Optimist Fund 的 Jordan McNamee 谈 thredUP 的价值主张 $TDUP

Hello and welcome to the Yet Another Value Podcast. I’m your host, Andrew Walker. With me today, I’m happy to have Jordan McNamee from the Optimus Fund on for the first time. Jordan, how’s it going?

Good, good. I’m happy to be on. I’m a big fan of watching the show, so it’s fun to be on it.

We’re super excited to have you on. You reached out, I read your letters, and as soon as I read them, I knew we were going to have an interesting conversation.

We’re going to talk about a specific stock. The company is thredUP, ticker TDUP, and it’s a roughly $250 million market-cap company. I’m giving the extra disclaimer because this is on the smaller, less-liquid side, so keep the additional risks in mind.

Jordan, I’ll toss it over to you. What is thredUP, and why are they so interesting?

thredUP is a marketplace for used clothing, specifically for women. This is an industry I’ve been interested in since around 2019. I was interested in seeing what Poshmark was doing and how a lot of people started to wear used clothing as a fashion statement.

Used clothing is not a new industry. In Canada, we have Value Village, and in the United States you have Savers, which I believe is basically the Value Village of the U.S. You also have Goodwill and all the others. Used clothing has been around for a long time. Value Village and Savers are owned by the same company.

The used-clothing industry has always been interesting to me because, when you look at a company like Savers, people are literally donating clothing and then the company is selling it, so it has effectively no cost of sales. You also look at the fact that it’s not only very low-income people who are buying used clothing anymore.

My sister-in-law, who at the time was around 14, wanted to do nothing but buy used clothing. She would go into Goodwill, and as a teenager, everyone was doing it and was proud of it. That was foreign to me, but it was interesting. I started looking into the space more, and then in 2021 a bunch of these companies went public. Poshmark went public, thredUP went public, and so on.

The interesting thing about thredUP is that there are a lot of different companies where you can buy and sell used items, including used clothing. Typically, they’re just marketplace businesses. Sellers post items online, buyers look for particular items, and the marketplace charges some sort of commission without doing much operationally. It’s a typical Etsy-type marketplace with good commission rates, good margins, and not much capital expenditure.

thredUP was very different. Its business model is quite unique because it has single-SKU logistics. The company has facilities where it takes people’s clothing. You order a bag, the bag gets sent to your house, you fill it with the stuff you don’t want anymore and think you could get some value for, and then you send it to thredUP.

thredUP receives the bag at its distribution center, opens it up, determines what’s garbage and what’s sellable, puts the sellable items on a mannequin, takes a bunch of pictures, and gathers enough information to list them on the website. Then it puts the items on a huge conveyor belt.

That’s what’s so unique about it. Its logistics centers operate on a single-SKU basis. If I sold this shirt—not that I would, because thredUP only sells women’s clothing—there would be only one of it. There wouldn’t be 10 of the same item, because this particular one might have a stain on the shoulder, a cut somewhere, or something else.

It’s very different from traditional e-commerce. No one had built the logistics infrastructure to do what thredUP does, so the business was operationally very hard. The company had to find a way to make money while handling inbound freight, processing, storage, marketing to bring people to the website, outbound freight, and the sale of $40 shirts. It was extremely difficult.

When thredUP went public, it was losing a ton of money. It was a typical 2021 IPO story: grow rapidly, lose money, and invest for the next 20 years to build an incredible company that would save the world because fast fashion is horrible for the environment.

Everyone was going to send the clothes they were no longer using to thredUP, and eventually it was going to become a huge business. Then 2022 happened. The stock got crushed because every company similar to thredUP was completely abandoned, and the business was still burning cash. It wasn’t self-sufficient yet.

The stock went down so much that the equity mattered. When you’re burning cash, you need to move into a mode where you prove that the business model actually works at its existing scale, rather than funding some long-term dream that could work if the company were 20 times larger.

From 2022 through the beginning of 2024, thredUP went on a hardcore efficiency kick. It dramatically improved all of its core profit metrics, got the U.S. business to positive adjusted EBITDA, and brought the international business close to that point.

The goal was to show that if the company filled up its existing fulfillment centers, which were dramatically underutilized, and didn’t reinvest heavily, it could start generating cash. It wanted to show that it had built a differentiated managed marketplace with a competitive moat because of all the logistics infrastructure it had developed.

