Revolve cofounders Michael Mente (left) and Mike Karanikolas (right) are billionaires thanks to a soaring share price.
RevolveNearly two decades after starting e-commerce clothing retailer Revolve, cofounders Michael Mente and Mike Karanikolas are billionaires thanks to a soaring stock price, the power of influencers pushing their favorite clothes and post-Covid optimism.
The company’s stock has skyrocketed in the last year, as shoppers flocked online during the pandemic. Shares have climbed by 150% over the past six months—enough to make Mente and Karanikolas each worth just over $1 billion, according to Forbes’ estimates.
Revolve is set to report first quarter earnings on Thursday afternoon. Analysts are on average expecting the company to earn $0.13 a share on revenue of nearly $158 million, up from net income of $0.06 a share in the first quarter of 2020, according to Yahoo Finance. In first quarter earnings preview, analysts at investment bank Cowen say in an April 30 report that consumers are responding well to Revolve’s lower-priced items and that while activewear, beauty and stimulus spending are positive drivers for earnings, they remain cautious on near-term expectations for the stock.
Mente, 40, and Karanikolas, 43, started Revolve in 2003, operating out of a small Buena Park, California home with $50,000 the two had saved up from their prior jobs as software engineers. The co-CEOs met at a software company called Nexstrat that ended up going belly up after the dot-com bubble burst in 2001. The pair, who each have a background in computer engineering and business, were quick to realize early the importance of relying on data and analytics. To entice customers, they offered free shipping and returns from day one. They were also early to recognize the power of influencers, hosting events and partnering with bloggers as far back as 2009—long before the term “influencer” made it into the mainstream.
By 2019, Revolve’s customer base had grown to 1.5 million, a 27% year-over-year increase since the year before and was generating $601 million in annual sales selling 110,000 unique styles. When Mente and Karanikolas took the company public on the New York Stock Exchange in June 2019, public investors valued the company at more than $1.5 billion.
“We built the website ourselves,” Mente tells Forbes. “We did the front end, the back end and did everything working from the house-turned-office, including warehousing. A lot of the main themes from back then are still very true. The customer is going to continue to shop online. We realized early that we could build a really powerful brand.”
Despite the headwinds from the pandemic—revenue fell 3% last year to $580.6 million and the stock plummeted more than 50% from Jan 2, 2020 to a low of $7.30 a share in late March 2020—Revolve managed its business well in a tumultuous year, earning nearly $57 million in net income, up from $36 million in 2019. The company reported $56.8 million in net income in 2020, a year-over-year increase of 25%. Karanikolas says that as Revolve’s stock dropped to $14 last year, the company received many loan offers from banks. But as he watched other companies like Wayfair and The RealReal take these financial packages and see ownership diluted, he turned down the offers. His view: Things were going to get better.
“It really feels great to be sitting where we’re at today compared to where we were a year ago,” Karanikolas says.
Mente attributes Revolve’s resilience in the last year to a quick and decisive pivot toward cosmetics, skincare and athleisure for customers spending more and more time at home, thanks to the data-driven AI systems that the company has been developing for years. The technology mines data from a database built over the company’s 18-year history, consisting of thousands of styles and millions of customer interactions. According to Mente, his team had to change purchases to merchandise more suitable to what consumers were looking for during the pandemic and adjust quickly. The pivot worked. Approximately 77% of Revolve’s net sales in 2020 were at full price. Its 1.5 million active customers, primarily women aged between 18 and 44 years old, spent an average of $250 per order.
Much of Revolve’s growth (and visibility) over the years has been bolstered by collaborations with its 7,500-strong network of influencers, who use their platforms to showcase the brands and items sold on the company’s website. Revolve sells clothing from a lineup of over 500 existing fashion brands, as well as more than 20 owned brands, including two influencer-led brands. Pre-pandemic, the company threw parties for these influencers in fashionable destinations like the Hamptons, London, Thailand and Ibiza. Arguably its most well-known event is the Revolve Festival—an exclusive party held at the Coachella music festival—where attendees have mingled with celebrities like Skrillex, Kendall Jenner, Migos and Chiara Ferragni.
To compensate in pandemic times, Revolve shifted to virtual events, including live Instagram workouts, cooking demos and collection previews. Instead of seeing influencers partying in Bermuda or tanning in the Hamptons as part of the company’s annual Revolve Summer event, its 4.6 million Instagram followers tuned in remotely for celebrity-hosted events like painting, pool parties and movie night. Its pandemic transition continues to be nuanced: In late March, Revolve added a “vaccine ready” section to their website, featuring tops that provide easy access to the upper arm and shoulder, as more people receive the Covid-19 vaccination.
“We think it’s the Roaring Twenties again. So, how does retail intersect with opulence? Everyone has a pent up interest in going out and being social,” says Oliver Chen, a senior retail analyst at Cowen.
Revolve is well positioned to benefit from the reopening, Chen says, particularly as customers get ready to head out of the house and the company can re-up the extravagant influencer parties and events that put it on the map in the first place.
“We’re young and hungry—well, our minds are young and hungry—and we’re as focused as ever on making this business much bigger,” Mente says. “We’re still building a business that we want to hold forever.”
