Fanatics Stock: Do Recent Moves Point to a Fanatics IPO?
Updated: March 24th
Fanatics is in the news today. On CNBC, Fanatics executive chairman Michael Rubin announced the company had raised an additional $320 million in funding at a $12.8 billion valuation.
The good news? The funding round continues to point toward investor interest in the company.
The bad news? It also means an IPO could be pushed further into the future. If you’re looking for the full details on Fanatics and what its IPO could look like, read on below.
What is Fanatics?
Fanatics is a licensed retailer of sports merchandise specializing in selling college and professional team apparel online. Founded by brothers Alan and Mitch Trager as a small brick-and-mortar storefront in 1995, the company was acquired by billionaire ecommerce veteran Michael Rubin in 2011.
Expected IPO Date:
2022 or later
- Geographic expansion: Currently only 10% of Fanatics revenue is from outside of the United States and this is expected to rapidly climb. Fanatics recently announced a joint venture deal to expand into China, which is expected to boost revenue by 33%!
- V-commerce focus: Fanatics' vertically integrated business model and ecommerce deals with major sporting leagues gives it an advantage over traditional apparel companies.
- Supplier Power: As a licensed sports merchandise company, Fanatics is dependent upon the success of sports leagues. Recent reports are not encouraging, noting Americans are spending less time watching popular leagues like the NFL, NBA, and MLB.
- Competition: The barriers to entry for the apparel industry is low, which will increase the potential for new entrants.
- Niche market: At $25 billion per year, the total licensed sports market is currently a narrow market and could put a lid on Fanatics’ future growth.
Fanatics added a little “Magic” to its board of directors.
On March 3rd, licensed sports merchandiser Fanatics announced it was adding three new independent directors to its board of directors. Joining founder Michael Rubin’s company are Weight Watchers International CEO Mindy Grossman and Hudson’s Bay CEO Jerry Storch, but the real headline stealer was NBA great Earvin “Magic” Johnson.
Naturally, this raised questions from Wall Street because the board of directors is elected for a simple reason: to represent and protect shareholder interests. This follows a major announcement from the company that it’s moving into the high-growth Chinese market.
Do these moves mean that Fanatics stock is thinking about an IPO?
Why Are Investors Wanting Fanatics Stock to IPO in 2021?
The world is a diverse place, but one thing connects many of us: the love of sports. In America, you’re likely to see us cheering on our favorite teams from the “big three” sporting leagues — the NFL, NBA, and MLB — dependent upon the season.
In Europe, fans are on the pitch rooting for their favorite Premiership team. And in China, there’s a new crop of middle-income fans cheering on their favorite Chinese Basketball Association team.
Simply put, sports are big business. As a result, everybody is looking for ways to capitalize on the world’s love of all things sports. Companies like Coca-Cola and Visa spend more than a billion every four years to be the “official sponsor” of The Olympics. The top 1% eagerly wait for a professional team to go on the market to pay nosebleed valuations for the right to own a team.
Another trend that is quickly becoming universal is the significant growth in ecommerce companies. Following the success of Amazon, regional ecommerce stocks like Alibaba, Sea Limited, MercadoLibre, and Coupang are stealing market share from traditional retailers and seeing their stocks explode.
Against that backdrop, it’s natural for investors to look for a company that combines these two trends, and many are waiting for ecommerce-focused sports licensing company Fanatics.
Here’s what you need to know about Fanatics stock before the company goes public.
Bull Case: Why Would You Want to Buy Fanatics Stock?
For most apparel companies, sports licensing (paying leagues to place their trademarks on clothing) is considered a necessary evil.
Sporting leagues require significant licensing costs that might not always be able to be passed along to consumers. On the other hand, interest in sports-related clothing makes licensed apparel a large enough market that it’s hard to overlook.
As a result, clothing companies often treat sports apparel like a loss leader of sorts and underinvest in their offerings and selection. The lack of scale and expertise leads to subpar clothing and apparel.
Enter Fanatics. The apparel company was founded in 1995 by Alan and Mitch Trager as a brick-and-mortar retailer named Football Fanatics, but a stroke of genius occurred when the company decided to enter the digital channel.