In early 2024, the stock was around $2. It had gone from $27 to $2 between 2021 and early 2024. The company finally said, “We’re going to generate positive free cash flow in 2024, and we’re going to generate around $10 million of adjusted EBITDA.”

That was the inflection point. It was the moment when the economics of the business were finally starting to make sense, and we could think about the company over a longer period of time.

Then it had 6 months where it honestly kicked itself in the face.

The company had guided to positive free cash flow and adjusted EBITDA, and then a quarter later announced that it had to sell its European division because it was dramatically underperforming. The macro environment for the low-end consumer had deteriorated further, which created downside to its estimates.

On top of that, in early 2024 the company changed its new-customer marketing strategy. Instead of giving first-time buyers 50% off, it tried offering them $20 off. It was experimenting with that strategy, and the results were very poor. That created a hole in revenue.

The company went from saying, “We’ve worked really hard for the last 2½ years to show you there’s significant operating leverage in this business,” to saying, one quarter later, “Everything we said is still true, but we’re dropping our estimates materially, looking to divest Europe because it will take much more capital to get it to a healthy position, we screwed up our marketing, and the macro environment is worse.”

The stock was absolutely annihilated, as you’d imagine. It had already gone from $27 to $2 between 2021 and early 2024, then appeared to be turning around, and then the company came out with what looked like the worst results ever. The stock went from around $2 to roughly $0.53.

I had literally just bought it as a 2% position. Generally, my largest positions are around 20% of the fund—Carvana is an example—and my smallest positions are around 1.5% to 2%. I had followed thredUP for roughly 3 years since it went public and thought, “It’s evident that this business has attractive operating leverage, and it’s finally getting to the inflection point.”

Then, literally in the first quarter, all this bad news came out. I thought, “What in God’s name is going on here? Did I just step on a landmine?” I’m laughing because I’ve had more than my fair share of that.

I reached out to the company and dug into each piece. There were 3 core elements that were screw-ups. Europe had always been a drag since the company bought the European division in 2021, which in hindsight was a horrible mistake.

In late 2023, the U.S. business was growing the fastest, had positive adjusted EBITDA, and was performing best on every metric. Europe still needed to improve, but even in the original guidance it was expected to be close to self-funding by the end of 2024.

The company then said, “It doesn’t make sense for us to keep trying to improve this business because it will take more capital to get it to the same level as the U.S. business.” Although that was disappointing, it made sense. I think it was the right decision because the company needs to prove out the U.S. business and its economics.

Once it does that, not only will people realize the business should be worth a lot more, but it will also have an enormous market in the U.S. The company could be huge just in the United States.

Let me pause you there. Europe is a thrift market, so there’s no real economy of scale, aside from the potential technology economy of scale. Carvana, which you mentioned as your largest position, is focused on the U.S. If it went to the U.K., it would have basically no advantages.

Let’s talk about a few things. When I look at this business, the first thing that jumped out at me was that there’s Goodwill, there are local thrift stores, and I live in New York City, where there are also higher-end thrift stores.

I can see how it might be better to ship these items online rather than go to a store. But thredUP is competing against local thrift stores in all varieties. You mentioned some of the other competitors, including Poshmark.

Why is this business going to be good in the long term? People who are buying thrift clothing often like going into a store, touching the items, and seeing whether a stain is too large or whether the item fits. Why is thredUP going to be a good business?

There are actually several similarities between thredUP and Carvana because they both sell used items. But you bring up a good point: there’s a lot of competition. At the end of the day, thredUP is a supply-driven business. If you’re only getting horrible clothing, you’re not going to have a good marketplace.

You need access to good supply, and the competition for supply is less about one website or store versus another. It’s more about stimulating someone to clean out their closet and actually do it.

From thredUP’s perspective, the fact that you can just fill a bag and send it to the company is very convenient for people. A lot of people are interested in doing that. The market is so enormous that thredUP is doing around $460 million of GMV in the U.S. this year. That’s tiny. It’s a tiny niche business relative to the scale of the industry and retail more broadly.

