Casper’s IPO Leaves the DTC Industry With More Questions than Answers

The stock went up by about 20% on opening day

a Casper store
Casper wants to become more than just a mattress company.
Casper

Key Insights

Casper, the direct-to-consumer brand that wants to become more than just a mattress company, officially went public today.

Debuting under the listing CSPR, Casper opened at $14.50, above its original share price, and its stock rose 20% after opening. The company’s shares were originally priced between $12 and $13 on Feb. 5 in a government filing, after initially going for $17 to $19. This put Casper’s valuation at $468 million, according to Marketwatch, well below the $1.1 billion valuation it received in March 2019.

Casper’s entry into the public markets comes at a time when the DTC industry is facing numerous headwinds, including the FTC suing to block Edgewell Personal Care’s acquisition of Harry’s. But Casper’s IPO also presents a landmark moment, becoming the first major DTC brand to go public (following SmileDirectClub’s entry in September 2019).

To celebrate the IPO, Casper sent out a thank-you email to customers.

“This isn’t really a story that’s told in the first six-and-a-half hours of trading,” said Matt Hirst, managing partners at West, a venture studio. “The DTC movement is now coming of age and this will be the hallmark or something people look to.”

Casper originally posted its S-1 filing on Jan. 10, raising eyebrows with its marketing costs: about $114 million in the first nine months of 2019. Casper’s losses also grew to $92 million in 2018, compared to $73.4 million in 2017, and through Sept. 30, 2019, the company only saw a 16% repeat purchase rate (but repeat customer rate was 20% in the first nine months of 2019). The real challenge for Casper comes now, according to Hirst, as it’ll need to prove if it can be a “sleep company” as opposed to solely a mattress brand.

“Companies come to IPO with a big promise and where that promise can be delivered,” Hirst said. “Casper, for all their amazing traction so far, are going to be the ones who really define how people see and want to invest in DTC brands as they start to mature.”

Part of that maturity includes Casper’s ambitions to open 200 stores across the U.S. Currently, it only has 60 locations, which has Bob Phibbs, CEO of the New York-based consultancy The Retail Doctor, questioning why it’s taking the company so long to open more stores.

The products they are talking about offering to try to own sleep, while related, seem far afield from selling mattresses in a box,” Phibbs said. “If cost of acquisition is so high, you’re removing profit. Worse, people buy mattresses every seven to 10 years, so they will have to keep trying harder to reach newbies against a host of new competitors.”

But Brian Callahan, innovation research analyst at data management platform 1010data, said there are some bright spots for Casper, with 1010data putting it at 9% market share, compared to Purple’s 6% and Tuft and Needle’s 3%.

“Their IPO valuation coming in around half of their peak private valuation is a signal—public investors agree,” Callahan said. “With their size and cash from the IPO, they could end up being successful just by being large enough to weather the inevitable shakeout of the other DTC mattress companies.”

Casper’s valuation correction is also a “good thing,” said Hirst, as both the stock market and venture capitalists start to give brands a more realistic outlook.

“If you look at the Casper valuation—that same level of sobriety will have to occur in later round of financings in private companies,” Hirst said. “It’s going to create a lot more discipline from founders and a lot more sober thinking and realistic thinking.”

Regardless, Hirst does point out that Casper deserves credit as a “testament to the power of a brand that’s been built.” The disruptor made buying a mattress an experience for consumers, in a way that didn’t exist before.

“It was a real success for brand building, [but] can the business catch up with it on a quarterly basis?” Hirst said. “Can the product base catch up with the brand promise? It’s a victory for building brands in a category that was not previously thought about for building brands.”

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