Celebrity Dining: Beyond Meat, Inc. (BYND)
BYND started trading publicly on May 2, opening at $46 per share after the IPO had been priced at $25 per share. The company aims to produce plant-based meat alternatives by “building the meat without the animal.” The amount of hype surrounding this stock has been incredible. Beyond Meat has 680,000 followers on Instagram and numerous celebrity and athlete endorsements. The company certainly has some strong causes and demographics to draw on, touting their products as a solution to the issues of “human health, climate change, constraints on natural resources, and animal welfare.” As can be seen from the chart below, the stock has had great success in the markets so far, but not without a huge amount of volatility. Swings in the stock price have been unpredictable, with outsize reactions to every little bit of news about the company or its competitors, and options premiums have been excessive.
The company released an earnings report on June 6th, which prompted a sharp rally in the stock price. This was followed by a sharp selloff sparked by a JPMorgan analyst downgrade of the stock to neutral from overweight, over concerns about the stock’s valuation, stating BYND‘s growth potential was “priced-in.” The stock has since recovered and has held on to most of its post earnings report gains.
Celebrity Dining: The Product
Beyond Meat’s flagship offering is its Beyond Burger:
The world’s first plant-based burger that looks, cooks, and satisfies like beef without GMOs, soy, or gluten. Find It in the meat aisle.
The placement of the products in the meat aisle aligns with the company’s strategy of converting meat eaters to their products by offering a product that satisfies the same cravings. The company specifically requests that stores do not place their products in vegan aisles alongside tofu and other alternative proteins. Interestingly some grocery stores do not agree with this placement of a non-meat product in the meat-aisle. Why should Beyond Meat products be placed with meat products instead of alongside other veggie burgers?
The company has recently updated the recipe to their burgers and boasts they are “now even meatier” with “marbled juiciness.” There are also small changes in the ingredients between their burgers sold in the supermarket and those made for “food service.” From glancing over the nutrition facts, the main difference seems to be that the food service burgers have a little more calories and more fat. The company also produces Beyond Sausages and Beyond Beef Crumbles, with the latter being a substitute for ground meat. Among all their products, pea protein, coconut oil, and sunflower oil seem to be the most common and important ingredients.
One of the most important factors in BYND’s early success has been its partnership with fast food restaurants. These partnerships create a ready to eat product that is much more attractive to a first time customer than uncooked patties in the grocery store refrigerator. A wide variety of partnerships with restaurants, universities, and other locations has been effective at introducing the brand to a wide audience. Beyond Meat breakfast sandwiches are now widely available in Canada at Tim Hortons restaurants (QSR). Donald Thompson, former CEO of McDonald’s (MCD), is on the Beyond Meat board.
Image: locations that serve food made with Beyond Meat products. (Image source: Beyond Meat website)
I have tried the Beyond offerings at Del Taco (TACO) and Carl’s Jr. At Del Taco, I had the Beyond Avocado Taco, which features the Beyond Meat crumbles. The tacos were pretty good, but there was clearly no meat inside. The crumbles tasted kind of like beans, with a texture resembling fried tofu or tempeh. At Carl’s Jr., I had the Beyond Famous Star. Surprisingly, the “meat” in the burger had even less flavor than the Del Taco “meat.” The meatiest thing about the patty in this burger was the char taste that comes from the patty being cooked in an open flame in Carl’s Jr.’s char broiler. It almost made me feel like I was biting into a meat burger for a split second – but then the meaty taste just wasn’t there. The texture was again very similar to fried tofu – but a little more tender. However the juiciness one expects of a burger patty was not present.
Both items were OK tasting, but I would probably not purchase them again. In both meals, I enjoyed the fries more than the Beyond Meat entrees. The main issue I had with the food was that the Beyond Meat product did not taste like meat, and was very bland. I don’t hate bland food, or vegetables for that matter, but when your product has been hyped up to be something new and revolutionary, better than all the previous veggie-meat substitutes, I expect something more.
This taste test may be a fairly subjective way to evaluate a company’s prospects, but it makes me even more concerned about competitors such as Impossible Foods, who have developed another “meat from plants,” which they have been able to flavor with the molecule heme, which supposedly gives meat its taste. They are able to produce a plant-based heme using fermentation from genetically engineered yeast. Impossible Whoppers are currently available at Burger King (QSR). Red Robin (RRGB) and White Castle have seen shortages of their Impossible Foods offerings due to high demand. Other competitors, such as Memphis Meats, are able to get even closer to the real thing by growing actual meat from cell cultures in a lab. This “cultured meat” avoids the need for rearing and slaughtering actual animals. Memphis Meats counts Tyson Foods (TSN) among its investors. Compared to these competitors, Beyond Meat’s patties don’t seem quite as innovative after all.
Celebrity Dining: Financials and Valuation
As of March 30, 2019, BYND had $35.4M in cash, $21.9M in current liabilities, and $30.9M in long-term liabilities. This level of debt looks sustainable considering the amount of cash on the balance sheet and quarterly revenues of $40.2M in the most recent quarter. In addition to 7.12M shares of common stock, the company also had 41.56M shares of various series of convertible preferred stock. The company has shown impressive revenue growth in the past few years, with a shift to gross profit. However net losses continue.
