Business Overview and Company History Cricut, Inc. (NASDAQ:CRCT) is a leading designer and marketer of a creativity platform that empowers users to turn ideas into professional-looking handmade goods. The company's connected machines, accessories, and materials enable users to create a wide range of personalized projects, from greeting cards and home decor to apparel and more. With a focus on innovation and user experience, Cricut has established itself as a dominant player in the rapidly growing craft, DIY, and home decor markets.
Cricut's journey began in 2007 with the launch of its first connected machine, the Cricut Personal, which allowed users to create everything from personalized birthday cards to large-scale interior decorations. Over the years, the company has expanded its product portfolio, introducing new machine models such as the Cricut Explore, Cricut Maker, and Cricut Venture to cater to a wider range of user needs.
A significant milestone in Cricut's history was the development of its cloud-based design platform, Design Space. This platform enables users to access and work on their projects anywhere, across desktops or mobile devices, providing a vast library of images, fonts, and projects, as well as tools for creating and sharing designs. To further enhance the platform's capabilities, Cricut introduced subscription offerings, Cricut Access and Cricut Access Premium, giving users access to a wider selection of content and exclusive features.
In the early years, Cricut faced the challenge of educating consumers about the potential of its creativity platform and building brand awareness. As the company expanded internationally, it navigated the complexities of adapting its offerings to different markets and cultures. Despite these challenges, Cricut has remained focused on its mission of helping people lead creative lives, with its ability to innovate, adapt, and connect with its user base being instrumental in its success.
Financial Performance and Metrics Cricut has demonstrated a strong financial track record, with a history of profitability and cash flow generation. In the fiscal year 2023, the company reported revenue of $765.15 million, a 13.7% decrease compared to the previous year, with net income of $53.64 million. The company's operating cash flow for the same period was $288.10 million, while free cash flow stood at $264.38 million.
For the third quarter of 2024, Cricut reported revenue of $167.89 million, down 4% year-over-year, with net income of $11.49 million. Operating cash flow for the quarter was $70.00 million, and free cash flow was $65.76 million. The decline in revenue was primarily driven by a 7% decrease in Products revenue, which includes connected machines and accessories/materials. This was partially offset by a slight increase in Platform revenue, which includes subscriptions and digital content.
As of the latest reporting period, Cricut had a cash, cash equivalents, and marketable securities balance of $246.94 million, with a debt-to-equity ratio of 0.009656688438873897. The company also has access to a $300 million revolving credit facility, with an option to increase by an additional $150 million. Cricut's current ratio stands at 3.156, and its quick ratio is 2.179, indicating a strong liquidity position.
Cricut's key performance metrics include the number of active users and paid subscribers. As of the third quarter of 2024, the company had just under 5.9 million active users, a decline of less than 1% year-over-year, and over 2.8 million paid subscribers, representing a 5% increase compared to the same period in the prior year.
Segment Performance and Revenue Diversification Cricut operates in two reportable segments: Platform and Products. The Platform segment, which includes the company's subscription offerings and digital content sales, accounted for 46.3% of total revenue in the third quarter of 2024. The Products segment, which comprises sales of connected machines and related accessories and materials, contributed the remaining 53.7% of revenue.
In the third quarter of 2024, Platform revenue grew slightly year-over-year, driven by an increase in paid subscribers. Platform revenue increased by $0.2 million, or 0.2%, to $77.7 million for the three months ended September 30, 2024, compared to the same period in 2023. For the nine months ended September 30, 2024, Platform revenue increased by $2.5 million, or 1.1%, to $233.6 million compared to the same period in 2023.
Platform gross margin was 87% for the three months ended September 30, 2024, compared to 89% for the same period in 2023. For the nine months ended September 30, 2024, Platform gross margin was 88% compared to 90% in the prior year period. The decrease in gross margin was primarily driven by increases in hosting fees, external digital content costs, and software development expenses.
Products revenue declined by 7% during the same period, primarily due to the company's decision to be more promotional in anticipation of the holiday season. Products revenue decreased by $7.2 million, or 7.4%, to $90.2 million for the three months ended September 30, 2024, compared to the same period in 2023. For the nine months ended September 30, 2024, Products revenue decreased by $33.2 million, or 11.0%, to $269.6 million compared to the same period in 2023.
