STRAVA Seeks New Funding

Sources close to STRAVA say that the sporting social network company is looking to raise $150-$400m and is seeking to raise those funds from new, private investors which would then value the company at $1 billion, significantly more than one company’s estimate of its worth at $350m

Key STRAVA Stats, Facts & Guesses

1. Privately owned and relatively secretive about its key financial performance stats
2. Investors include: Sequoia Capital, Go4it, Madrone Capital Partners and Jackson Square Ventures
3. STRAVA has already had 6 rounds of funding (Source) but so far only raising $41.9m according to the same source.
4. Bloomberg quotes significant recent growth in the number of STRAVA users and now claims STRAVA has 68 million accounts, up from 50 million in February 2020
5. It’s not known how many users are paying subscribers. A sensible guess would be that subscribers number significantly LESS than 10% of the total accounts, although STRAVA’s recent strong push towards getting users to convert to subscribers MAY have paid off better than many think. Normally the vocal STRAVA users are the ones unhappy about paying and not those who have just forked out the £47.99 annual membership.
6. In 2019 some estimates put STRAVA as growing by about 1 million new users a month. If the above stat is correct, then CV-19 and the associated boom in cycling has caused this rate to significantly increase.

Sources: Bloomberg, Catalano and others, as listed

Key Hurdles, Opinion

A price tag of $1bn puts STRAVA beyond the financial reaches of many sports-related companies, especially in the current CV-19 climate. Garmin could afford to buy STRAVA for cash even at that price. I just don’t think they have any incentive for that other than to prevent it from falling into competitor-friendly hands. So then you really have to question WHAT ON EARTH is the exit strategy? Other than a flotation, it’s not obvious.

There could be an exotic buyer like Facebook, Nike, Google or Apple but I just don’t see that happening either. That leaves the most obvious route of a formal IPO/flotation. This would certainly open up STRAVA’s books for detailed scrutiny and even though the Bloomberg source (below) says that STRAVA is currently profitable, I strongly doubt they are making that much money if it’s true they are profitable now. Indeed some commentators were on record questioning if STRAVA would even last the year out.

A subscription model has value for STAVA and, to a degree, will work. However, it’s very unlikely to deliver a revenue stream which alone would justify a $1bn price tag. That’s GOT to come primarily from ads if STRAVA remains in a similar form as at present. Regarding STRAVA’s lack of ads so far, the original founders, Gainey and Horvath, are on the record as saying they don’t see advertising fitting into the business model. In my opinion that is their hidden exit strategy. At some point, they have to be bought out and voluntarily leave and they will give the reason that “they don’t agree with the future ‘ads’ direction of the company” and so have to go.

Yet, even STRAVA’s current subscription strategy is tactically flawed. They are essentially putting ALL meaningful functionality behind a paywall. Fine. That will encourage some to subscribe. BUT it will cause a great many others to simply pack up shop and leave and take their data with them. And that’s STRAVA’s other problem, they need a) Plain old users for that elusive future ad strategy, and b) User data, to make many of STRAVA’s features meaningful like segments, leaderboards and heatmaps.

So there we have it.

1. Owners bought out and leave, possibly as soon as the next round of funding
2. New investors change strategy to retain a ‘sensible’ free-STRAVA, introduce ads and bolster the subscription service features.
3. STRAVA becomes an ad company-cum-social media platform mixed with a bit of cycling data.
4. An IPO in a couple of years time. Digital Ad companies trade at decent multiples. An IPO on that sort of company would sell out.
5. Longer-term they are subsumed into one of the other ad companies.

Something like that…

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