My view is not that thredUP is the Carvana of used clothing, where it makes sense for everyone to use the platform. My view is that the company has built a model that’s convenient for a lot of people. It has many customers who use the product and buy things from the platform, as well as many customers who sell things through the platform because of the ease of use and the value proposition.

What the company does today is an economically attractive business, and it’s not priced as such right now. I view it as a differentiated, highly profitable niche marketplace.

The other thing that jumps out at me is why someone chooses thredUP. The model, as I understand it, is that you go online and order a bag. thredUP recently started charging $2.99 per bag. You fill it with your used clothes and ship it back to the company.

It’s basically consignment. If thredUP decides to trash something, you can get it back if you want it. I think more than 50% of the items are discarded, and if you want those items returned, you have to pay a fee. The rest are sold, and you get the proceeds less thredUP’s commission.

Why does someone choose thredUP instead of going to a local Goodwill or thrift store, or selling the items on eBay?

It’s much easier to deal with thredUP. You mentioned eBay, Poshmark, Facebook Marketplace, and other platforms. A lot of the people selling used clothing on those platforms are actually thrift sellers. They go to Goodwill, Value Village, or Savers and say, “I found a Patagonia sweater for $5 that I can sell online for $40.”

They’re trying to find cheap supply that they can flip, and those Poshmark, Facebook Marketplace, or Instagram sellers would never sell on thredUP. What they’re doing is sourcing cheap goods and selling them on secondhand marketplaces for much higher prices.

thredUP is focused on the customer who brings something to Value Village, gives something away, or gives something to a thrift store or a consignment store. The take rates are generally very small, so you don’t get much money. You’re cleaning out your closet and either getting rid of the clothing for no money or getting a small amount of money.

To do that, you have to decide, “I’m going to fill up a bag or a bin, throw it in my car, drive there, go into the store, and then have the items processed.” Some places give you cash up front at a very low price, while others do consignment.

Regardless, it’s much more work. With thredUP, you stuff the bag, send it to the company, and it handles everything else. The comparison is that if you had a neighbor who ran a Poshmark store and sold used clothing, you probably wouldn’t use thredUP. You’d give your stuff to your neighbor, who would sell it on Instagram, and they might just drop the money off in your mailbox.

Not every neighbor does that, though. That’s why thredUP exists. It’s trying to unlock supply that isn’t moving because the dollar values are so low that it makes no economic sense for anyone to sell these items individually.

That’s the key. I’ve looked at several businesses before where the dollar value is very low, and the goal is to unlock that supply. If you can monetize the nickels and dimes in people’s couches, it creates a huge potential market.

They also have an interesting point where they say, “We all love lululemon. It has around 900 SKUs, whereas we have 4.5 million SKUs,” because every SKU is individualized.

My question is that it’s hard for me to look at this and see how they can achieve long-term adjusted EBITDA margins of 20% or more. Capex is pretty minimal right now because they’ve built out their distribution centers, though there is some stock compensation that we can talk about.

They’re selling the shirt off your back—or your wife’s back—for $20. Is there really enough here to build a profitable business with the data scientists and technicians you need?

That’s why it’s exciting right now. We’re seeing the incremental margins that the company has been producing. The operating leverage is really coming through.

We’re still talking about the business model, so I don’t want to get too deep into the specifics yet, but recently we’ve seen some very attractive incremental margins that prove out the leverage in the operating model.

Their average order values, at least when they went public, were around $70. With inflation and the company moving somewhat upmarket, order values are now below $100. The average item is around $20, and there are roughly 4 items purchased per order.

You’re dealing with small numbers, but a lot of companies deal with small numbers. What does DoorDash make—$2 per order or something like that? At the end of the day, the question is whether you can sell $70 worth of used items while the consignor, the employees processing the items, the company, and the shareholders all make money.

I think the answer is yes. That’s what we’re seeing now.

Well, it’s an interesting comp. I do hear you on that, but DoorDash, since you mentioned it, does make a small amount. DoorDash relies on you using it a lot. I’ve had times in my life where I was using DoorDash for 10 meals a week or something. There are lots of restaurants, and the distribution cost is the restaurant 10 blocks down—or 2 miles down the road—delivering it. With thredUP, you’re going to use it less often. I don’t know if you have a big closet; maybe people are using it more than me to sell. How often do people buy clothes?

