{"id":492,"date":"2023-10-13T12:39:55","date_gmt":"2023-10-13T12:39:55","guid":{"rendered":"https:\/\/connectwithfund.com\/markets\/with-shares-down-13-birkenstock-wont-revive-the-ipo-market\/"},"modified":"2023-10-13T12:39:56","modified_gmt":"2023-10-13T12:39:56","slug":"with-shares-down-13-birkenstock-wont-revive-the-ipo-market","status":"publish","type":"post","link":"https:\/\/connectwithfund.com\/?p=492","title":{"rendered":"With Shares Down 13%, Birkenstock Won\u2019t Revive The IPO Market"},"content":{"rendered":"<div>\n<p>Birkenstock, the nearly 250-year-old German shoe company, went public Wednesday and its shares fell 13%. Are the company\u2019s shares now a bargain? What does this mean for the revival of the market for initial public offerings?<\/p>\n<p>Here are three reasons not to rush into Birkenstock shares:<\/p>\n<ul>\n<li>Stretched consumers are not likely to pay up for its product.<\/li>\n<li>The sandal-maker\u2019s high valuation is not justified by its business model.<\/li>\n<li>CEO Oliver Reichert has no prior experience running a U.S. listed shoe company.<\/li>\n<\/ul>\n<p>The company\u2019s post-IPO drop is not good news for the overall market. But the market could revive itself if there were more companies going public with expectations-beating growth potential.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Birkenstock\u2019s Busted IPO<\/h2>\n<p>Birkenstock decided to set its IPO price high, and investors voted with their feet.<\/p>\n<p>Perhaps Birkenstock\u2019s leaders thought a recent upscaling of its brand would sway investors. While long known for \u201ccomfortable, orthopedic sandals,\u201d the shoemaker and its private equity owner, L Catterton, collaborated with Dior and the <em>Barbie<\/em> movie producers to \u201craise the brand\u2019s status,\u201d the <em data-ga-track=\"ExternalLink:https:\/\/www.wsj.com\/finance\/stocks\/birkenstock-shares-fall-in-stock-market-debut-8bb8add5?mod=lead_feature_below_a_pos1\">Wall Street Journal<\/em> reported.<\/p>\n<p><fbs-ad position=\"inread\" progressive=\"\" ad-id=\"article-0-inread\" aria-hidden=\"true\" role=\"presentation\"><\/fbs-ad><\/p>\n<p>Birkenstock decided to set its price at $46 \u2014 in line with the valuation of premium brands such as Nike<fbs-ticker data-name=\"NKE\" data-href=\"https:\/\/www.forbes.com\/companies\/nike\" data-type=\"stock\"><br \/>\n  NKE<br \/>\n <\/fbs-ticker>. Investors did not agree with that choice and sent the company\u2019s stock down 13% on its first day of trading.<\/p>\n<p>This is not the outcome the shoemaker or its underwriters intended. \u201cIt is rare for large companies, especially well-known brand names such as Birkenstock, to sink on their first day of trading. It\u2019s an outcome issuers and their underwriters assiduously try to avoid,\u201d the <em>Journal<\/em> wrote.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Stretched Consumers Put A Lid On Birkenstock\u2019s Growth Potential<\/h2>\n<p>Investors found two reasons not to accept Birkenstock\u2019s optimistic view of its growth potential.<\/p>\n<p>First, analysts warned Birkenstock\u2019s aim to expand into Asia and the U.S. would be challenging due to \u201ca cost-of-living crisis\u201d leading consumers \u201cto rein in spending on fashion items,\u201d according to <em>The <\/em><em data-ga-track=\"ExternalLink:https:\/\/www.nytimes.com\/2023\/10\/11\/business\/birkenstock-initial-public-offering.html\">New York Times.<\/em><\/p>\n<p>Some stock analysts and fund managers said \u201cthey saw the company\u2019s [valuation target] as rich against the backdrop of a choppy stock market and questions about the health of the U.S. consumer,\u201d the <em>Journal<\/em> reported.<\/p>\n<p>Secondly, recent shoe company IPOs now trade below their offering prices. These include:<\/p>\n<ul>\n<li><strong>Allbirds down 96% <\/strong>since its November 2021 IPO at about $26 a share.<\/li>\n<li><strong>Dr. Martens down 75% <\/strong>since its February 2021 IPO at $6.30 a share.<\/li>\n<li><strong>On Holding down 37% <\/strong>since its September 2021 IPO at roughly $39 a share.