Lulu Looks to Cash In on Self-Publishing Market

The preliminary prospectus released last week by Lulu.com as it gets ready for an initial public offering later this year provides a look at how fast one of the pioneers in the exploding online self-publishing field is growing. The document provides three years of financial information that shows an increase in sales of 44% between 2007 and 2009 while the number of registered creators has increased 70% in the period. According to the prospectus, the number of creators has increased in every quarter since the company started in the second half of 2003. The number of units sold over the past three years rose 47%, to 2.6 million, with the vast majority of units, 2.3 million, printed books. Lulu sold 236,000 e-books last year, up 39% from 2008, and 97,000 Lulu Studio products.

The company generated the bulk of its revenue through its fees and services (prices for authors range from less than $100 to $16,000 per title) and sales through the Lulu site. Third-party distribution accounted for only $1.8 million of the company's 2009 sales, although Lulu said expanding the number of third-party channels is one of the company's primary focuses. Lulu completed 600,000 transactions in 2009, and the prospectus said that 36,000 creators (about 3% of all creators) had generated revenue through the service “ranging from a few dollars to over $100,000.” Since its inception, Lulu has had more than one million titles available for sale on the site and is adding 20,000 titles per month.

In a bid to reduce its losses—no doubt with an eye toward an IPO—Lulu cut back in a number of areas in 2009, a move that slowed its sales growth rate, but did cut its loss from $13.8 million in 2008 to $1.9 million last year. Lulu noted that in 2009 it reduced the number of employees (it now as 112) and cut spending on sales/marketing and technology/ development. Cuts in technology and development, the prospectus said, were achieved by reducing salaries and benefits from $3.9 million to $3.4 million, something it accomplished by having more lower-salaried employees and increasing the number of offshore employees. Personnel cuts in sales and marketing saved $1.2 million last year, while search engine marketing expenses were cut by $1.3 million.

The prospectus had no predictions about when Lulu will turn an annual profit, although the document noted that in the fourth quarter of 2009 it had net income of $140,000, its first profitable period. In addition to adding more distribution channels, Lulu expects to grow through international expansion. Foreign sales generated revenue of just under $9 million last year, 28% of total revenue. Other growth strategies include adding more content to its Web site, in part by teaming with traditional and “next generation” publishers and distributors to sell their titles through the Lulu site. Opening up its platform to creators in such fields as magazines, software, music, video, and gaming is another idea, as is developing new software tools.

To achieve its goals, Lulu hopes to raise over $50 million through the IPO, with $18 million going to pay down debt, most of it owed to founder Bob Young. Young has committed to providing Lulu with enough funds to meet Lulu's cash flow through at least January 1, 2011, but if the IPO is successful, Young will be released from that pledge, the prospectus said.

Lulu.com, 2007—2009
(in millions)