I wouldn’t compare frequency necessarily. In the DoorDash example, to me it’s more like: what are the economics of being able to deliver $20 worth of food to someone while everyone still makes money and it’s a decent price? I wouldn’t say that ordering DoorDash once a week versus once a month necessarily changes that. It obviously helps the scale of the business with fixed-cost overhead, but in terms of thredUP, whether it makes sense on a per-order basis is more important than getting scale on overhead expenses. That still matters, obviously.

That’s what I was driving toward. With DoorDash, there’s obviously overhead, but the food only needs to travel 2 miles down the road. The person needs to get it on a bike and go from point A to point B, which doesn’t cost much.

Have you ever delivered for DoorDash?

I haven’t. Have you?

I own DoorDash, so I have. I’ve done it as part of due diligence, and it makes you realize that this is harder than it looks in a spreadsheet.

Before I had delivered for a food-delivery company, you could run the math and say, “If they deliver 5 packages an hour, this is going to mint money.” Then you do it and realize that 5 deliveries per hour is impossible unless you’re stacking orders from the same place.

The friction of waiting around, getting an order from one restaurant, and then driving to someone’s house is significant. If you don’t have 5 other orders on the same street, everything is point-to-point.

Anyway, we’re digressing. The core economics are that inbound processing and freight are the key cost drivers. The company also needs demand. As you know from looking at other marketplaces, building demand costs marketing expense.

thredUP has raised almost $600 million, and it has a $250 million market cap. It has raised a lot of capital. Again, I’m not saying this business is going to change the world, but it has a clear value proposition in a growing market that is differentiated and is becoming materially better financially than it was.

Speaking of growth, you mentioned the growth issues and the marketing issues at the start of the year. In the fourth quarter, active buyers reached 1.3 million, a decline of 6% year over year. Order growth was 2% year over year.

I was surprised by that. This feels like the type of business that should benefit from a weaker macro environment. A 6% year-over-year decline in active buyers is no joke, so how do you square that with the growth potential you see?

The company had around 990,000 buyers during the period affected by the marketing screw-up, so that created a headwind of roughly 7%.

Beneath the surface, the GMV actually grew between 7% and 9% last year. The business did a lot better than the headline numbers suggest because of the marketing screw-up.

If you look at retail categories, 7% GMV growth is actually incredible relative to most retailers. The customer base is also middle-market or very low-end, so if you look at companies like Five Below or other dollar-store companies, those customers have been absolutely decimated.

You would think that if things were tougher, thredUP would accelerate through that period, but the same thing happened to the dollar stores. The key reason is that the economic sensitivity in the last 2 years has been very different from previous recessions.

In previous recessions, people who don’t make a lot of money sometimes did better on balance because of price deflation. You didn’t see a huge step-up in unemployment, and there was more discounting, so prices went down and everyone else became a little richer.

In this environment, prices went up roughly 30% over a multiyear period. People earning minimum wage were absolutely decimated.

How much do you think that was affected by Shein—by the de minimis provision and the people drop-shipping from China? How much do you think that impacted the dollar stores as well?

I don’t know. I don’t think it was massively material, but it obviously had some impact. It has to have had some impact.

If you were going to buy a used lululemon long-sleeve shirt, would you instead buy something from Shein? I’m sure there are cases where you would. I’m not saying there’s no chance it had any impact; it certainly had some impact. I just don’t think that was the predominant impact.

The predominant impact was that the customer base was decimated, and apparel hasn’t been a good place to be in general. The company still grew GMV by 7%, so it actually did quite well from a customer-demand perspective.

The screw-up was more self-inflicted than it was a macro issue. I do think we could start seeing some macro tailwinds because the low-income consumer seems to be doing much better than before. It seems to have bottomed in July.

Let me ask you the question that was on the back of my mind as I looked at this. This is the type of story I like: a broken marketplace trading for less than invested capital, with interesting distribution centers.

You can see the moat here. But thredUP reminds me of Stitch Fix. The Stitch Fix pitch was that it created a unique distribution model for clothing brands, sold items at full price, and had incredible data about its customers.

Stitch Fix had all these different models that went terribly wrong. It is a different business—Stitch Fix sold full-price branded clothing, while this is secondhand discount clothing—but I see some similarities.

