We’re upping BIRD to our Best Ideas Long list. No changes to our view on the fundamentals. The stock has been extremely volatile since it priced above the range on its IPO (at $15 vs $12-$14 range). On the first day of trading, we thought that the market had it right with the stock closing at $29 (after hitting an intra-day high of $32.44). But it’s now down ~35% from where we thought it should trade based on the underlying growth and earnings trajectory of the company. The company reports earnings on Tuesday Nov 30th, and we think it will be a solid print. We said on 10/31 that we’d be big buyers of the stock in the low $20s, so it goes without saying that we love the name under $20. We’ll be out with a more detailed report on the name in the coming weeks.
Here’s what we said on 10/31 ahead of pricing…
Bullish on BIRD: The Allbirds deal prices on Tuesday night and is set to trade on Wednesday. Initial range is $12-$14, for an EV of $1.6bn-$1.9bn, or about 6x sales. This deal is going to be hotter than hot – especially with the ESG crowd given the highly sustainable nature of the product value proposition. Our sense is that it prices above the range and rips on day 1. Allocations will be tight, but we think you definitely want to put in for this deal if given the shot. The question for us is what you do on the rip. Where to be a buyer and where to sell. While apparel companies are a dime a dozen, new footwear deals come around only once every few years. This year has been anomalous in that we have ONON which went public in September and now clocks in at an EV of $10.6bn, or 11.6x sales, and now we have Allbirds this week. Next on the docket are likely to be GOAT and StockX – marketplaces for footwear rather than brands – but still, the space is hit right now. In order to get a real sense as to what BIRD is worth, we need to roll the clock forward a few years and see where the revenue base, margin structure and capital intensity are likely to shake out. From where we sit – 30% annual top line is a slam dunk for this brand – especially given that it has only 11% brand awareness, with huge upside for new customer acquisition. Though it’s currently losing money on roughly $250mm in sales – 100% of which is DTC (i.e. extremely attractive) – the EBIT margin structure is likely to clock in at a 15%-18% level over a TAIL duration on nearly 3x the revenue base. That puts about $0.75 per share in earnings in play. This name should trade 40x-50x that number easily, which suggests a $30-$38 stock price over 2-3 years. With that as a backdrop, we’d be buying the BIRD as high as the low-$20s when it begins trading this week.
