Cricut, Inc. (CRCT) stock intrinsic value fair value estimate & owner earnings analysis

Cricut designs and sells smart cutting machines (the Maker, Explore, Joy and Venture families) used by home crafters and small sellers, plus the materials and accessories those machines consume, and it earns a growing share of its money from software subscriptions (Cricut Access and Cricut Access Premium, about $120 a year for Premium). Manufacturing is outsourced to three main contract manufacturers, largely in China. In 2025 revenue was $709 million: $327 million from the subscription-led Platform business (up 5%, with just over 3.09 million paid subscribers, up 4%) and $381 million from machines, accessories and materials (down 5%). About 76% of sales were in North America and 24% international. The company has no borrowings, an undrawn $300 million credit line, and about $286 million of cash and short-term investments at June 30, 2026. How we measured earnings. We use owner earnings: operating cash flow with working-capital swings stripped out, stock-based pay charged as a real cost, and only the capital spending needed to maintain the business deducted. Two judgement calls matter here. First, inventory write-downs and later reversals are treated as part of the inventory cycle rather than added back, so the $26 million write-down in 2023 counts against earnings and the $20 million of reserve releases in 2025 counts in its favour; over 2022-2025 they roughly net out. Second, 2025 cash flow was helped by about $20 million of one-time tax savings from electing to deduct previously capitalised research costs under the 2025 tax law, which partly reverses the extra cash taxes paid in 2022-2024. Owner earnings were $35 million in 2022, $56 million in 2023, $68 million in 2024 and $101 million in 2025. We ignore 2020-2021: the pandemic craft boom took revenue to $1.3 billion and then left a glut of inventory, and it does not describe the business today. The median of 2022-2025, about $62 million a year, is our starting level; because interest earned on the cash pile is counted separately when we add that cash back, the business itself is valued on about $55 million a year. That figure lines up with what 2025 operating profit gives once the inventory reserve release and the one-time tax saving are removed. Recent trend. Revenue keeps shrinking: first-half 2026 sales were $316 million, down 6%, with the second quarter down 9%. Profits have held up better. First-half operating income rose to $70 million from $59 million on a higher gross margin, and stock-based pay has fallen from $47 million in 2023 to a run rate of about $24 million. Because only one of the two 2026 quarters showed higher earnings, we have not raised the starting level. Reported owner earnings grew 48% in 2025, but most of that came from the one-time tax saving and the inventory reserve release. Our base case starts year one at a 2% decline. Base case ($3.64 per share). Machines and consumables keep declining at about the pace of 2024-2026, and subscribers hold roughly flat, as the company itself warns they could. We give no credit for subscriber growth: the company says its rate of adding new users has fallen for four years. Owner earnings drift down about 2% a year for ten years, then about 4% a year until year 25, and nothing after that. What keeps the business going that long is its installed base of connected machines and a record of launching a new machine generation every few years, paid for from about $60-67 million a year of research and development. The business is worth about $553 million, it owes nothing, and about $215 million of cash is surplus after holding back working cash and the mid-year dividend. That comes to $768 million, or $3.64 per share. Bear case ($2.42 per share). Tariff costs and weaker demand push earnings back to the 2022 trough, when the business earned about $33 million after clearing surplus inventory. The tariff pressure is already disclosed: Section 301 duties on Chinese goods, a temporary 15% import surcharge from February 2026 and a new 25% duty on some chips. Earnings fall to about $35 million by year three, then shrink 5% a year, and the story ends after year 15. The business is worth about $297 million, it owes nothing, and with the surplus cash the total is $512 million, or $2.42 per share. Bull case ($5.23 per share). The higher margins of the first half of 2026 hold, lower stock-based pay sticks, and the subscription base stays steady, so owner earnings run at about $72 million a year for ten years and then fade 3% a year through year 30. We give no credit for possible refunds of tariffs struck down by the Supreme Court in February 2026, because their timing and amount are uncertain. The business is worth about $890 million, it owes nothing, and with the surplus cash the total is $1.10 billion, or $5.23 per share. What could make this wrong. On the downside, subscribers fall faster than machines because Cricut Access is billed annually and customers have no obligation to renew, or tariffs rise further on a supply chain concentrated with three contract manufacturers. On the upside, subscriber growth resumes (it grew 4% in 2025) or international sales, up 8% in 2025, keep offsetting the North American decline. Petrus and its affiliates control more than half the voting power, so outside shareholders have little say over how cash is used. So far that cash has been paid out through dividends (about $202 million in 2025) and buybacks. Margin-of-safety price. About 28% of our base value is surplus cash, which cushions the downside. Even so, this is a shrinking consumer-hardware business exposed to tariffs, so the margin-of-safety price is set near the bear case. At $2.30 the price is covered by the bear-case value, and the base case implies a substantial gain from there.