The Honest Company filed its S-1 registration statement nearly three weeks ago and is looking to go public next week. The company is targeting more than $400M in its IPO. The high end of the current price range would value the company at nearly $2B.
The Honest Company is a “mission-driven brand focused on leading the clean lifestyle movement.” The company reported revenue growth of 27.6% to $300.5M in 2020. The net loss per share was reduced from -$1.83 to -$.85 in 2020. The company competes in diapers and wipes, skin and personal care, household, and wellness. Diapers and wipes represent 63% of sales. Jessica Alba, co-founder, and face of the brand, owns 6.7% of the company. In 2017 the company settled a lawsuit over its claims that its products were free of sodium lauryl sulfate after a WSJ article said they were not. The Honest Company has raised $497M in funding to date. We have several questions that we will look to answer about the company:
- Understanding and projecting its future growth opportunities in new categories, products, extensions, retailers, shelf space, and internationally.
- How visible are the company's growth formula of 15% top-line growth, 1,000bps of gross margin expansion, and EBITDA margin expansion to 20%?
- How much sales benefited from the pandemic and increased attention on cleaning? Household and wellness category sales grew 116.5% to $32.5M in 2020. Revenue declined in 2019.
- What amount of sales is necessary to earn a profit? The company has never reported a profit.
- Will gross margin expansion continue? Gross margins have expanded 1000bps over the last two years.
- Are digital sales profitable? Digital represents 55% of sales – 33% of sales are from Honest.com.
- How high can the ACV of 40% go in the future?
- Will the company's commitment to ESG garner a premium multiple?
- How likely is an acquisition of the company?
- What multiple should we expect? We'll use a peer valuation comparison.
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Webcast and phone details will be provided soon. |