New IPO Allbirds Is Correcting, But Watch For Strong Revenue Growth

More than 900 companies went public in 2021, with one of those being shoemaker Allbirds (NASDAQ: BIRD).

The company made its public debut in early November, and after an opening-day pop, it moved lower but is holding above its December 13 low of $12.56. Allbirds was founded in New Zealand in 2015, although its U.S. headquarters is in San Francisco.

Its shoes caught on as a sustainable offering to consumers who want to express their concerns about the environment through their purchases. Allbirds uses sustainably-sourced natural materials, including wool, tree fibers, sugarcane, and its own blend of renewable yarns.

While its shoes are the most popular and well-known items, Allbirds also makes shirts, hats, pants, socks, and other clothing items. Although its products are sold in stores, Allbirds has focused more on its direct-to-consumer channels, which boost margins as the company skips the middle man in many cases.

However, the company is aggressively building out its retail capabilities by opening its own stores.

In its IPO, the company moved 20.2 million shares at $15 apiece, raising more than $300 million. It raised $100 million in September 2020, giving it a valuation of $1.7 billion at the time.

Its market capitalization stands at $2.09 billion, putting it just at the cusp between small-cap and mid-cap.

Wider-Than-Expected Loss

The stock lost some traction on December 1, slipping and falling 16.53% after the company reported a wider-than-expected third-quarter loss in its first report as a publicly-traded company.

Sales came in at $62.7 million, up 33% from the year-earlier quarter. The company lost $0.25 per share, well below the expected loss of $0.11 per share.

It's not unusual for newly public companies to post losses for several years so that by itself is not terribly alarming. You'd like to see a company swing to profitability as soon as possible, all things being equal, but growing revenue is more important at this stage.

Analysts are bullish on the stock, giving it a consensus rating of "buy," according to MarketBeat data. The consensus price target is $24.91, meaning analysts expect a whopping 72.38% upside in the next 12 to 18 months.

That kind of price appreciation would be consistent with newly public companies often showing strong leadership.

Since November 22, 12 analysts initiated coverage on Allbirds. Most had ratings of outperform or overweight.

In the earnings call, CEO and founder Joey Zwillinger outlined the company's growth strategy.

"We're driving the top line primarily through three areas: one, our growing store portfolio; two, international expansion; and three, product innovation, which fuels new customer growth and increases the lifetime value of existing customers," he said.

"On the first growth pillar, our real estate portfolio is highly productive and is an efficient means with which to acquire customers. Our stores generate strong returns on invested capital and have attractive payback periods," he added.

"The team's attention is now focused on achieving our medium-term targets," Zwillinger said.

Aggressive Revenue Targets

He elaborated that those targets include revenue growth of 20% to 30% annually, gross margin of over 60%, and adjusted EBITDA margin in the mid to high teens, rising to north of 20% over the long term.

When you're eyeing a stock, you'd ideally like to see industry peers doing well. That's part of the "birds of a feather" concept in investing. A stock can have a better chance of rising significantly if it's part of an industry or sector that's doing well, rather than being an outlier in an industry that's out of favor.

Along those lines, other shoe companies including Crocs (NASDAQ: CROX), Deckers Outdoors (NYSE: DECK), Nike (NYSE: NKE), and Steve Madden (NASDAQ: SHOO) rallied to new highs recently, although all pulled back. Nonetheless, the industry as a whole rose sharply in the past week.

Allbirds is not yet buyable, as it's still in a correction. However, as a newly public stock with good revenue potential, it's worth keeping an eye on.