Stitch Fix said, “For Jordan, your arms are a little bigger than the average guy, so these are the shirts that fit you nicely. We have that data advantage.” thredUP also talks about having a lot of data advantages, with all the photos and information it has.

I see the similarities with marketplaces that people got excited about and that flamed out. People were excited about thredUP, too, and it flamed out. If this were a $20 stock, it would be a different story than it is at this price.

We wouldn’t be talking about it if it were a $20 stock.

You’re bringing up scar tissue from different business models that addressed clothing in some manner. The Stitch Fix story is definitely scar tissue, much of which came from 2022. Those guys really did sell people a dream. They sold the model to people who don’t buy clothing, even though most clothing revenue comes from women who love to shop.

I spent a lot of time on Stitch Fix. In hindsight, I asked her, “Have you ever used it? Do you like it?” She said, “Yes, I used it. It’s not great. It’s not for me.” In hindsight, I could have canceled all the due diligence right then.

thredUP is completely different from Stitch Fix. Stitch Fix created a unique market and was the company doing that type of shopping. Buying used clothing is not a new market, and thredUP is actually a very small player in it. Poshmark’s GMV is multiple times larger than thredUP’s. There’s also Depop, Facebook Marketplace, and Instagram.

There are many people buying used clothing. You’re not saying thredUP is going to be successful because a change in user activity is going to make women think about buying clothing differently. You’re saying used clothing is increasingly a growth area. More and more people are buying used clothing, and it’s a very large market.

It’s important to get supply, and you need differentiated ways of obtaining that supply. thredUP has that because it can economically get people to send in their items and handle absolutely everything, so the customer does nothing.

That’s the key element on the consumer side. On the resale side, thredUP has relationships with brands. More brands want opportunities where, if you bring a piece of clothing into their store, they can take it and potentially give you some value for it.

thredUP can provide that value to the brand. Around 25% of thredUP’s supply comes through these brand partnerships, and that’s only possible because of the logistics and operational platform the company has built.

The thing that intrigues me most is not whether people will want to shop this way. Buying used clothing is not the question. The question is whether the business model makes sense.

Can what the company has built generate decent margins so that the employees, the people consigning the clothing, the customers, and the shareholders can all get something worthwhile? That is the question, and I think the incremental results we’ve seen prove that it can.

Now the company just needs to keep doing it. If it does for a couple of years, it will become obvious to everyone that the model works.

It’s similar to Carvana. When Carvana’s unit economics spiked 2 years ago, it was clear that the unit economics were amazing, but the company still had a massive fixed-cost base. It needed to keep doing that for 2 years so that everyone would realize the business model was attractive.

I think the same thing is happening with thredUP right now.

Let me ask you a question on that. They reported fourth-quarter results, and it sounds like you think the inflection is here.

One thing I’ve been thinking about is that the place where I’ve lost the most money is when I have a thesis, the thesis breaks, and the stock is cheaper. I think, “It was at 12 times, and I thought it was accelerating, but now it’s at 8 times, so I have a margin of safety.”

If I said, “Jordan, the business doesn’t grow in 2025,” would that break your thesis? What would break the thesis for you?

It depends on how you define the thesis. The thesis that this is a business that can make money would require a significant deterioration in its current unit economics to break.

If the business didn’t grow, that would obviously be a problem for why I think it will be a very good stock. We’re at an inflection point, and over the next year it could almost be like a new IPO because no one knows the company.

Whenever I pitch Carvana or DoorDash, everyone knows those companies. When I pitch thredUP, not a single person ever talks about it. Why would they? It was a disastrous IPO, and then, if you pull up the historical results on Bloomberg, there isn’t much to like.

If I told you this business could grow 10% or more for the foreseeable future, generate incremental adjusted EBITDA margins above 25%, operate at flat capex, and participate in a secular-growth market, I think you could run the math and conclude that it could make a decent amount of money.

The recent results give us evidence that this makes sense. It could become a multibillion-dollar company. I can run a scenario where it generates $100 million of free cash flow in the 2029–2030 time frame, and it wouldn’t be a marketplace business that could easily be copied. It would be differentiated because of its logistics.

