When Bark, Inc. – then called The Original Bark Company – made its stock market debut in June through a $ 1.6 billion merger with a blank check company, its shares rose 7.5 percent and its CEO was positive.
“There are 63 million households in the USA [with dogs] and we are in 1.8m, ”says Manish Joneja, CEO of the group, which distributes monthly subscription-based themed dog toys and treats under the name BarkBox. It currently offers a Spider-Man themed selection.
However, shares in Bark have fallen more than 65 percent since listing – and this is not all. After a record year for IPOs worldwide, a series of freshly listed high-profile consumer companies have found their share prices underwater as the market soured over their growth prospects.
Oat milk brand Oatly, indoor farming business AppHarvest, ethical egg producer Vital Farms, baby and beauty brand The Honest Company and the British e-commerce group THG have all listed over the past 18 months, all trading at least 50 percent below their listing prices, despite a steady rise in the S&P 500 index. All but London-listed THGs are traded on US markets.
Plant-based convenience food manufacturer Tattooed Chef has merged with a special purpose sourcing company, or Space – a device that was also used by AppHarvest – in October 2020 and its shares have since fallen by more than 40 percent. Smaller UK-based Revolution Beauty has lost nearly a third of its market value since listing in July.
Jamie Isenwater, founding partner of Ash Park Capital, consumer-focused fund manager, said the share price declines follow a trend for loss-making or just-profitable consumer groups to enter the market.
As venture capital funds created a range of technological “unicorns”, there was also a rapid inflow of cash to early-stage or privately owned consumer companies, including from investors better known for their technological possessions. Peter Thiel, co-founder of PayPal, invested in AppHarvest in 2020, for example, according to Dealroom.
Some groups have listed amid a wave of enthusiasm for trends in the pandemic era, from pet care to convenience foods, subscription models and the e-commerce boom. Many are seen as disruptors of existing industries, but may have only vague plans to achieve lasting profitability, says Isenwater, who added that he has sustained investment in any of the recent listings.
“[The falling share prices] is definitely the market that some of these businesses are exploring harder than it was before, ”he said.
There are company-specific reasons why investors have soured on some of the new public groups. THG’s shares immersed in October after short sellers questioned the value of its white-label e-commerce proposal, Ingenuity, and bounced back an investor day seen as an attempt to retaliate.
Oatly and AppHarvest both faced supply chain issues, which cut into expected margins – a particular problem for AppHarvest, which operates in a notorious now-margin field.
But Will Hayllar, managing partner at strategy consultants OC&C, said there are broader questions about whether proposals that seem tempting to IPO investors are really suitable for substantial expansion.
“The real questions to ask are about how scalable this proposal is and how fast can it scale? How relevant is it that is offered to a wide group of people? ” he said.
“Sometimes the danger is that it seems to be the perfect solution for. . . affluent metropolitan urbanites, and this probably reflects the people in the financial services industry who send the IPOs. But does it work for the more representative population in countries around the world? ”
There are also questions about the ability of companies like Oatly and Tattooed Chef to compete with multinational food groups in the long run, which could deploy billions of dollars in marketing budgets and regularly buy smaller companies in fashionable product areas.
Decline in share price of meal subscription business Petersley Box
Isenwater says the threat to consumer multinational start-ups “has been largely blown out of proportion” – although he cites Oatly as one of the few smaller companies that has brought real disruption to an established consumer market.
Consumer stacks do not have ‘network effects’, while “there are also no opportunities to create huge quasi-monopolies in the form of Amazon, Google or Facebook”, he said.
Mark Lynch, partner at corporate advisory boutique Oghma Partners, said: “Investors have applied an attitude that may be right in the technology world, but not really right in the world of food and branded food.”
On plant-based foods, for example, he argued: “If there is not much technological knowledge in these products, and in general there is not, it is quite difficult to defend yourself against someone like a Nestlé or whoever it is. even if they focus their attention on the market. ”
Isenwater acknowledges that some of the loss-making groups will be “big businesses”. And not all recent consumer list entries have experienced a decline. The hair care group Olaplex, which appeared on the Nasdaq Stock Exchange in September, is trading more than 9 percent above its listing price. But that group is already profitable, reporting $ 39 million in net income to $ 282 million in 2020.
For some groups, proving a post-pandemic business model is still a challenge, after Covid-19 restricted groups that promoted catering to home-bound consumers. Bark’s second-quarter results were below expectations, due to rising costs of customer acquisition and higher subscriber run-off rates due to “the surge in customers we acquired at Covid last year”.
Petersley Box, a dinner subscription business that listed on London’s junior market in April, has since lost more than 80 per cent of its market value. Convenience food makers like Tattooed Chef, who are also considered pandemic winners, have experienced similar pressure.
Aiming to show investors that this is more than a novelty or a pandemic game, Bark is expanding into dog dental care and custom pet food. At his latest results, Joneja maintained: “There are a lot of exciting things happening in Bark.”