Products gross margin was 11% for the three months ended September 30, 2024, compared to 13% for the same period in 2023. For the nine months ended September 30, 2024, Products gross margin was 20% compared to 13% in the prior year period. The increase in gross margin was primarily driven by a reduction in inventory impairment charges compared to the prior year, partially offset by increased promotional activity.
Cricut's revenue diversification efforts have been a key focus, as the company aims to reduce its reliance on physical product sales and drive higher-margin recurring revenue from its Platform segment. The growing contribution of the Platform segment, which offers higher gross margins compared to the Products segment, has been a strategic priority for the company.
Navigating Market Challenges and Evolving Consumer Trends The craft, DIY, and home decor markets in which Cricut operates have faced various challenges in recent years, including the normalization of pandemic-driven demand, macroeconomic uncertainty, and increased competition. Cricut has proactively addressed these challenges through strategic initiatives, including investments in marketing, product innovation, and user engagement.
One of the company's key focuses has been on improving user engagement and retention, particularly among its new user cohorts. Cricut has implemented various initiatives to simplify the onboarding process, enhance the in-app experience, and provide more personalized content and support to its users. These efforts have yielded some positive results, with the company reporting improvements in leading engagement metrics, such as the percentage of new users successfully connecting their machines within the first five minutes and the number of projects created by onboarding users in their first few days.
Additionally, Cricut has been leveraging its strong brand reputation and product innovation capabilities to maintain its competitive edge. The company has introduced new connected machine models, expanded its materials and accessories offerings, and continued to enhance its digital platform with improved search, content discovery, and design tools.
Cricut has also been proactive in managing its supply chain and channel inventory, working closely with its retail partners to ensure a healthy inventory position heading into the important holiday season. While some pockets of channel inventory remain a focus, the company has made significant progress in this area compared to the prior year.
Outlook and Future Prospects Looking ahead, Cricut remains cautiously optimistic about its future prospects, even as it navigates the evolving market dynamics. The company expects sales to decline for the full year 2024, driven by continued pressure on its Products segment. However, Cricut anticipates a slight increase in Platform revenue and continued growth in its paid subscriber base.
For the full year 2024, Cricut expects sales to decline, with continued sales pressure on their product segment and total company revenue likely down year-over-year in Q4. However, they anticipate paid subscribers to grow compared to Q4 2023 and Platform revenue to be up slightly. The company plans to continue its increased spend on sales and marketing given the year-to-date performance and expects some incremental improvement in operating margins for the full year.
To drive long-term growth, Cricut is committed to investing in its key strategic priorities, including user engagement, product innovation, and market expansion. The company believes that its focus on providing a seamless and inspiring user experience, coupled with its diversified revenue streams and strong financial position, will enable it to navigate the current challenges and capitalize on future opportunities in the creative technology market.
Cricut's long-term financial model remains unchanged, with operating margin targets of 15% to 19% when operating at scale, which the company defines as revenue above $1 billion with top-line growth.
Geographic Performance Cricut operates primarily in North America, with international sales representing 23% of total revenue in Q3 2024, up from 21% in the prior year quarter. International revenue grew 2% year-over-year, indicating the company's expanding global presence and the potential for further growth in international markets.
Industry Trends The craft and DIY market has seen a compound annual growth rate (CAGR) of approximately 5-7% over the past 5 years. This growth has been driven by increased consumer interest in personalized projects and the growing popularity of connected crafting devices like Cricut's machines. As a leader in this space, Cricut is well-positioned to capitalize on these industry trends and continue to innovate its product offerings to meet evolving consumer demands.
Conclusion Cricut, Inc. has established itself as a leading player in the creative technology industry, leveraging its innovative product portfolio, robust digital platform, and strong brand loyalty to serve a growing community of makers and DIY enthusiasts. Despite facing various market challenges, the company has demonstrated resilience and a commitment to driving long-term growth through strategic initiatives and a focus on evolving consumer trends. With a solid financial foundation, a clear vision for the future, and a strategy to capitalize on the growing craft and DIY market, Cricut is well-positioned to continue its trajectory as a dominant force in the craft, DIY, and home decor markets.