Fanatics caught the attention of billionaire ecommerce CEO Michal Rubin who purchased the company in 2011. Rubin sold his holding company, including Fanatics, approximately a year later to eBay. However, Rubin was so impressed by Fanatics’ potential he later repurchased it from the mega-ecommerce platform.
Led by Rubin, Fanatics’ ecommerce-focused operations have set the company apart and allowed it to consolidate significant market share.
Currently, Fanatics operates the ecommerce sites of nearly 10 major sporting leagues (including the big-three mentioned above); three sports broadcasters (CBS, NBC, and Fox Sports), and more than 100 collegiate teams.
Fanatics is quickly striking deals around the world, most notably in China. In February, Fanatics struck a deal with Asia-focused private equity fund Hillhouse Capital to open the Chinese market to Fanatics.
Bear Case: Why Would You Want to Avoid Fanatics Stock?
Ideally, as an investor, you’d prefer the companies you invest in to have significant power over their suppliers. An unbalanced relationship that favors suppliers can have significant impacts on profitability in the event contract terms are renegotiated.
One example of the power that sport leagues possess is the ESPN family of networks. At one point, ESPN was considered the crown jewel of parent company Disney. However, due to tense negotiations that saw ESPN pay more than double for sports content, ESPN went from being a profit center to a potential liability.
While the leagues are fiercely protective of their trademarks, names, and likenesses, they’re all looking for increased licensing deals. The barriers to entry for apparel aren’t significant and the space will see increased competition provided profit margins are supportive.
Additionally, Fanatics operates in a narrow niche as sports-licensed revenue is estimated to be a $25 billion industry per year. Due to a narrow industry with low barriers to entry, it’s likely Fanatics growth and profitability will be capped.
To date, Fanatics has done a great job combating these threats. The company wisely struck a deal with major leagues to power their ecommerce sites, creating a deeper and more symbiotic relationship to blunt supplier power and is rapidly expanding geographically to broaden its reach.
New entrants will always be a concern, but Fanatics’ ecommerce advantage and sports focus will likely make it difficult for start-ups and new entrants to steal significant share.
When Can I Buy Fanatics Stock?
Fanatics remains a private company. Fanatics currently exists as a subsidiary of Kynetic LLC, Rubin’s ecommerce holding company. Additional companies in Kynetic LLC include home and fashion website Rue La La and shipment expediting service ShopRunner.
Kynetic LLC remains private as well. Unless you meet the SEC accreditation requirements for net worth (more than $1 million – sorry, your exploding home equity doesn’t count) or annual earnings ($200,000/year for two years, $300,000 for couples), you’re not going to be able to buy Fanatics or Kynetic LLC.
Even if you meet those standards, good luck in locating those shares before the company goes public. Since buying Fanatics from the Tragar brothers, Rubin has been discerning with taking new money. Unlike other startups that will take money from anybody willing to provide it, Fanatics has only taken five rounds in nearly a decade.
Majority owner Michael Rubin has been forthcoming that an IPO deal will eventually go public, most notably in January 2020 by noting in an interview with Yahoo’s Andy Serwer, “going public is probably the most likely longer-term plan.” He followed this up by hinting at the company being profitable, saying “we’re all about growth and profits.”
Yet, it does not appear Fanatics’ stock IPO is imminent at this point. There’s been no announced SPAC deal nor has the company filed a preliminary S-1 IPO registration statement.
That said, the company could be positioning itself for an IPO soon. The recently announced China deal and bringing on three independent directors are high-profile moves that could be used as a springboard for listing on the public markets. New board addition Mindy Grossman has experience running a public company as she is the CEO of WW International, formerly known as Weight Watchers.
Private investors – most notably Softbank (see below) — have continued providing Fanatics an adequate stream of funding, but will eventually expect a return on their investment. The easiest way to provide venture capital the returns they’re aiming for while ensuring the company retains adequate liquidity is through the public markets.
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Fanatics Stock: Who Owns It Now?
Non-accredited investors cannot buy Fanatics stock and as a private entity the company is under no obligation to disclose its investors. As a result, the information released to the public is often scarce and facts like investors, valuations, and funding rounds are often unknown or incomplete.
