Is Gilt Really Worth $1 Billion?

The Wall Street Journal isn't so sure

A group of VCs recently invested $138 million in Gilt Groupe, giving the company a valuation of $1 billion despite the fact that the site hasn’t made a profit since its launch in 2007. As companies like Skype and Groupon also pull in huge valuations, The Wall Street Journal says that Gilt has become a “litmus test for the dot-com boom: Is this company really worth $1 billion?

One analyst doesn’t think so. “I'm a bit of a doubter,” Andrew Jassin, co-founder of Jassin Consulting Group, which works with brands that sell to Gilt, told the WSJ. He worries that as luxury sales rebound with the recovering economy, there won't be enough goods left over for Gilt’s sample sales, and Gilt's value won't hold up without sufficient merchandise. In addition, Gilt is has also been facing intense competition from copycat sites.

Gilt chief executive Kevin Ryan said that the valuation is justified by Gilt’s ability to sell full-price and nonfashion merchandise. About half of the goods sold by Gilt are first-run items, Ryan said, and about a quarter of revenue from Gilt’s travel site Jetsetter comes from full-price purchases. Gilt also has plans for expansion, including the addition of a full-price men’s site later this year, and is considering other full-price divisions.

Nick Beim of Matrix Partners, a VC firm that invested in Gilt in an earlier round, said that the valuation reflected strong interest in the deal and Gilt’s position as a market leader. “The high end of e-commerce remains very open,” he said. “That is the space that Gilt is seeking to fill.”