If you took advantage of the recent holiday weekend to explore the Big Apple, you probably came across one particularly enticing series of ads plastered in subway cars all over by a company I covered two weeks ago.
I’m talking about the cartoon ads for Casper ads, showcasing a mattress that is perfect for — “lovers,” “furries,” and “beatboxers,” among many others.
Though I would by no means characterize myself as a furry or beatboxer, I won’t easily turn down a promise to add a little more “magic” to my bedroom… which is why these ads grabbed my eyes.
They’re cool ads, though if you’re planning to stake some of your money on this company when it conducts its IPO very shortly, know this…
The company burned $422.8 million on its marketing between 2016 to 2018 and this trend of heavy spending continued into 2019.
Unsurprisingly, the company has yet to turn a dime. During the first three quarters of 2019, the company reported $312 in revenue — a figure that’s up only slightly from $259.7 for the full year in 2018.
And here’s the real kicker… while Casper will do anything to convince you of its lofty vision to “awaken the potential of a well-rested world” and lead a “sleep economy” worth an estimated $79 billion in the U.S., the company has a rival that’s actually making money.
That rival is Purple Innovation and the “technology” in these mattresses is completely comparable.
Today, I want to offer you a deeper look at the financials and demand for Casper.
I’ll share whether I think the company could join the league of hot tech-oriented losers like Uber, Lyft, and WeWork from 2019.
Before I buy into the hype on any IPO, the first thing I do is look into the SEC filings. It’s known as the Form S-1. In it, the company highlights everything from financials to the overall industry. Not only that, but included are key details that could signal whether an IPO would be hot or not.
With Casper, I found a few nuances — clues that I will continue to monitor leading up to the IPO.
For example, Casper has Target (TGT) as a major backer and the major retailer even invested in multiple rounds of Casper’s financing. What that tells me is the fact that the “smart money” actually believes in the company, and there could be deals along the way.
One of the biggest proponents that could move Casper is the industry figures. Casper notes that the global sleep economy reached $432B globally, and $79B in the U.S. alone. Not only that, but the global sleep economy is projected to grow by a compound annual growth rate of 6.3% between 2019 and 2024.
The most interesting part about Casper’s business model is the fact it’s a direct-to-consumer brand, and it’s actually been hurting retailers. So with Target investing in the business itself, it seems to me as if they want to capitalize on the opportunity, if they can’t compete with the mattress company.
Casper is showing strong sales growth, as it expanded revenues by 43% between 2017 and 2018, as well as gross profit growth of 35% year over year (YoY). One of the main reasons for this massive growth is due to the fact it has an e-commerce site and dozens of retail stores.
However, the crux of its growth, in my opinion, is led by its partnerships with major mega-cap companies like Costco (COST) and Amazon.com (AMZN).
Sure, those sales figures are strong… but the company has also seen a drop in its earnings. In fact, it’s actually losing more money year over year.
Well, the company is spending a lot of money to acquire customers, and it’s burning through cash in its sales and marketing department. I think profitability is one thing traders will be focused on leading up to the IPO.
Of course, we don’t know what will go down with Casper until it’s IPO date, which has yet to be set.
For the most part, in the days leading up to one of the hottest IPOs in 2020… I’ll look to the demand and how many shares are being offered. Not only that, but I’ll keep an eye on the pricing (whether the underwriters price the stock above the range).
If there’s heavy demand for the stock and Morgan Stanley prices the stock at a high valuation, I may consider getting long the stock right out of the gate.