I’m not a big fan of the freight brokerage startups Flexport, Transfix, etc. It’s a seductive space, because top line revenue can grow quickly, but the bottom line can be very challenging. At Shipwire, I would describe logistics as getting stuff into a warehouse, storing it inside the warehouse, and then shipping it onto a customer. And Shipwire only dealt with the latter two. Getting stuff into a warehouse was left to freight brokers.
Over time we grew to like FreightQuote as a partner. I watched CEO Tim Barton build FreightQuote slowly but surely, from its founding in 1999, to its sale to CH Robinson in 2015. Here’s a quote from CH Robinson’s acquisition announcement:
Freightquote’s calendar 2014 gross revenues are projected to be approximately $623 million, net revenues are projected to be approximately $124 million and adjusted EBITDA is projected to be approximately $34 million.
So CH Robinson bought FreightQuote for $365 million in cash. Or 0.6x gross revenues, 3x net revenues, and 11x EBITDA.
For perspective, Shopify announced the acquisition of 6Rivers warehouse robots in September 2019 for $450M, which they expect to achieve $30M revenue in 2020. That’s 15x revenue, for a company that is 4 years old with no EBITDA. Not a fair comparison, but it goes to show that Tim stuck it out for 16 years, investing his own money alongside venture money, and as an exceptional entrepreneur he made it work.
Compare that to Transfix who has raised almost $80M, and Flexport who raised almost $300M, and recently topped it off with an additional $1B from Softbank. If they weren’t raising so much money, how different would they look from FreightQuote?
And by raising that much money, how different are they from WeWork?
I’m reminded of the financial ratio Raise On Revenue, which highlights how much a company pays for each dollar of revenue. If the Owler estimate of revenue is correct, then Flexport is running at $225M in revenue. Ignoring the new Softbank money, that means they’ve paid more than a dollar for every dollar of revenue.
Shopify has shown this to be a viable way to grow a business. So the model can work. However absent this obscene level of investment, freight is a tough slog. Time will tell whether Flexport grows into a Shopify or a WeWork. I’m rooting for Flexport from the sidelines, but am more excited by higher bottom line businesses.
Do you see an opportunity to build a more profitable freight brokerage platform outside the US?