Pattern Amazon Reseller S-1 Filing: I See Risks
Let's dispense with the marketing term "accelerator" for a moment shall we? Pattern is an Amazon US reseller. As in, 88% of their revenue is from Amazon US third-party.
Still, I see risks all over for this IPO. Let's start simply.
* 1.8B in revenue go in the top-line, only $87M (previously said $87k) come out the bottom (net income). Tough way to make a buck. Amazon can do that trick for many years because you have your own marketplace and AWS. No AWS here.
Also structure seems risky. So you are buying shares of a dual-share class company, non-controlling shares, of a husband and wife team who will still control the whole thing. Hope they stay together, or this thing goes poof faster than you can say "Sonny and Cher."
Ok if you are Mark Zuckerberg, you can pull this off controlling share nonsense. The average business cannot and should not.
That said, let's review a few points:
* Not profitable enough. They are a 43% Gross Margin business. That's what they have to operate the whole thing.
* If we believe the AI story, why are there 400 software engineers at an Amazon reseller? No.
* $215M on the balance sheet, a $50M revolving line of credit. COGS alone last quarter was $300M+. Feels light to me. Understand the idea behind financing, at least.
* Built a proprietary WMS. Really? How many WMS are in the world, I put the challenge to Ninaad Acharya. We needed another one? Did I mention 400 engineers?
* Operates in 100 countries, but 88% of revenue from 1 country. Feels like a mismatch. Is this company efficient enough?
Bloomberg says the IPO might raise $400M+, so if they screw up buying this gives them another quarter buffer?
Did I mention not profitable enough? Well, they promise new things. Hope! Wahoo!. Let's walk through them the ideas one at a time:
* Selling SaaS PXM software - not seeing it. Sellers hardly ever build or understand how to GTM great software. Chad Rubin and Eytan Wiener perhaps can perhaps be our exceptions that prove the rule.
* 1P Reseller - no, and hell no. This is not a thing. Where is the margin? Amazon vendor manager (aka robot overlords) squeeze NetPPM blood from turnip. Might make nice consulting business, but I do not feel that Martin Heubel plans to IPO soon.
* Fulfillment - no. Not enough margin, extremely capital-intensive, too much capacity in the system today already. Super-competitive.
* Services? no. You don't IPO a service business.
SaaS is the only serious idea, and it's a concept at best. Great, you heard about SaaS. It does not belong in your prospectus.
All told, if the core model does not work, this is toast. In a market where most companies even large venerable resellers (see what I did there) like Nordstrom's is running away from the public markets, that this company would be running to the public markets feels like a cry for help.
I'm not saying Pattern is not a fine business but IPO? Not seeing it.
