What you need to know – Forbes Advisor

Fashionable shoe startup Allbirds is set to launch an initial public offering (IPO) this fall, with a valuation of up to $2.2 billion.

Much like newly public eyewear company Warby Parker, Allbirds has an avid following among urban professionals, and it has also fully embraced the ideals of sustainability. The company is organized as a certified B corporation, verified to balance profit with purpose and respect for the environment. On its website, Allbirds highlights a tab titled “sustainability,” with a slew of links to eco-friendly initiatives.

In a pre-IPO filing, the company said it would offer 19.2 million shares, priced between $12 and $14. At the high end of that range, the IPO would net Allbirds as much as $269 million.

Founded in 2014, Allbirds has seen rapid revenue growth in recent years, but continues to rack up net losses. Investors should therefore exercise caution.

Allbirds combines ESG Chic and rapid growth

Allbirds’ IPO makes two central claims to attract potential investors: it produces cool shoes and clothing, and it manufactures and distributes products in as environmentally friendly a way as possible.

Click on his website and you’ll find statements such as “Newsflash: Your Outfit is Killing the Planet” and a copy that claims “the global footwear industry produces over 20 billion pairs of shoes each year, of which the vast majority are made with materials that damage the earth.

But Allbirds isn’t like the corporate giants that run Big Sneaker, according to the company’s IPO marketing pitch. Which is why if you care about climate change, you should go for Allbirds, it seems to imply.

To establish its eco-bonafides, Allbirds publishes an annual sustainability report that outlines exactly how it plans to reduce its carbon footprint, including goals such as using regenerative material sources, avoiding petroleum and more efficient use of energy.

Of course, the shoes themselves have earned a solid reputation for being cool among influential millennials. The taste is a tough nut to crack, but so far Allbirds have received rave reviews, including being called “The World’s Most Comfortable Shoe” by Time Magazine.

Allbirds believes this combination of durability and freshness will help it boost sales among young adults who express concern about climate change. But perhaps more importantly, the company seeks to fund managers who are desperate to buy the shares of companies that perform well on environmental, social and governance (ESG) metrics.
“[C]Consumers are looking for brands that are native and authentically sustainable, as customers demand transparency regarding the products they buy,” Allbirds wrote in a filing with the SEC.

The message seems to have wings: between 2018 and 2020, Allbirds’ revenues grew from $126 million to nearly $220 million, while its store footprint grew from 3 to 22.

Public scrutiny dilutes Allbirds shine

While Allbirds spoke of a good game ahead of its IPO, there are clouds on the horizon. What if it did not live up to its environmental claims? What if major retailers co-opted its sustainability message? What if customers don’t really care about the environment when deciding which shoes to buy as much as they tell pollsters?

If Allbirds’ IPO were to fail for the above reasons or others, would it really be worth the $2 billion valuation it is expected to fetch? We are about to see how it goes.

Allbirds recently changed references to its so-called “sustainable public offering framework” in its pre-IPO filing with the Securities and Exchange Commission (SE), according to a recent Financial Times report.

In an updated IPO prospectus, Allbirds removed 32 references to the framework, removed a line stating that it was going public while using the framework, and another stating that using the framework would make the IPO more costly.

That’s not the only ESG black spot for Allbirds, which is also the subject of a class action lawsuit, for misleading customers about how much carbon it uses to make its woolen sneakers and at what. point he treats the sheep he needs to make them. .

While Allbirds isn’t the first company to fall somewhat short of its ESG-friendly reputation – just ask Facebook how it goes – it’s a much harder pill to swallow when a standard High ESG is the promise your brand is built on.

It’s especially difficult when investors aren’t particularly enthralled with how many shoes you’re selling in the first place.

“In our view, Allbirds is not worth nearly $2 billion, a valuation that implies Allbirds’ revenues will increase more than five times current levels and the business will become more profitable than any of its competitors, which is highly unlikely,” said David Trainer, managing director of investment research firm New Constructs.

Should you invest in the Allbirds IPO?

Unrealistic revenue expectations aren’t the only problem with Allbirds’ IPO. The company will need to invest heavily in brick-and-mortar retail stores to continue growing, but it hasn’t become profitable and won’t be anytime soon. Allbirds lost $14.5 million in 2019 and nearly $26 million in 2020, although some of those losses were driven by the Covid-19 pandemic.

The IPO may be a valid bet if Allbirds can continue to rack up new customers, but it is becoming increasingly dependent on repeat customers. In 2018, for example, sales from new customers accounted for 59% of the company’s net sales, compared to just 47% in 2020. How will it be able to expand its scope to justify the frothy valuation?

This is a difficult question to answer at the moment and one that should motivate you to pause before buying. If you are a fan of Allbirds product, keep buying. But just because a company says it adheres to ESG ideals doesn’t mean it’ll measure up or be able to sell enough shoes to earn you a decent return.

Sometimes you have to walk before you can fly.