Casper, the mattress startup, has filed to go public on the New York Stock Exchange, prompting a flurry of jokes about the company not being spooked by the IPO troubles of other unicorns.
2019 was a torrid year for unicorns seeking to go public. Some, such as Uber and Lyft, performed badly, while the likes of WeWork never made it to their IPO at all. This has led some to predict unicorns will stay away from the public markets at the start of the year, but Casper is pushing on regardless.
Casper’s S-1 reveals the mattress provider to be another company with a high valuation but no profits. The startup generated $358 million in revenues in 2018, posting a loss of $92 million for the same period. In the first nine months of 2019, Casper made revenues of $312 million, lower than its previous goal of $556 million for the whole of 2019. Over that same period in 2019, the company lost $67.3 million, an increase from the same nine months the previous year.
Casper has raised a total of nearly $340 million in funding from private investors, which include IVP, Target, New Enterprise Associates and Lerer Hippeau. The company was valued at $1.1 billion when it last raised money.
Casper’s prospects on the public markets aren’t helped by the poor performance of consumer tech in comparison to B2B and software. “They are not the profile of a company that has recently succeeded in the IPO market,” Matthew Kennedy, senior IPO market strategist at Renaissance Capital, an IPO research provider told Inc. “They have good gross margins, but they’re not software and they’re not a subscription business.”
It doesn’t take a huge amount of digging into the company’s S-1 to see where the profits disappear. Casper has a humongous marketing budget, spending $423 million in that area since 2016. More than 73 percent of its gross profit from last year went to sales and marketing costs. These marketing efforts are often outlandish and unconventional. Some of the company’s publicity schemes include napmobiles and a cruise around Manhattan. But it works to an extent – the company makes $3 in revenue for every $1 spent on marketing, according to the prospectus. It’s no wonder that marketing is so important, Fortune reports that the word marketing is mentioned 170 times in the S-1. There is a downside, aside from it being extremely expensive. The company uses social media influencers to spread word about its mattresses, and acknowledges in its prospectus that this could backfire, as these independent entities are loose cannons, and could “materially and adversely affect our reputation or subject us to fines or other penalties.”
If an influencer were to post something problematic, Casper could be held responsible, forcing it to “alter our practices, which could have material adverse effect on our business, financial condition, and results of of operations.”
The timing of the Casper IPO tells a story in itself. The company would have been well aware of the problems last year, and even took heed of the WeWork disaster and ditched its dual-share stock structure. But 2020 is proving difficult to time any IPO. There is a recession looming, and in November the United States will vote for its next President. No company would want to IPO in either of those financial climates, meaning Casper may have decided to launch its IPO now despite concerns, rather than be caught sleeping and face the perils of either a recession or an election.