(Image source: BYND S-1)
The company reported a net loss per share of ($.95), with high R&D and SG&A costs weighing on its gross profit. Gross profit margins improved to 26.8% from 16.1% YOY.
(Image source: BYND 10-Q)
With a forward EV/Sales of 42.06 versus a sector median of 1.79, it is hard to recommend the purchase of BYND shares at this point. After all this is not a tech company with extraordinary margins, it is a veggie burger company. Eventually the company will be valued among its peers, once growth moderates and hype dies down.
Celebrity Dining: Revolve Group, Inc. (RVLV)
RVLV started trading publicly on June 7, opening at a price of $25.16 per share, up from an initial pricing of $18.00 per share. After a strong spike upward on the stock’s second day of trading (June 10), the stock then sold off sharply. Since then, the stock price has slowly regained its strength in lower volume trading and has leveled off in the past few days to around the same level it spiked to on the 10th.
Revolve uses their proprietary technology platform to manage their retail fashion business (apparel, footwear, accessories, and beauty) that targets millennial consumers. The platform uses data from customer purchases to predict trends and fuel algorithms that automate pricing and inventory management.
Celebrity Dining: The Website and Instagram
Instagram, owned by Facebook (FB), is a big part of the way Revolve does business, and makes up the bulk of their marketing. The company seeks to create a community of influencers on social media to form partnerships and create buzz. As of this writing, Revolve has 3.1 million followers on Instagram. To see this in action, simply take a look at the Revolve Instagram. Influencers are featured on the page wearing clothing for sale on the Revolve website. Models and brands are tagged in the posts, and they reciprocate by tagging Revolve and mentioning the products in their own posts. This exposes the brand to their followers.
(Image source: Revolve Instagram)
While this business model seems leaps ahead of many traditional fashion retailers, I can still see some weaknesses and possible risks to the business. Many of the brands featured on Revolve’s website also sell their clothes on their own websites which are promoted on their respective Instagram’s. Brand loyalty seems to be less and less important among consumers in the age of online price wars. Customers are presented with hundreds of choices from brands they have likely never heard of when looking for clothes online on a website such as Amazon (AMZN). Even so, Revolve does seem to be able to keep customers coming back to their website, with 89% of sales in 2018 coming from the previous year’s customers. Revolve states that its platform features “more than 500 emerging, established and owned brands.” However the company has also built a portfolio of 21 owned brands, with 9 of these brands in the top 10 brands on the website, making up 30.9% of net sales in 2018. These owned brands bring in more revenue per item and are also significantly higher margin.
Celebrity Dining: Financials and Valuation
As of March 31, 2019, RVLV had no long-term debt and cash of $27.2M, with total liabilities of $105.8M.
(Image source: RVLV S-1/A)
Unlike BYND, RVLV has consistently been profitable in the past three years, with net income growing considerably from 2017 to 2018. While operating expenses have been eating up a lot of the gross profit, it is encouraging that the company has been able to grow so rapidly while maintaining profitability and a strong balance sheet. In fact the company has been profitable for 15 years out of its 16 years of operation. The first three months of 2019 saw an increase in gross profit YOY, but a decrease in operating and net income. As sales are still growing rapidly, I view this increased operating expense as acceptable, and it seems too early to call it a change in trend. Nevertheless, this does call into question whether RVLV should have such a rich valuation.
(Image source: RVLV S-1/A)
Gross margin, EBITDA, and free cash flow have seen considerable growth in the past three years. There has also been growth in active customers and total orders placed on the platform, while the average order value has stayed fairly high. YOY the first three months of 2019 saw a decline in average order value, with an increase in active customers and total orders placed. Although gross margin was improved, EBITDA and free cash flow were slightly lower due to higher operating expenses.
(Image source: RVLV S-1/A)
A lot hinges on RVLV’s ability to continue growth while keeping operating expenses down. RVLV’s EV/Sales (NYSE:TTM) of 5.48 doesn’t look too bad, however the EV/EBITDA (TTM) of 65.02 is much more concerning. Investors should wait for further earnings releases to confirm that RVLV will be able to grow profits for the long term.
It is also important to note that RVLV has two classes of common stock with different voting rights. Class A common stock gets one vote per share, while Class B common stock gets 10 votes per share. This effectively concentrates voting power with the main holders of class B stock – the co-CEOs and founders of the company.
Celebrity Dining: Conclusions
Both companies are focused on trends favored by the younger generations. Whether this will lead to sustainable growth is uncertain at this point. The rich valuations encourage me to stay on the sidelines for both stocks at the moment, however RVLV looks more appealing to me simply because they have shown that they are able to grow rapidly while maintaining profitability and a strong balance sheet. That said, both companies also face growing competition from rival companies and increased innovation in their respective industries. I see a shallow moat for BYND based on its partnerships with established dining brands and celebrities, and a slightly wider moat for RVLV based on its inventory management platform, but both businesses may be disrupted by newer and trendier competitors. Should these innovative companies command such high valuations? Do you have any insights into the prospects for RVLV and BYND? Please share your thoughts in the comments.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.