Casper Sleep Inc., the company credited with popularizing the bed-in-a-box trend, lowered the price range for its planned initial public offering on Wednesday, in a sign that investors are pushing back against the loss-making company.
New York-based Casper said it would offer 8.4 million shares priced at $12 to $13 each, down from a previous range of $17 to $19. The company would raise $109.2 million at the top of that range. With 39 million shares outstanding expected once the IPO is complete, the company would have a valuation of just $507 million, below the $741 million implied by the previous price range and less than half the $1.1 billion it garnered in its last private funding round. The deal is expected to price later Wednesday.
The company CSPR, +12.50% had a net loss of $67.4 million in the first nine months of 2019, according to its IPO prospectus, wider than the $65.5 million loss posted in the year-earlier period. For all of 2018, its net loss came to $93.2 million, compared with $73.1 million in 2017.
Revenue in the first nine months of 2019 came to $312 million, up from $259.7 million in the year-earlier period.
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“One word to describe the Casper IPO: Yuck,” said Brian Hamilton, founder of HamiltonIPO.com, which analyses and offers insights on IPOs. “They’re losing money, they don’t have super high growth, and they’re in a commodity business. Bad.”
Shaun Kalnasy, partner at Harrison Co., a boutique investment bank that focuses on retail and consumer companies, agreed that Casper’s losses are a problem: “I can’t see how a rational investor could think it could offer value,” he said.
Kalnasy was part of the team that helped take Casper rival Purple Innovation Inc. PRPL, +0.15% public via a reverse merger with a special-purpose acquisition company called Global Partner Acquisition Corp. in 2017.
Purple was profitable at the time and showing about $187 million in annualized net revenue, according to regulatory filings. The company was founded by brothers Tony and Terry Pearce, who had a background in the “comfort technology” industry and had patented a hyper-elastic polymer that they said offered back support in mattresses.
Casper started in 2014 with a foam mattress as its sole product, although it has since expanded to include a range of bedding and sleep accessories.
“Either Purple is undervalued, or Casper is overvalued—with them going public, we see another data point about inconsistency about venture capital valuations and the public markets,” said Kalnasy.
Hamilton said the current IPO market isn’t valuing companies on a consistent and defensible basis, moving away from cash flow analysis to more subjective methodologies.
“Given a market where almost every company going public is losing money, the best I can tell is that each company is valued based on the value of others like it or, worse, metrics that are specific to that individual company,” he said. “As they say in the military, IPO values are “in the air”—they have no real benchmark that makes sense in a disciplined way. Investors are largely guessing.”
Still, Kathleen Smith, principal at Renaissance Capital, a provider of institutional research and IPO exchange-traded funds, said at this pricing, she expects the deal to get done.
The Renaissance IPO ETF IPO, +0.45% has gained 9% in the year-to-date, outperforming the S&P 500’s SPX, +0.33% roughly 3% gain and the 2% chalked up by the Dow Jones Industrial Average DJIA, +0.30%.
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