from its highs. People aren't thinking, I need to throw more in. You know, it's funny because you say you never see insider buying in places with this much stockop. And then I'd be like, yeah, that actually can be part of the problem with stockcom. I actually had a lot more.

I want to talk resale as a service. I want to talk other stuff, but we're kind of coming up at the hour mark. So I wouldn't be kind of time for everyone. Let me just ask, I think we covered a ton here. Is there anything you wish we had hit harder or anything you think we didn't talk about at all that you wanted to quickly mention? No, I just I just think that the element about this business that's super intriguing is that it is like one of one in terms of what they do. What they do is very unique. They're not just like, oh, we're a smaller version of that guy that's like focused in these type of items.

It's like what they do is very different. And the core question, again, is not are people? going to buy used clothing. That's not the question. So if the, if the takeaway is, oh, people aren't going to want to use clothing. Like, that's just, that's not, this is an enormous market today. And, um, and the, so the core question is just like, do the economics of the business makes sense? Their utilization of their current facilities is below 50%. And if you look at their contribution margins on incremental items they sell, they're very attractive. For 40% plus. And so the question is, do you think they can go from 40% utilization to 80% utilization

of their existing facilities at similar unit economics? That's the question. And if they can, the stock is going to be much higher than it is today, my opinion. Today's podcast is brought to you by Dilupa. Post-surtings reports are more than just a data dump. There are a gold line of opportunities waiting to be unlocked. And with Delupa, you can turn those opportunities into actionable insights. DeLUPA's dynamic scenario building tools integrate updated earnings data, letting you model multiple strategic outcomes, like what happens if a company revises guidance upwards, and with automated sensitivity analysis, you can quickly understand the impact of key variables, like cost pressures, currency fluctuations, or interest rate changes. This means you'll deliver

more actionable insights for your clients, helping them navigate risks and seize opportunities faster. Ready to enrich your post-earnings narratives, visit dilupa.com slash yavie today to get started. That's the Lupa, D-A-L-O-O-P-A-com slash Y-A-V, or visit the link in the show notes. You know, just my, I think my favorite point you made, you've made a lot of good point, but my favorite point is, again, the hold-up for me here is like Stitch Fix, I thought was a really interesting idea. There's several others like it, but I love how you said, look, Stitch Fix was growing their own unique market.

I haven't looked at Rent the Runway in a long time. I thought that could be kind of moody, but that's a pretty unique market, right? Here it's like, look, people have been doing thrift stores for, I mean, probably thousands of years. There's been some type of strip store thing, but this is not a unproved market. All you're doing is taking a largely offline market. Now, it could be that there are reasons that people want to go touch this for various reasons, but you're taking a largely offline market and bring it online. So you need to just bet that it's a better experience online and that the economics work.

And if you make both of those bets, you have a really interesting opportunity here. It was just that, yeah, at the current, and again, it comes back to at the current stock price. It's not saying this is going to be the best business in the world. It's not going to change the world. It's not going to be some sort of sentient AI being. It is just they tried to build out a business and had been running at costs. They had been running at capacity way above what they could do today. Now they're at a point where they've grown.

into the capacity where they're at least break even and they can just keep growing into the capacity at really attractive incremental margins very similarly to carvana where they've just been growing into their capacity the core difference that will make people who like carvana really not like threat up is that threat up does have a lot more stockcom and i know there are some people that have religious it's like it doesn't matter like i hate stock comp so much that doesn't matter or anything else that's going on i stock on is an expense i grow the shares outstanding of the business and that's going to grow for a while but uh but they have a they have a nice little niche business that people i think are going to come to realizing is a good business and not not is

not a not a horrible business which is what it's priced for right now on this dot comp like i get it stock comp's a real expense but these guys are building an online marketplace you have to hire engineers, you have to hire data scientists, all these people. Those people can go to Google and make 300K, 500K per year or Facebook or any number of startups, right? Like, if you want to have those people, you have to pay them in some way, shape, or form. And cash plus dot comp is the best way, particularly if you can convince them, hey, come here. And if this works, our stocks is going to go up 10x. So even if we're paying you 300,000 and Google paid you 400,000, you know, you might make multi-generational wealth. So I definitely hear you. And you have to

assume the business scales into it as it seems like you're doing. But it's reasonable. All right, Jordan, I have your letter. I know your 10, I know your 10 largest positions. So this has been great. We're going to have to have you on for a second time. But Jordan from the Optimist Fund, this is awesome. Thank you so much for coming on. Yeah, thanks for having you. It was a fun, fun chat. A quick disclaimer, nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. please do your own work and consult a financial advisor. Thanks.