Analysis of Casper’s IPO Filing
Welcome to the Sleep Economy.
America’s #1 mattress* is going to the market. The most ubiquitous bed-in-a-box brand submitted its paperwork to the Securities and Exchange Commission on January 10th in an effort to raise $100 million (most likely a placeholder figure) for growth and to pay off debt.
*According to a leading consumer publication
In their S-1, Casper — under ticker symbol “CSPR” — hopes to make the case that sleep is the third pillar of health and they’re the one who pioneered, and will continue to lead, the so-called “Sleep Economy.”
Sleep + nutrition + fitness = wellness
Casper believes that sleep is the next frontier in the health and wellness category. It commissioned Frost & Sullivan, a consulting and research firm, for a market analysis last year. Their study showed the global sleep market to be $432 billion with a 6.3% CAGR. In their prospectus, Casper writes:
As the wellness equation increasingly evolves to include sleep, the business of sleep is growing and evolving into what we call the Sleep Economy. We are helping to accelerate this transformation. Our mission is to awaken the potential of a well-rested world, and we want Casper to become the top-of-mind brand for best-in-class products and experiences that improve how we sleep.
As a pioneer of the Sleep Economy, we bring the benefits of cutting-edge technology, data, and insights directly to consumers. We focus on building direct relationships with consumers, providing a human experience, and making shopping for sleep joyful. We meet consumers wherever they are, online and in person, providing a fun and engaging experience, while reducing the hassles associated with traditional purchases. We are building a universal, enduring brand that is already embraced by over 1.4 million happy customers.
Revenues
While Casper boasts impressive revenues for a five-year-old upstart, they still remain unprofitable with a yearly loss of over $67 million at the end of last September.
Casper had an almost 50% margin in the nine months ending on September 30, 2019. Tempur Sealy International Inc (TPX), a publicly-traded competitor of Casper, had a 42.69% gross margin for the same period.
No free lunch
In fact, a lunch that cost $80 million.
That’s how much Casper’s lenient policy on returns, refunds, and discounts accounted for in the nine months ending on September 30, 2019. Things like their 100-night risk-free trial for “mattresses, bedroom textiles and pillows” and their 30-day trial policy for “most other product lines” are putting a dent in their bottom line.
For perspective, the $80 million is equal to 23% of revenues.
Last month, The Wall Street Journal published a piece on how some conscious consumers have used these trial periods to buy a mattress, use it for the allotted time, and then return it. All for free!
Casper isn’t the only direct-to-consumer brand to offer this type of customer service. Competitor Tuft & Needle and luggage company Away also have 100-day trials.
Marketing, brand, and design
Those terms were mentioned 170, 201, and 103 times, respectively, in the filing.
We believe great brands win over the long-term and have the ability to change the culture around them. We have endeavored to build a brand that is genuine, trustworthy, and approachable, as well as fun and playful. Through our investment in a sophisticated and integrated marketing strategy, we engage consumers across the entire consumer journey, from our iconic public transit advertising campaigns, to our “Napmobiles” and experiential retail store concepts, to our category-leading social media presence. We see the Casper brand as an immeasurably valuable asset that we are utilizing to help capture a large share of the Sleep Economy.
Casper has built their revenue growth off of billboards, subway ads, and podcast features. Since the beginning of 2016 to the end of September 2019, they spent $423 million on marketing expenses.
A large reason for this size of a marketing budget is due to their supply chain. As they state in their risk factors, Casper heavily relies on third-party manufacturers who also make the products of their competitors. It seems that marketing is Casper’s biggest differentiator, although they’re consistently releasing new sleep products, like Glow:
Risk Factors
Most of the threats that Casper perceives involve general supply chain and manufacturing, growing pains, and P&L management. However, there were some interesting and unordinary warnings:
Influencers
“Use of social media and influencers may materially and adversely affect our reputation or subject us to fines or other penalties.”
Recruiting influencers to vouch for the Casper brand has been a strong marketing strategy thus far, but if an influencer gives the mattress maker a bad reputation it could affect the share price.
Website woes
“System interruptions that impair customer access to our website or other performance failures in our technology infrastructure could damage our business, reputation and brand and substantially harm our business and results of operations.”
Casper states that they rely on Amazon Web Services for their data hosting and if AWS fails, Casper’s business could be harmed.
Amazon also sells their own mattress.
“Our business relies heavily on email, and any restrictions on the sending of emails or an inability to timely deliver such communications could materially adversely affect our net revenue and business.”
Similarly to the support they get from AWS, Casper relies on third parties to collect, store, and process email data.
Letter from Philip Krim, Co-Founder and Chief Executive Officer
Here’s a portion of Krim’s letter to potential investors:
At Casper, our mission is to awaken the potential of a well-rested world. Our ambition is to build the first consumer-centric sleep brand that will endure for generations.
Today, the sleep revolution is just getting started. Spotify created a genre dedicated to sleep — and the top Sleep playlist is more popular than the top Jazz playlist. Two of Target’s five bestselling vitamins are sleep vitamins. Professional sports teams now hire sleep coaches for their athletes. And high-performing business executives acknowledge the importance of sleep in their personal and professional lives. I believe a single company will orchestrate this movement and successfully capture this opportunity. That company is Casper.
From day one, we completely reimagined the consumer experience and placed our customers at the center of everything we do. We recognized that buying a mattress was a broken consumer experience. The large, incumbent mattress brands were far removed from their customers, selling through traditional retailers employing opaque, confusing and pushy sales tactics. We addressed this meaningful gap in the market by building a direct-to-consumer business offering a joyful and transparent shopping experience through our leading website, and soon afterwards through select retail partnerships and our thoughtfully-curated stores.
Casper has made the experience of buying a mattress fun and exciting and, in the process, created the premier brand for sleep with global ambitions. 2020 could be an eventful year for consumer startups to go public and Casper is leading the way.