However, because Fanatics is a high-interest company we have some key data. Brothers Alan and Mitch Trager founded the company in 1995 and sold it to Rubin for approximately $280 million in 2011.
According to Forbes, Rubin is a member of the “three-comma club” with a net worth of $3.5 billion, mostly through his ownership stake of Fanatics, which is reported to be nearly 50%. (After Fanatics March funding round, Rubin’s net worth is likely now closer to $7 billion, more on that below.)
In addition to his ecommerce-focused business with Kynetic LLC, Rubin also owns approximately 10% of the company that owns the Philadelphia 76ers and New Jersey Devils.
Fanatics stock has a diverse set of venture capital backers like Andreessen Horowitz, Insight Venture Partners, and even the leagues it licenses with – the National Football League is a key investor!
Also, if you own stock in Alibaba or Softbank, you have a minor stake in Fanatics. Alibaba Capital Partners participated in the $170 million raise in 2013 that valued the company at $3.1 billion. Softbank’s 2017 raise was the largest to date in the company’s history and valued the company at $4.6 billion.
With a list of backers like this, it’s understandable why normal mom and pop investors are impatiently waiting to buy Fanatics stock once the IPO occurs.
Fanatics Chart: How Much is Fanatics Stock Worth Now?
Prior to March, Sharespost reported Fanatics has undergone five distinct funding rounds since Michael Rubin acquired the company. It’s important to remember the stock value changes every time the company goes through a funding round, so when Fanatics’ stock IPOs the price will certainly be at a premium to its current value.
The Fanatics stock chart below includes cumulative money raised by round and the valuation per round. Although Fanatics had a “down round” — funding that occurred at a lower valuation than the prior – in its C round, the long-term trend has been significant and steadily upward.
According to reports, the share price of Fanatics stock is $17.29 as of its E round.
Source: Sharespost figures in billions.
However, on March 24th, Michael Rubin announced Fanatics had secured $320 million in additional funding at a $12.8 billion valuation. This is more than double the value of Fanatics in its Series E funding round.
The downside of this funding round? It may delay a Fanatics IPO. Speaking to CNBC after announcing the new round of funding, Rubin noted, “I think going public is an option for us that we talk about a lot but it’s not something we’re focused on today. We’re focused on building a business. But I think we’re well financed and have a lot of growth capital to continue to grow.”
What is Fanatics Stock Symbol?
Stock symbols are for public companies that trade on stock exchanges. As a private stock, Fanatics doesn’t have a stock symbol yet. When the company chooses to file for an IPO, here is a list of symbols that will be available for Fanatics stock.
Fanatics Stock: Should You Buy the IPO?
It’s only speculation to discuss owning a company without a thorough review of their financials and without reading the key risk factors commonplace in S-1 registration statements or other filings with the Securities and Exchange Commission.
Additionally, investors will not know what valuation the company is attempting to fetch until the IPO. For those reasons, it’s not advisable to decide at this point.
That said, there are a few pieces of information we know at this point. Assuming Michael Rubin is correct, the ecommerce apparel company is profitable. This is no small feat for an apparel company as it’s a rather cutthroat business. Even high-end apparel companies struggle with reliable profitability. What we don’t know is the level of profitability.
Profitability is likely boosted by Fanatics revenue running the ecommerce sites for the leagues they license from. The revenue mix is important because Fanatics appears to be richly valued for a traditional apparel company.
According to Rubin, the company was on track for $2.9 billion in revenue and is valued at $12.8 billion, or 4.4-times revenue.
Compared to pure-play apparel retailers like Gap and American Eagle that trade at 0.75 and 1.1 times and this is an expensive stock for an apparel company. However, investors will likely place more emphasis on bottom-line numbers like cash flow and earnings.
Fanatics’ vertically integrated ecommerce-first operations will likely pay off in the form of more favorable profitability profiles than these bricks-and-mortar retailers.
Additionally, the company is just scraping the surface of global growth, which should provide long-term growth tailwinds. While the risks of a powerful licensor and a tough industry with low barriers to entry are significant, Fanatics stock could be one of the best ways to take advantage of the growth of sports fandom worldwide.
It’s no wonder many are waiting for Fanatics stock to go public.