Amazon isn’t going to do this. It makes no economic sense for Amazon to do it. If thredUP keeps doing what it’s doing, it could be a much more valuable company.

It’s funny because you mentioned Bloomberg. If you pull up the stock year to date, it went from around $1.50 to $2.30. But after it dropped to almost $0.50 last November, you can’t even see that move on a 5-year chart.

I know I would look at it and think, “Damn, it’s a 4-bagger in 6 months. I missed it.” But there are 3 things I’d counter with.

First, you need to look where the puck is going. If the business has achieved sustainability, there’s a lot of upside. Second, if you look at a 5-year chart, this 4-bagger is almost invisible. Third, Carvana is a very polarizing stock. I recently did what I thought was a really interesting podcast about it with Anson Chen.

People pitched Carvana to me at $20, then at $40, and then at $60. Each time I looked at the stock chart and thought, “I don’t know if that’s the type of stock chart I buy.” Now it’s around $180. Just because a stock went from $3 to $20 doesn’t mean it can’t go from $20 to $180 over the next 2 years.

If you get these things right, the fact that the stock has already risen doesn’t mean there isn’t still a huge upside.

It could be a $20 stock in 5 years. That’s very possible.

For that to happen, the company needs to grow revenue 15% to 20% annually for the next 5 years and generate incremental margins in the 25%-plus range. It has been able to do that.

It doesn’t mean it will definitely happen. The company needs to keep doing what it’s doing. But if you look at the current enterprise value, it’s around $230 million, and this year’s revenue is guided to around $270 million.

That’s roughly 1 times revenue for a business that should have 20%-plus free-cash-flow margins at scale. It’s very cheap. There’s very little priced in to suggest that this could actually be a good business.

In 2 years, if the company keeps doing exactly what it’s planning to do this year, people will at least say it’s a half-decent business.

Insider ownership is quite good here, and the company has dual-class stock. But I have a double-barreled question to end on.

Should this be a public company at this point? I’m surprised it hasn’t been taken over. I don’t think there’s a clear strategic buyer, but it’s still surprising.

Then I look at the insider-transaction table. There’s one director who has been selling pretty consistently since November, even with the stock this low. There hasn’t been a ton of insider buying. There was one director who bought a little last year, and there were a couple of directors buying stock in the fall.

I look at that and think, “You have one director selling aggressively at $2 per share, while the CEO hasn’t stepped in for a $2 million purchase.” People get annoyed when I don’t ask about insider buying and selling, and it’s hitting you over the head here, so I thought I’d end with that.

The CEO has everything in this company. This is literally his entire financial life. He owns a lot of stock, as does the other co-founder. Other managers who have been with the business for more than 5 years also own a lot of stock. They got in around $2, and no one has made money. Everyone has seen a lot of their wealth evaporate over the last 3 years.

I spoke to the CEO in the summer and asked why no one was buying internally. The response was, “We don’t know, but everyone is already all-in on this.” I wouldn’t say they expected anyone to buy more.

A quarter later, 2 directors were consistently buying stock. The amounts weren’t huge, but they bought more than $100,000 worth of stock. For a company with a $70 million market cap, that was actually a decent amount relative to the trading volume.

I asked again whether they were surprised this had happened, and they said, “Yes, because no one ever buys stock.” A lot of the companies I get involved with have significant share-based compensation. People get stock every quarter as their compensation vests, so it is unusual for them to put more money back in and buy stock when they’re already receiving more stock every quarter.

That was actually happening at thredUP. The CEO has no lack of alignment. I thought about the same thing: if the economics work and this is going to be an absolute monster of a stock, how are you not throwing in $150,000?

The feedback I’ve gotten has been consistent. If you already own 10% of the company, the incremental purchase is largely irrelevant. Why make an extra $2 million on top of the $200 million you could already make because you own such a large part of the business?

Are you calling Cohen out specifically right now?

Am I calling who?

Cohen.

No, no, I’m not. I know that person is very wealthy and also much older, so it makes more sense why he would have that. That stock seller also has a dividend, so he has capital to redeploy.

The point is that I asked in the summer why no one was buying internally. The response was that everyone was already all-in. Then, one quarter later, 2 directors were consistently buying stock.

