Just like the Kiwi, the Allbirds stock failed to fly – will it recover?

ANALYSIS: Allbirds, the pioneering wool shoe company co-founded by Kiwi Tim Brown, was a misfire for investors who bought the shares in its initial public offering (IPO) last year.

Investors paid US$15 for shares in the IPO and reportedly felt rather elated on their first day of trading on the Nasdaq market in November when they opened at US$21.21, climbed as high as US$32.44 and closed the day at US$28.89. They will be less happy now that the stock is trading below US$4.

What is happening?

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The IPO price valued the company at US$2 billion – with revenue of US$219 million in 2020 and a loss of US$26 million, which was considered costly. Professional investors say the price the shares hit on day one was “pretty silly”. The people who bought the stock then probably had Allbirds on their feet when they signed the check, love the brand and think it’s a winner who will take over the world. It will take them some time to get their money back on their investment.

Growth

Allbirds raised $231.6 million (after costs) from its IPO to fund its expansion. The company has grown rapidly and hopes its blend of sustainability and freshness will help boost sales worldwide. He wants to open hundreds of stores in the coming years, as he says they attract new customers and help increase in-store and online sales. But this is only the beginning, with only 39 stores at the moment. If it’s on a growth trajectory like sportswear retailer Lululemon, it could be a great investment, but it’s too early to tell at this point.

Allbirds co-founder Tim Brown listed his company on the Nasdaq market in the United States last year.

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Allbirds co-founder Tim Brown listed his company on the Nasdaq market in the United States last year.

Headwinds

The company is trading in a volatile environment and the stock markets have become very grumpy over the past few months. Customers are currently facing cost of living issues and a pair of flash sneakers may not be quite the priority it was last year. International sales rose just 3% in the first quarter as Russia’s invasion of Ukraine fueled inflation and reduced consumer spending in Europe, and Chinese lockdowns hurt spending on its most profitable market. Higher shipping costs, a stronger US dollar and expanding store footprint are hurting profits, and digital marketing costs have risen. Still, its U.S. sales rose 35% in the quarter on the back of price increases, new products and a post-pandemic retail recovery.

Competition

Allbirds deliberately opted for a clean and simple look without logos, which they call “the right amount of nothing”. While this gives the shoes their own distinctive look, it’s also quite easy to tear them off. There is always the double-edged sword of bringing a new product to market that others can copy if your product is successful. Unlike Adidas stripes or Nike swoosh, the ability to protect Allbirds’ clean, unbranded look is limited.

And now?

To attract investment, Allbirds must grow. Even at the current depressed price, value investors won’t buy the stock thinking it’s a disgraced company that can rebound. You should be a growth investor who believes in the company’s products and the skills of its management to do a very good job of growing the brand and rolling out more stores. There are no guarantees. If they knock it out of the park and successfully roll it out to hundreds of stores around the world, it will have been cheap at those prices, but if they don’t, it doesn’t look that cheap. Investing is easy with hindsight.

James T. Quintero