Why CafePress Will Never Be Great Again

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Cafe Press
This should be a great time to be CafePress.

We're heading into the final three months of what has been -- and will continue to be -- a heated presidential campaign. Anyone on Facebook (FB) knows that fans of either candidate have no problem letting all of their friends and family members know exactly how they feel.

CafePress (PRSS) -- the one-off printing specialist -- should be raking it in as its millions of shop owners have the potential to crank out politically charged merchandise with slick designs and clever sayings.

Well?

Shares of CafePress collapsed Tuesday, dropping more than 40% after it reported disappointing quarterly results. The company posted an adjusted profit of $0.10 a share for its second quarter as revenue climbed 26% to $47.1 million. That's pretty much in line with expectations. Things get ugly in the current quarter for the company that lets anyone sell their designs in the form of T-shirts, mugs, and other merchandise.

CafePress is looking to earn just $0.05 a share to $0.07 a share in the third quarter on $42.5 million to $45 million in revenue. Wall Street was expecting on an adjusted profit of $0.10 a share on $49.8 million in revenue. The problem here isn't just a matter of an outlook that falls woefully short of what analysts are projecting. The company's guidance calls for top-line results to slide sequentially.

How can that be? This is an election year!

"Revenue from political gear and international channels was slightly weaker than expected during the period," CEO Bob Marino said in Monday night's earnings release.

Really? Is CafePress missing the opportunity of a lifetime, or is it simply that its merchandise is ridiculously overpriced for even the politically engaged -- or politically enraged -- shopper?

It's easy enough to open a shop on CafePress.com. There are no upfront fees, and there were 3 million virtual shops on the site when the year began.

However, selling through the shop is a lot harder than the simple setup process. There may be more than 300 million unique products available, but CafePress shipped just 7.8 million products last year.

Do the math. Is a model truly sustainable if the average "store" sells less than three items a year? It's free to set up a storefront. It's a breeze to add everything from iPhone covers to baby bibs once a design has been uploaded. However, even hobbyists may cringe if the average store rings up less than $100 a year in sales -- and just a handful of dollars in royalties.


cafe pressThere's a Problem Here

The base price on a T-shirt is $18. If a store owner wants to score a $5 profit, we're talking about a consumer-facing price of $23. Good luck selling a $23 T-shirt online!

This has always been the stumbling block at CafePress. There are performance bonuses for the more successful stores and CafePress is aggressive in pumping out promotional discount codes, but at the end of the day, the products are still a hard sell.

The trend toward customized merchandise is real, and there are plenty of publicly traded companies cashing in on that movement beyond CafePress.

Shutterfly (SFLY) turns digital snapshots into personalized photo books and jigsaw puzzles. Stamps.com (STMP) will put that photo of your lovely nieces on postage stamps. Vistaprint (VPRT) gives businesses an easy way to order custom-ordered business cards, rubber stamps, and bumper stickers.

CafePress adds an entrepreneurial element to the model. That should be the mother of all motivators, but it's not. Customers just aren't interested in overpaying for merchandise, even though we live in exciting times where blatant self-promotion through Facebook, Twitter, or YouTube should benefit anyone with something worth selling.

In the end, folks that are truly ambitious about cashing in on their designs will turn to Etsy or eBay (EBAY), where they have the freedom of competitive pricing and access to economical sourcing.

CafePress went public earlier this year at $19. It fell into the single digits at the open on Tuesday.

Oh, if only the same could be said about the pricing of the items at the more than 3 million CafePress stores.



Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Facebook. Motley Fool newsletter services have recommended buying shares of VistaPrint, Facebook, and eBay.

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