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Care.com Crashes Even Before Joining the Billion Dollar Club

Posted on Tuesday, Dec 29th 2015

There are quite a few examples of companies that have crashed and turned into a unicorpse* even before reaching the Unicorn status. One such example is that of Care.com (NYSE: CRCM), which was on its way to be a Billion Dollar Unicorn, but sketchy financials have caused the company’s valuation to fall.

Care.com’s Financials

Founded in 2007, Care.com was conceived by Sheila Lirio Marcelo who realized the gap in finding reliable quality care services. She founded the company to provide services to improve the lives of care seekers and care providers by giving them access to tools and information that will help them make informed decisions with regards to finding and managing quality care for dependents. Care.com provides its members with access to a database of pre-screened profiles of caregivers both locally and nationally.

Besides providing a database, Care.com also provides additional services for both caregivers and care seekers. Care seekers can pay their caregiver electronically through a consumer payments solution that is offered by Care.com. For caregivers, Care.com offers additional services such as tax preparation services and even a marketing platform.

Care.com earns revenues through a subscription-based model. Basic membership to the site is free, but the premium features such as unlimited access to all providers and free background checks are available for a monthly subscription. Monthly fee ranges from $39-$149 a month. Care.com has seen strong revenue growth with revenues increasing 68% last year to $81.5 million. But it is yet to turn in profits. Care.com ended 2014 with a loss of $28.3 million.

For the recently reported third quarter, Care’s consolidated revenues improved 21% to $38.9 million. For the quarter, net loss increased 20% to $17.4 million. Adjusted non GAAP earnings have improved and loss per share reduced from $0.31 a year ago to $0.18 per share for the third quarter. The Street was looking for revenues of $38.7 million with a net loss of $0.23 per share.

By segment, revenues attributable to the US Consumer Businesses increased 23% to $30.2 million while revenues from the WPS, International, and B2B businesses increased 19% to $5.9 million.

Among operating metrics, total members grew 34% to 17.8 million and total families grew 36% to 10.1 million. Total caregivers grew 32% to 7.7 million. US Consumer Business end-of-period paying members grew 25% to 296,000.

For the current quarter, Care.com expects its EPS of $0.08-$0.11 with revenues of $37.5 million-$39.5 million. It expects to end the year with a net loss of $0.57-$0.54 per share from revenues of $147 million-$149 million.

Care.com’s Improving Offerings

Meanwhile, Care.com continues to expand its offerings. Earlier this month, it released a new service, Date Night by Care.com. Its first transactional app, Date Night service allows parents to plan for a date night with ease. It simplifies the process of finding, interviewing, booking, and paying available baby sitters and through its tie ups with Fandango and OpenTable, parents are able to make reservations for their date nights.

Care’s stock is trading at $7.30 with a market capitalization of $234.9 million. It has recovered from the 52-week low of $4.89 it had fallen to in September this year, translating to a valuation of $157.3 million. The company went public at $17 a share in early 2014 at a valuation of $554 million. It surged 41% in its IPO frenzy to reach a market cap of $720 million and since its listing it has lost almost $500 million in value.

The significant loss in Care’s valuation is attributed to its inability to monetize its member base. At the end of the last quarter, a mere 1.7% of its member base was a paying member. The low monetization is also driving losses. Earlier this year, Care hired a new CFO, Michael Echenberg, to help drive it to profitability. Echenberg has been assigned the task to turn Care profitable by the end of next year. As part of that effort, Care announced plans to shutter down its e-commerce offering of Citrus Lane – a business it had acquired last year. The company has also been experimenting with new pricing models in an effort to improve monetization.

* The term Unicorpse was first coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

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