The CEO owns 10% of the company. If he buys another $1 million worth of stock and the market cap eventually reaches $2 billion, that purchase adds another $10 million to his wealth. That’s real money, but he’s also the CEO of a $2 billion company. He may be making $5 million per year at that point.

The CEO has everything in this company. He doesn’t have a commercial real-estate portfolio on the side. This is all of his assets. If the company goes belly-up, he’s a founder-level CEO who has worked there for 15 years. I’m sure he could get another job, but this is effectively his entire financial life.

Look, I love insider buying, but I’ve learned that there are a thousand different reasons why insiders may or may not buy. It’s easy for you and me to write a check out of someone else’s checkbook and say, “You should be buying stock.”

For the CEO, he owns 10% of the company and has worked there for 15 years. If the company eventually has a $2 billion market cap, he’s worth $200 million. If he buys another $1 million right now, he might make another $10 million, but he’s also the CEO of that $2 billion company.

So I’ve increasingly realized that insider buying is a great signal, and I love it, but there are a thousand different reasons why insiders may not buy. I heard that 2 directors buying stock in the public market in the fall was the key signal. In hindsight, that was a sign that this was a business worth paying attention to.

You almost never see insider buying in a business with this much stock compensation. When a company is diluting shareholders by paying people in stock, employees are already receiving a lot of stock. If the stock then falls 97% from its highs, people aren’t necessarily thinking, “I need to put more money into this.”

It’s funny because you said you never see insider buying in companies with this much stock compensation, and I’d say that can be part of the problem with Stitch Fix, too.

I actually had a lot more I wanted to talk about, including resale as a service and some other things, but we’re coming up on the hour mark. I don’t want to take up too much time for everyone.

Let me just ask: is there anything you wish we had discussed more, or anything we didn’t talk about that you wanted to mention quickly?

The element of this business that’s most intriguing is that it’s one of one in terms of what it does. It’s not just a smaller version of another company focused on a particular category. What thredUP does is very different.

The core question is not whether people are going to buy used clothing. That’s not the question. Used clothing is already an enormous market.

The question is whether the economics of the business make sense. Its utilization of its current facilities is below 50%, and its contribution margins on incremental items sold are above 40%.

The question is whether the company can go from 40% utilization to 80% utilization of its existing facilities at similar unit economics. If it can, the stock will be much higher than it is today, in my opinion.

My favorite point you made is that Stitch Fix was creating a unique market. I thought that was an interesting idea, and there are several other companies like it. Rent the Runway was another business that I thought could be interesting, although I haven’t looked at it in a long time.

thredUP is different because people have been using thrift stores for thousands of years. This isn’t an unproven market. It’s taking a largely offline market and bringing it online.

It could be that there are reasons people want to touch the clothing in person, but the bet is simply that it’s a better experience online and that the economics work. If you make both of those bets, you have a really interesting opportunity.

That’s right. At the current stock price, it’s not a claim that this will be the best business in the world, change the world, or become some sort of sentient artificial-intelligence being.

It’s simply a company that tried to build a business, ran its costs and capacity above what it could support, and is now at a point where it has grown into its capacity and is at least breaking even. It can keep growing into that capacity at very attractive incremental margins.

The main difference between people who like Carvana and people who don’t like thredUP is that thredUP has a lot more stock compensation. I know some people are religious about it and say, “Stock compensation is an expense. Nothing else matters.”

Stock compensation is an expense. It increases the shares outstanding, and that will continue for a while. But thredUP has a nice little niche business that people are going to realize is a good business, rather than the horrible business the current valuation implies.

On the stock compensation, I understand that it’s a real expense. But these people are building an online marketplace. They have to hire engineers, data scientists, and all these other people. Those employees can go to Google, Facebook, or any number of startups and make $300,000 to $500,000 per year.

If you want to hire those people, you have to pay them in some way. Cash plus stock compensation is often the best way, particularly if you can convince them, “Come here, and if this works, the stock could go up 10 times. Even if Google is paying you $400,000, you could create multigenerational wealth here.”

You have to assume the business scales into the dilution, which it seems like you are doing.

Anyway, Jordan, I have your letter and know your 10 largest positions. This has been great. We’re going to have to have you on for a second time. Jordan McNamee from the Optimus Fund, thank you so much for coming on.

Thanks for having me. It was a fun chat.