Geeknet reported strong 3Q13 revenue growth of 30% to $22.4 million vs. the 22% Street estimate, reflecting a significant quarter over quarter increase in new product launches and increased penetration in the wholesale channel. Adjusted EBITDA of a loss of $831,000 also exceeded our forecast, highlighting what we believe are sustainable margin improvements over the longer term, spearheaded by strong hires at the beginning of the year.

Given a more difficult comparison in the critical 4Q holiday period, we are assuming what we view as a conservative stance, with revenue expected to grow at 20% year over year to $79.6 million, leading to EBITDA of $10.2 million and EPS of $1.50. We note that shares trade at only 5x our 2014E EV/EBITDA with $6.14 in cash per share on the balance sheet. We still believe Geeknet could grow at an ecommerce-plus growth rate for the next several years and expect further margin expansion barring any significant expense ramp to accelerate revenue growth.

Unique user traffic to ThinkGeek fell 2% year over year to 19 million daily unique users, a deceleration over the 2Q growth rate of 10%, while order growth also decelerated q/q from 6% to flattish, mainly reflecting seasonality. However, conversion rates were up slightly year over year from 1.45% to 1.47%, and AOV improved from $60 in 3Q12 to $62 in 3Q13. Geeknet launched 477 new products, down slightly q/q, although exclusive product launches improved from 92 to 98. Sales were strong at GeekLab the wholesale channel saw a 290% year over year increase in revenue as Geeknet enhanced its business relationships and began to expand shelf penetration with existing retail relationships. We think mobile remains a significant opportunity for Geeknet given their strong social media presence and given the very early stage of Geeknet’s mobile technology platform with only modest analytics history and capability, which the new team began enhancing in 2Q. Mobile purchases improved by 60%.

Geeknet trades at 11x our 2014E EPS and 5x our 2014E EV/EBITDA, versus ecommerce peers at 18x and 10x, respectively. Given Geeknet’s above average revenue growth, but reflecting the early stages of the turnaround, we believe Geeknet should trade at a modest discount to peers. Using 8x EV/EBITDA, our price target is $24 per share. This translates into 15x 2014E EPS.