Cricut, Inc Enters Hyper-Growth Phase

Cricut Blows Away The Consensus On Robust Demand

In our quest to discover the most interesting investment opportunities we ran across Cricut (NASDAQ: CRCT). Cricut is a consumer-focused tech company operating a very interesting platform. With it, consumers can use the Internet to design and produce unique, one-of-a-kind products in a wide variety of verticals. Think of them as an outsourcing company for all those bright ideas you've had; if you can imagine it Cricut can probably help you design and build it. And the consumer response is overwhelmingly positive, so positive the company is growing at a triple-digit rate, outpacing the analyst's targets, and raising guidance.

"The creative passion from our community of users serves as a strong foundation for engagement on our platform, creating a viral word-of-mouth marketing engine that drives efficient customer acquisition. To support our users around the world, we continue to improve the Cricut platform by bringing new software, tools, and content that appeals to the diverse breadth of our community ..." said Ashish Arora, CEO of Cricut.

Nothing Not To Like About Cricut's FQ1

There is nothing not to like about Cricut's FQ1 and that includes the fact revenue could have been higher. If not for the impact of inventory shortages in certain areas the company's revenue would have been low to high-single digits more than the 125% that was reported. Not only is the $323.82 a strong showing but it is accelerating from the prior quarter, the highest revenue on record, and only the beginning of what we think this company might accomplish. With only 4.9 million active users and International operations, the company has quite a lot of growth potential.

The internal metrics are all positive as well. The company added 600,000 new users over the quarter bringing the total to over 4.9 million. The number of paid subscriptions grew 140% to 1.6 million and represents one of the company's hottest growth segments. The Connected Machines segment, the company's entry-level use, grew by 148% and is expected to translate into higher subscriptions and Accessories & Materials revenue. Accessories & Materials revenue grew 101.6% YOY. Also of note, the company's International segment grew 254% to account for about 10% of the revenue. We expect to see sales in the International segment balloon over the coming years and overshadow domestic business.

"Sales from connected machines grew 148% over first quarter last year and were limited somewhat by inventory shortages," said Marty Petersen, CFO of Cricut. "Importantly, our connected machines are only the start of our users' journey with Cricut. Connected machine sales led to strong demand for our higher margin subscription offering and accessories and materials products ..."

Moving down the report the results get even better. The company was able to leverage its sales growth despite inventory shortages, rising freight costs, and upward wage pressures. Gross margins improved by 600 basis points to 37.1% of sales driving a 620 basis point improvement in operating margin. Operating margin came in at 15.3% versus last year's 9.1% and would have been higher if not for stock-based compensation costs and costs related to the very recent IPO. All in all, we view this is as a spectacular report.

The Technical Outlook: Cricut Is Trending Higher

While admittedly very early in the company's trading history it does look like this stock is trending higher. The IPO was largely without fanfare and has only seen higher prices in the days since. Now, with price action popping up off of the recent low the stock is confirming $20 as firm support and, with price action above the 30-day moving average, indicated higher. The risk for traders now is that price action will not be able to hold the EMA. If that happens we may see this stock fall to the $20 level again. If the EMA is held we expect to see price action begin to slowly heat up and drive this market up new highs. Trading at only 25X this year's and 22X next year's earnings it's a fair bargain for a tech-focused consumer-oriented hyper-growth stock with a fortress balance sheet.

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