Key Drivers Of Warby Parker’s Valuation

by Trefis Team
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Warby Parker is well-known as the disruptor of the eye-wear market. The company challenged Luxottica’s (which is still the largest player in the industry) business model, and by selling glasses directly to customers, it was able to offer competitive pricing, generally selling glasses in the $95-$145 range – much lower than the traditional price range of $300-$400. However, based on the limited information available, the company’s revenue growth has slowed down in the last two years as competition in the online eye-wear market is growing. Zenni Optical – another privately held company – commands around 50% market share in the online market (in terms of shipments), though its products are much cheaper and consequently its revenues are much lower than Warby Parker’s.

While Warby Parker’s revenues grew more than threefold in the last 3 years, its valuation has not increased significantly. Our interactive dashboard on How Much Is Warby Parker Worth examines the company’s key valuation drivers and scenarios, which can lead to an upside to its valuation.

Warby Parker’s next wave of revenue growth is likely to come from expansion of its physical stores and its online prescription service – via its new app which enables users to update their prescriptions through an online assessment by a doctor. If these initiatives are successful, Warby Parker could grow its revenues by around 50% in the near term (compared to our base case of 30% growth). You can modify these estimates to arrive at your own numbers by clicking on the blue dots here.

We also looked at Luxottica’s revenue growth in the same period, and based on consensus estimates, Luxottica is likely to grow its revenues by more than 5% year-on-year in 2019. Luxottica’s revenues are nearly 25x those of Warby Parker – as it is a multi brand retailer, in existence for more than 50 years. Although both companies operate in the same industry, Luxottica is largely a brick-and-mortar retailer with nearly 9000 retail stores. Warby Parker has around 60 retail stores and is likely to reach 100 stores soon. However, Warby Parker’s growth from a smaller revenue base has not been as impressive in the last two years. Both Luxottica and Warby Parker added $100 million in revenues between 2016-2017. Warby Parker also recently announced that it is profitable.

Based on its successful business model, Warby Parker was valued at $1.2 billion in 2015 – with a revenue base of around $100 million, implying a revenue multiple of nearly 12x. However, in its most recent funding round, the company was valued at $1.75 billion – implying a revenue multiple of around 4x. Luxottica, which is a more mature and larger player with slower growth, commands a revenue multiple of nearly 3x.

While competition in the online eyewear market is strong, it still represents less than 5% of the total prescription eyeglass market. Due to the aforementioned initiatives, Warby Parker still has strong growth potential, and could see significant upside to its valuation. The company is also expanding its physical presence and is testing sales of children’s eye-wear. These initiatives – especially the ability to update prescriptions online – should drive revenue growth for the company and improve its profitability. With a strong growth trajectory and profitability, Warby Parker can command a higher revenue multiple – which is shown in our upside scenario. Under this scenario, the company could be worth as much as $3 billion. You can change these estimates and arrive at your own valuation for Warby Parker.

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