Revolve could also get squeezed by Gen Z and millennial student loan debt, KeyBanc said.
Revolve Group Inc. stock plunged 15% on Thursday after the e-commerce fashion site was downgraded by no less than two analysts.
"On our near-term 'wall of worry,' we believe that a combination of delta, sunsetting student loan forbearance, and iOS privacy changes makes revenue upside less evident and margins look full," wrote KeyBanc Capital Markets in its note.
KeyBanc downgraded Revolve to sector weight from overweight.
Revolve (RVLV) announced second-quarter earnings after-hours Wednesday, reporting net income of $31.5 million, or 42 cents per share, up from $14.2 million, or 20 cents per share last year. Sales totaled $228.6 million, up from $142.8 million last year.
The FactSet consensus was for EPS of 21 cents and sales of $198.8 million.
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Active customers totaled 1.55 million, up from 1.53 million last year. And average order value rose to $255 from $204 last year.
Revolve Chief Executive Mike Karanikolas noted the company's record second-quarter sales in an earnings release statement. On the call, he highlighted some of the challenges the company is facing, including the surge in COVID infections and Apple Inc. (AAPL) policy changes.
"[T]he potential challenges presented by the recent Apple iOS changes that I mentioned last quarter started to become evident late in the quarter," he said, according to a FactSet transcript of the call. "So it's an area we'll continue to focus on with our advertising partners."
On the call following first-quarter results reported in May, Karanikolas said the iOS privacy changes Apple made were expected to result in some near-term headwinds on marketing efficiency.
KeyBanc says Revolve was the beneficiary of the millennial and Gen Z return to events and travel. However, budgets for these demographics are stretched thin. Student loan forbearance is expected to end in September. Nearly two-thirds of college students (65%) graduate with loan debt, with students loans representing 40% of debt held by 18-to-29-year olds in the U.S.
"The average monthly student loan payment is $393, according to the FRBCleveland, which may limit Gen Z/millennial's disposable income," analysts said.
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Raymond James downgraded Revolve to outperform from strong buy based on valuation. Analysts raised their target price to $78 from $61.
Cowen analysts remain upbeat about the company, maintaining their outperform rating and raising their price target to $70 from $65.
"We believe Revolve is emerging from the pandemic stronger and with higher wallet share," analysts led by Oliver Chen wrote, calling the stock decline a buying opportunity.
Revolve stock has run up 94.7% for the year to date, far outpacing the S&P 500 index , which is up nearly 18% for the period.
(END) Dow Jones Newswires
August 06, 2021 08:01 ET (12:01 GMT)
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