Allbirds, the sustainable shoe company that launched five years ago to rapid success, is going public. Allbirds footwear is made from natural resources such as wool from merino sheep, trees, crab shells, eucalyptus pulp, and sugarcane. Plus, the global lifestyle brand claims its supply chain has been 100% carbon neutral since 2019.
Carbon neutral focus
Founded by New Zealand’s ex-soccer star Tim Brown and biotech engineer Joey Zwillinger in 2016, the company has gone from strength to strength.
The San Francisco-based company is always on the lookout for new opportunities to expand its range and build on its sustainable materials library. Recently, the company joined forces with Natural Fiber Welding, Inc. to commercialize a 100% natural, plant-based leather alternative.
Allbirds also runs Earth Day campaigns. For instance, in 2019, it partnered with the National Audubon Society to release a limited-edition shoe supporting endangered birds.
In May 2021, Allbirds partnered with Adidas (ETR: ADS) to create the world’s lowest carbon footprint running shoe. For each company, it’s their first attempt at producing a performance shoe emitting less than 3kg CO2e per pair. At 2.94kg CO2e, it’s still more than zero but it’s a step in the right direction.
This year, the company also launched its Carbon Footprint Calculator. This consists of a selection of digital tools, such as the life cycle assessment tool. And it’s a gift from Allbirds to the entire fashion industry. Indeed, inviting its peers to publicize their efforts at pollution reduction. “Don’t hide your pollution. Label it.” The website states.
Impressive fan base
The sustainable success story has become a familiar one in recent years.
Still, Allbirds launched on the back of a Kickstarter campaign and rapidly amassed a cult following of celebrities, politicians, Silicon Valley CEO’s and even heads of state. Leonardo DiCaprio, Matthew McConaughey, President Obama, Jacinda Ardern, and Mila Kunis are all fans. DiCaprio is also an early investor.
The company achieved Unicorn status in October 2018 after reaching a $1.4bn valuation on the back of a $50m Series C funding round from T. Rowe Price, Tiger Global, and Fidelity Investments.
This led to considerable speculation of a public listing, and now the rumors have finally been satisfied.
The date of the Allbirds IPO is not yet known but Morgan Stanley is the lead underwriter along with J.P. Morgan, Bank of America, Piper Sandler, and others.
Allbirds ownership structure
When Allbirds goes public, it will adopt a dual-class stock structure. This will comprise Class A common stock with one vote per share, and Class B shares with ten votes per share for company executives.
This ensures the co-founders retain control of the company.
Embracing ESG
Taking full advantage of the Environmental, Social, and Governance (ESG) investing environment, Allbirds emphasizes its sustainable status.
And why not?
That’s undoubtedly its unique selling point as its pure wool makeup is what gives it the durable strength, simplicity, and comfort people love.
But Allbirds is taking ESG one step further. It’s S-1 filing with the Securities and Exchange Commission (SEC) specifically names its IPO a SUSTAINABLE PUBLIC EQUITY OFFERING.
It goes on to say:
Our motto—“better things in a better way”—applies not only to our products, but to everything we do. We hope to apply that same ethos to how we approach our initial public offering and being a sustainable public company.
In a remarkably simple yet effective nod to sustainability, the company labels each item it sells with a number indicating the kilos of CO2 created in producing it. This number is calculated by measuring the raw materials, transportation, manufacturing, product use (washing and drying), and end-of-life disposal process.
Allbirds operates an end-of-life program for products returned that cannot be resold. It donates them to Soles4Souls, a non-profit organization that distributes footwear and clothing in developing countries. Since 2016 it has donated over 225,000 pairs of shoes to Soles4Souls.
The direct-to-consumer company claims the carbon footprint of its standard pair of trainers is 30% less than rival shoes.
We have methodically built the foundation for our business to ensure that our customers do not have to compromise between looking good, feeling good, and doing good for the planet.
The ESG trend is in full force and Allbirds is making an attempt to influence a more sustainable structure for the IPO process in general.
Our vision is that Allbirds’ initial public offering will lay the groundwork that can be used by other companies for future SPOs. We are leading by example through our commitment to establishing rigorous, objective, and clearly defined ESG criteria and holding ourselves accountable to meeting those criteria.
This is a massive undertaking but could give it the edge it needs to succeed if investors respond well.
Direct Distribution
Allbirds direct-to-consumer distribution model gives it control over its sales channels and helps sustain strong customer relationships. It sells through its website, app, and Allbirds stores, reaching 2.5bn people globally across 35 countries. This helps streamline costs and improve margins.
The Covid-19 pandemic drove digital shopping to new heights, and it represented 89% of Allbirds 2020 sales, compared with 11% ($25m) from physical stores. In fact, Allbirds’s digital sales revenue rose 74% between 2018 and 2020.
Is Allbirds profitable?
Allbirds is not yet profitable and never has been. This doesn’t seem to be an issue for investors looking to invest in a growth story, but a lack of profitability adds significant risk to an investment, so it’s important to keep in mind.
Covid-19 appears to have magnified its losses, with its net loss rising from $14.5m in 2019 to $25.9m in 2020. Furthermore, it’s lost $21.1m in the first half of this year.
Story stocks are in vogue; think Warby Parker, Bumble (NASDAQ: BMBL), and Duolingo. These feel-good stories lend themselves well to catching the attention of the retail investor, and The Allbirds story is no different.
But competition is fierce in the coveted apparel space, and a brand like Allbirds is at risk of being a soon-to-be-forgotten fad.
Allbirds’ net revenue grew at a compound annual growth rate (CAGR) of 31.9% between 2018 and 2020.
How does the future look?
Allbirds sees its physical stores as an essential counterpart to its digital offerings. Thus far, it has opened 27 bricks-and-mortar locations and plans hundreds more. It is particularly keen to branch further into international locations.
Allbirds have been dubbed the “world’s most comfortable shoe,” but it’s now extended its offerings to include t-shirts, leggings, shorts, underwear, and socks. It intends to keep innovating and has more products in the pipeline.
“We have many solutions presently in development that will enable our consumers to better connect with nature by empowering them to explore and appreciate the great outdoors”.
If Allbirds can keep pace at 27% growth rate, it could enjoy revenue of $300m in the coming year. It reportedly raised $100m in a Series E funding round in 2020, giving it a $1.7bn valuation.
In the cut-throat world of fashion, the Allbirds story is a great one. It could continue to go from strength to strength but its lack of profitability makes this a risky growth stock.