Allbirds Stock IPO: Ready for Takeoff or Hard Pass?
You have likely heard of Allbirds. If you work in certain industries or live in certain zip codes you may even own a pair of their "green" sneakers.
They are pretty comfortable and very stylish wool sneakers made as sustainably as possible using natural materials.
It is a pretty cool product. It is hard not to be impressed by a company that challenges the incumbents to do better by using the likes of merino wool and eucalyptus trees and cool design to innovate in a thousand small but meaningful ways.
Even the box the shoes arrive in has been rethought.
The company is about to potentially IPO and they are playing up their green credential to the hilt:
The term "ESG" appears 91 times in the initial public offering prospectus and the word "sustainable" 107 times.
They are already a certified "B" corporation which means they are intentionally structured around balancing purpose with profit.
They also have a dual class shareholder structure. We have written on the downside of those before.
There is only one problem:
The company loses a lot of money. It has done so - in ever increasing amounts - every year since its founding in 2016.
Sales rose 13% in 2020 to over $219M but so did net losses. They hit nearly $26M last year.
These losses, according to the IPO prospectus, found here, will go on for the "foreseeable future" (page 11).
This is strange because aside from being cool and popular and sustainable, Allbirds are also a direct-to-consumer company. So they are cutting out the middleman and keeping more of the profit.
The reason the company is in the red?
They have to spend an absolute ton on marketing and appearing both "cool" AND "sustainable." Allbirds spent nearly $56M on marketing (around 25% of their revenue) last year which ate up all their profits and represents all of their losses too. Not trivial.
We have seen this before - with companies like ride hailing Uber ($UBER) or cloud computing Snowflake ($SNOW) or sports gambling Draftkings ($DKNG) or fintech Affirm ($AFRM).
Some are rewarded by investors for being willing to spend for future growth.
Others are panned for a lack of vision other than wasting shareholders' capital.
Takeaways:
Be careful of stocks that routinely lose money and are asking investors for a lot more to lose a lot more. Not every business model is Tesla and even Elon Musk was heavily pressured by his shareholders into turning a reliable profit.
Software or technology companies with unlimited growth and high margins can be rewarded by investors. Meanwhile, consumer facing companies like Allbirds (or Warby Parker, $WRBY) often struggle.
The latter, already a public company, is basically flat year-to-date while the S&P 500 is up over 20%. And you already know what the energy sector has done....
Allbirds is, as we said above, a cool company and we wish it well but it has plenty of competition and big shoe companies spend a lot on research and development as well as marketing. For how long will their shoes remain "cool" and "in" with the right crowd in Silicon Valley? Fashion is a fickle industry and today's merino wool is tomorrow's bamboo or seaweed.
Put a different way:
Why would you want to buy a company that loses money, is in a highly competitive industry and will likely never have the future potential growth of a Tesla or a Snowflake?
Enjoy the sneakers, avoid the stock.
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