CafePress Q2 Results: Total Revenue Declines 19% Despite Retail Partner Channel Growth

CafePress has had it rough lately. In 2017 and the first quarter of 2018, the company reported massive revenue declines, mostly due to search-engine algorithm changes that dropped the online merchandise seller off the first page of Google results for many custom products related searches. CafePress responded with layoffs and personnel changes, and announced it would expand its Retail Partner Channel, adding an eBay marketplace to go with its successful Amazon and Walmart.com operations.

On Wednesday, CafePress released its second-quarter financials, giving us our first look at how those moves translated to the balance sheet. The results were mixed.

First, the good. CafePress reported $5 million in Retail Partner Channel revenue for Q2 2018, a 22 percent increase over the same time period for 2017. Retail Partner Channel orders also increased, from 196,000 to 239,000 for the reporting period. Overall, the channel accounted for 34 percent of the company's total second-quarter revenue, and CafePress indicated it will keep investing in and expanding the program.

"Growth in the Retail Partner Channel continued within the quarter as we benefited from both domestic and international expansion and the catalog build-out of Walmart.com and eBay," Fred Durham, CafePress CEO, said in the earnings release. "We anticipate continued growth in retail partner channels as we build out existing channels and integrate new marketplaces."

That growth, however, was more than offset by the company's continued struggles in its core operations. CafePress.com, still recovering from search algorithm issues, generated $9.4 million in second-quarter revenue, down 32 percent from last year's $13.7 million in the same quarter. Total orders dropped by more than 35 percent, from 371,000 to 235,000. Overall, with Retail Partner Channel sales included, the company's total year-over-year second-quarter revenue dropped 19 percent, from $17.8 million in Q2 2017 to $14.4 million this quarter.

The numbers don't look great, but CafePress cited "significant strides" in modernizing and updating its e-commerce website for improved search rankings, and noted a "slow, sequential rebound in traffic." Durham, meanwhile, pointed to several other positive trends.

"The actions we took in the first quarter to drive business performance and return to profitability are positively impacting results," he said in the release. "During the second quarter, we experienced higher gross margins, a reduction in net loss and positive Adjusted EBITDA. ... We continue to believe the new, modern website will ultimately result in improved search engine optimization and the return of revenue lost from lower traffic."

CafePress seems optimistic about a turnaround. And it appears the company is making the right moves to address its search engine problems. But will it be enough?

As the company has struggled, its competitors have flourished. Amazon has steadily expanded its on-demand custom merchandise business. Custom Ink, already dominating search rankings, announced seven new brick-and-mortar locations, complete with same-day capabilities. Teespring revealed platform integration with YouTube, the world's second most-visited website.

The longer it takes CafePress to right the ship, the harder it will be for the company to catch its surging competition. We'll see next quarter if it's on the right track.