Why Allbirds Stock should be on your watchlist
Since its IPO in October, All birds (NASDAQ: BIRD) the stock plunged 35%, but investors should not give up just yet. This environmentally friendly shoemaker is building a recognizable brand and his business is geared towards profitability. In this Backstage Pass video, registered on November 8Motley Fool analyst Asit Sharma shares her thoughts on Allbirds.
Asit Sharma: This is a shoe made by a company called Allbirds. It is a high-tech shoe. The story behind this company is that a highly regarded football player in European terms, New Zealand, a national star, wanted to make a better running shoe. Sheep outnumber humans by a ratio of about 7 to 1 in New Zealand. His shoe therefore uses composite materials, partly wool and partly high-tech materials. Tim Brown, teamed up with an engineer named Joey Zwillinger, to help them design the shoe, which is reminiscent of how Nike started decades ago. This brand, Allbirds, is an emerging global brand in the sneaker industry. I’ll go through all of that pretty quickly here.
It’s a new generation runner’s shoe. The turnover growth rate of this company is 32%. It’s not quarter after quarter, as I presented it with UiPath. This is actually a compound annual growth rate over the past few years, which is pretty fast for a sneaker business.
It operates on a direct-to-consumer model plus a store footprint model. They have around 22 stores around the world. The rest is e-commerce. They have a gross margin of 52%. I speak often, if you listen Focus on industry by chance, in this show, about the manufacturers. Typically, in different manufacturing industries, you need to exceed 50% to be able to scale and show any profit on the bottom line if you are a growing business, especially a consumer-oriented business that outsources its distribution of manufacturing. They do that. So I like this margin profile.
I mentioned these two co-founders, Joey or Joe Zwillinger and Tim Brown, not Tom Brown. Speaking of Freudian slips, I can correct that in real time, they hold 13% of the shares. The strategic advantage here is the strength of the brand. Don’t ignore the strength of the brand. I did it personally with Yeti, which had very similar characteristics to this company, and I was like, “What is this little brand of upstart challenger going to do?” Yeti is becoming a well-known brand in its own space. Many more examples that I can cite, but very briefly here, just to show you a few other things.
This is their growth rate that I referred to, this compound annual growth rate of 32%. Digital is growing at roughly the same rate as it drives most sales. Here you can see the progression of their gross margin. This expense, I think, will increase a bit. They have one stat that I’m really interested in, in that sense – let me see if I can find it real quick, because I’ve tweaked that a bit for the time being, I’m forgetting some things. Bear with me. I’m going to see her. Here we are. 100% of all their purchasing cohorts have contribution benefits that make them profitable from the first month of purchase. This means that after taking into account the materials, the cost of the shoe, the buying cohorts that arrive, 100% of them contribute positively. Basically think of it like the gross margin of this business. Basically, they just have to figure out their fixed cost as they scale. There is a clear path to profitability with the business. Then I’ll end here just by showing you that this is a pre-IPO. They have just been made public, made a spectacular debut. I think the stock has almost doubled. Just to show you that the balance sheet is pretty strong even before their IPO. You see here that there is about $ 160 million in working capital. The company has annual sales of approximately $ 200 million.
And there you have it, just looking at the income statement, you can see that they are not far from reaching profitability. It is by choice. They are trying to take market share.
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