NEW YORK, United States — Aspirational sleep startup Casper has slashed its IPO price, valuing the company at less than $500 million, and stripping it of its unicorn status.
The direct-to-consumer brand, which originally filed for an initial public offering last month, made the u-turn following investor concerns about its future profitability.
The business, which lost $92.1 million in 2018 — a figure it was on track to losing again in 2019 — joins a growing collective of startups valued at $1 billion or more, to receive a weak public reception.
Burned from WeWork’s cancelled public offering in 2019, as well as the share prices of venture-backed companies such as Uber, Lyft, Slack and Peloton remaining below the prices they sold in their respective lPOs, it seems investors are losing their appetite for high-growth startups that can’t demonstrate they are close to turning a profit.
Cracks in the business model?
According to Stern School of Business professor Aswath Damodaran, the problem for Casper lies within its profit margins. By outsourcing its mattress manufacturing, Casper has been able to grow at a faster rate than traditional mattress retailers, but this he told Bloomberg has meant it has had to sacrifice economies of scale.
Speaking with Bloomberg, Damodaran explained: “What [Casper] likes to tell you is that they can have both — high growth and high margins. If they get 11% margins with their assumed growth, their valuation can go to $1.5 billion, but I don’t see how they can do that.”
Adding: “Their constraint is that even with growth, the overall market — the sleep economy or whatever they want to call it — just isn’t big enough.”
Despite disrupting the mattress category back in 2014, competition within the space is also hotting up and Casper has very little in way of differentiation from rivals including Eve, Simba and Leesa.
With millions spent on clever marketing seen as the only real way to stand out from the crowd, Casper is burning through money fast, having splashed out $423 million on self-promotion between 2016 and September 2018 —this is also a concern.
So, what’s next?
In its filing to go public, Casper revealed its ambition to double down on brick-and-mortar outlets, with plans to open 200 stores across the US.
It also continues to expand beyond mattresses, in a bid to position itself as a full circle lifestyle brand — a strategy that could become key if it wants to keep hold of customers and cultivate repeat purchases.
The hope is that: “Over time, revenue is going to increasingly be diversified outside of the mattress, as more and more people realize that Casper is not just a mattress destination but, really, a destination for all things sleep,” Casper’s chief executive, Philip Krim told the New York Times.