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The Hottest IPO of the Year

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Tech IPOs have caught everyone’s attention the last few weeks, what with Lyft (LYFT - Free Report) seeing such bearish sentiment followed by Uber’s (UBER - Free Report) mega IPO falling flat, we’ve not really considered that this has actually been quite a good year for IPOs.

Pinterest (PINS - Free Report) for one saw its shares soar post IPO as social media stocks are generally met with enthusiasm, and this one was special because it involved digital scrapbooking with a well-developed ecommerce tie-in.

There were no concerns until the recently reported results wherein the company beat the top line estimate but missed on the bottom line. The sharp reaction to the results and slight miss on expectations for the year notwithstanding, the company’s prospects remain extremely bright with significant scope to monetize its user base.

And management did say that revenue from video ads grew threefold from last year with monthly active users touching 291 million. That’s up from 265 million at the beginning of the quarter and not far behind Twitter’s (TWTR - Free Report) 330 million.

Uber’s and Lyft’s problems were more real, and tied to their profitability issues. So between paying drivers more to switch and charging customers less to switch from traditional taxis, the companies are pretty squeezed for cash. But this is a business targeting a mature existing market, so a certain amount of pain (and uncertainty) is unavoidable.

Another one worth discussing, that started trading today under the ticker symbol FSLY is content delivery network (CDN) provider Fastly. In a market dominated by experienced large competitors like Akamai (AKAM - Free Report) , Amazon (AMZN - Free Report) Cloudfront and Limelight Networks (LLNW - Free Report) , the company managed to make its mark on the strength of its innovative new technology, competitive pricing and customer service. This enabled it to wrest 5% share of the CDN market that IDC expects will grow 16-20% over the next 5 years.

But the hottest IPO is not from a technology company.

It comes from an unexpected area, i.e. faux meat. Beyond Meat like its still-startup peer Impossible Foods sells a meat substitute developed on the premise that people will consume more plant-based protein if it tastes and feels like meat. Both companies target non-vegetarians that are conscious about the environment, the impact on animals and their own health (the biggest driver). Vegans and vegetarians will obviously consume the products, but they make up a mere 5% of the population.

In Beyond’s case, the main ingredient so far is peas mixed with beet juice for color, but it intends to use other beans going forward such as mung bean, brown rice, mustard seed and lentils.

The company targets a growing market: TD Asset Management estimates that the alternative meat industry could be worth more than $34 billion by 2030, with a possible annual growth rate over the next decade of 40%. That’s roughly 13% of the $250 billion domestic meat industry. The plant-based meat, egg and fish space has seen increased funds in recent years with 2017 and 2018 alone fetching around $13 billion (Good Food Institute).

Beyond Meat plans to use the proceeds from the IPO to invest in manufacturing facilities, research, sales and marketing.

Distribution of the company’s burgers (the most popular being the Beyond Burger) is mainly through 15,000-17,000 grocery stores as well as around 12,000 restaurants and other food service providers in the U.S. and Canada. It recently expanded to Europe.

Beyond’s largest distributor is United Natural Foods, which takes care of 32% of its sales. It also has significant supplier concentration.

The company’s sales grew 170% to $87.9 million in 2018, so it is well on its way to becoming a leading player in an emerging niche market. While it’s the first to raise funds through an IPO, other alternative vegetarian/vegan companies are likely to follow suit. But it’s unlikely to be a winner-take-all market.

The problem with being the first to trade publicly is that valuation is relatively difficult especially given that the company is yet to report. But the way the shares are rising, it’s probably better to wait for a pullback. Or maybe the next IPO in the space.

 

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