Wall Street bankers are not wasting time filing for Initial Public Offerings (IPOs) for the new year. We’ve already seen a variety submitted to the SEC (Securities and Exchange Commission). Yes, it looks like 2020 could be a boom year for new issues, especially as the bull market continues apace. And of the more interesting filings is the Casper IPO.
For the most part, the company is attempting to disrupt the enormous mattress market.
Here’s what the Casper’s CEO and co-founder, Philip Krim, has note about this in his letter to shareholders.
“Five years ago, my co-founders and I were aspiring entrepreneurs, increasingly busy with our lives, trying to improve our personal health and wellness — but, too often, sacrificing sleep to make it all work. And we realized that when we slept better, we felt better, and performed better.”
So, the vision of Casper was to become the leading brand of the “sleep economy.” Consider that the company estimates that the size of the market is about $432 billion on a global basis, and is roughly $80 billion in the U.S.
The Casper Blueprint
Unlike the traditional model, Casper has created a platform to not only manufacture its own mattresses, but also sell them directly to customers. The rationale? To allow for a much improved customer experience.
However, this approach has certainly evolved.
Let’s face it, many people simply will not purchase mattresses online! So, Casper began forging distribution agreements with retailers like Target (NYSE:TGT) and Costco (NASDAQ:COST). The company then would start rolling out its own retail outlets, with 60 currently in place in the U.S. and Canada.
The result is that, since inception, Casper has served 1.4 million customers.
While Casper has built an impressive organization, there are still some nagging issues. First of all, the growth is far from impressive. During the first nine months ended September 30, 2019, the net revenues rose by 20.3% to $312.3 million. This is despite the substantial amounts spent on marketing, which came to around $114 million for the period.
Next, the net losses are quite large at $67.4 million for the first nine months of 2019. However, that is technically better than the same period in 2018 when the net losses reached $92.1 million.
As seen with IPOs from companies like Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT), Wall Street is generally skeptical of companies that have a fuzzy path to profitability. And it seems like Casper is in the same situation.
Bottom Line On The Casper IPO
The Casper IPO will definitely be a major test of the IPO market. If there is robust demand, then it seems like a good bet we’ll see a rush of other money-losing dot-coms come to market.
Nonetheless, this scenario may ultimately be wishful thinking.
“I believe Casper is another IPO that will trade poorly relative to past valuations as the public markets are smart enough to realize this is not a technology business,” said Phil Strazzulla, who is the founder of SelectSoftware Reviews, in an email interview with InvestorPlace. “Moreover, purchasing a mattress is made once in a great while for consumers, meaning it’s hard to build a brand that people will come back to directly the next time they buy again.”
Now, as for the details of the IPO, Casper plans to issue its shares on the New York Stock Exchange under the ticker “CSPR” and Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS) and Jefferies are the lead underwriters. The offering will likely hit the markets sometime next month.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.