Investment analysts at Barclays have reiterated their cautious stance on Cricut, maintaining an underweight rating as the company struggles to regain its pandemic-era momentum. The specialized craft technology firm, which became a household name for DIY enthusiasts during global lockdowns, is now facing a harsh reality check as consumer spending patterns shift and hardware demand cools across the board.
In a recent update to investors, the banking giant highlighted that the primary driver of this pessimistic outlook is the persistent weakness in hardware sales. While Cricut successfully grew its ecosystem during the stay-at-home boom, the current economic environment has made expensive crafting machines a difficult sell for many households. Barclays notes that the replacement cycle for these devices is longer than previously anticipated, and the influx of secondary market sales is further dampening the demand for new units.
Beyond the hardware struggles, the company is grappling with a slowdown in its high-margin accessories and materials segment. Historically, Cricut relied on a razor-and-blade business model, where the initial purchase of a cutting machine led to years of recurring revenue through vinyl, blades, and digital subscriptions. However, as users engage less frequently with their devices, the pull-through revenue from these consumables has failed to meet the aggressive growth targets set by Wall Street.
Competition in the digital crafting space has also intensified, adding another layer of complexity to the company’s recovery efforts. Established rivals and new entrants from overseas are offering similar functionality at lower price points, challenging the premium positioning that Cricut has long enjoyed. This increased competition has forced the company to lean more heavily on promotional pricing and marketing spend, which inherently pressures profit margins and complicates the path toward sustainable earnings growth.
Management has attempted to pivot by focusing on software enhancements and community-driven features within its Design Space application. The goal is to increase user retention and drive subscription revenue, which offers a more predictable income stream than one-off hardware sales. While the subscription numbers have shown some resilience, Barclays suggests that this growth alone is not sufficient to offset the broader declines in the physical product categories that form the backbone of the brand.
Investor sentiment remains fragile as the market looks for signs of a definitive turnaround. The current valuation reflects a significant discount compared to previous years, yet analysts warn that the bottom may not be in until there is a clear stabilization in sell-through data. For now, the message from the banking sector is clear: until Cricut can prove it can thrive in a post-pandemic retail landscape, the stock remains a risky proposition for those seeking growth.
As the retail sector prepares for the upcoming holiday season, all eyes will be on Cricut’s ability to clear inventory and attract new users through innovative product launches. However, with consumer confidence wavering and discretionary spending under pressure, the hill for the crafting giant remains steep. Barclays suggests that a more neutral stance would require a significant acceleration in active user engagement and a reversal of the downward trend in machine sales, neither of which appear imminent in the current fiscal quarter.