<\/li>\n<\/ul>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Recent Growth Is Too Sluggish To Justify High Valuation<\/h2>\n<p>To be fair, Birkenstock has enjoyed double-digit growth and has boosted its margins, which led one analyst to express optimism about the sandal maker\u2019s potential. However, investors concluded the company did not deserve a premium valuation.<\/p>\n<p>Birkenstock has grown profitably in recent years. Revenue grew at a 29.5% compound annual rate from $770.9 million in fiscal 2020 to $1.3 billion in fiscal year 2022. The company\u2019s net profit rose by about $91 million within that time frame, according to its <em data-ga-track=\"ExternalLink:https:\/\/www.sec.gov\/Archives\/edgar\/data\/1977102\/000119312523233488\/d541624df1.htm\">IPO prospectus<\/em>.<\/p>\n<p>Birkenstock shares began trading at an $8.6 billion market capitalization \u2014 way above that of peer companies \u2014 doubling the $4.3 billion L Catterton paid to acquire the company in early 2021. Birkenstock\u2019s IPO valuation exceeded its peers: Allbirds, Skechers, Crocs, and Steve Madden, noted <em data-ga-track=\"ExternalLink:https:\/\/www.barrons.com\/articles\/what-to-know-today-8d1b0ac\">Barron\u2019s<\/em>.<\/p>\n<p>Two analysts were comfortable with Birkenstock\u2019s high valuation. Neil Saunders, managing director and retail analyst at research firm GlobalData, anticipated a strong IPO due to the company\u2019s \u201cgood levels of growth\u201d and \u201cdegree of confidence around the brand,\u201d <em>Barron\u2019s<\/em> noted.<\/p>\n<p>Birkenstock was benefiting from the trend in casual post-pandemic workplace footwear and would enjoy growth from younger female customers. \u201cThe current growth is being driven by a younger, new consumer base and its rising popularity among celebrities \u2013 even Barbie has been spotted wearing Arizona sandals,\u201d wrote Alex Smith, global sector lead at research firm Third Bridge. Smith noted the show maker could \u201cexpand sales outside of the U.S. and Europe.\u201d<\/p>\n<p>Other analysts are skeptical. David Trainer, CEO at investment research firm New Constructs, told <em>Barron\u2019s<\/em> an $8 billion valuation would only be justified by tripling Birkenstock\u2019s 2022 revenue to \u201cmore than $3.8 billion.\u201d<\/p>\n<p>Torch Capital&#8217;s founder and managing partner Jon Keidan does not anticipate growth for Birkenstock. \u201cBirkenstocks falls into nice-to-have,\u201d he told <em>Yahoo Finance Live<\/em>. \u201cAnd if people are tightening their belts, that may be the type of purchase that they may not make [in] the next year or two.\u201d<\/p>\n<p>Trainer wrote in a research note last week, \u201cWe don\u2019t see this happening anytime soon, if ever. BIRK looks more than fully valued and does not provide investors much upside potential,\u201d <em>Yahoo Finance Live <\/em>reported.<\/p>\n<p>I think investors are leaning toward the views of Trainer and Keidan.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Birkenstock\u2019s CEO Has No Experience Running A Public Company<\/h2>\n<p>Can Reichert overcome investor doubts? He is \u201cthe creative mastermind behind our unique success and growth story, the driving force behind our transformation and innovation, and our supreme brand ambassador and brand custodian,\u201d according to Birkenstock\u2019s prospectus.<\/p>\n<p>Yet he has no prior experience running a publicly traded shoe company. To be fair, he was a reporter and CEO of a German sports TV channel called Deutsches Sportfernsehen \u2014 which was renamed Sport1 following his 2009 departure, according to <em>Crunchbase<\/em>.<\/p>\n<p>Birkenstock hired Reichert after a family scion in the business drank beers with him. According to <em data-ga-track=\"InternalLink:https:\/\/www.forbes.com\/sites\/laurendebter\/2021\/03\/02\/birkenstock-billionaires-unveiled-after-german-sandal-maker-agrees-to-sale\/?sh=1e5aabe548d7\">Forbes<\/em>, \u201cChristian Birkenstock reportedly met Reichert after his art dealer brought him along while dropping off some paintings and the three ended up grabbing beers.\u201d<\/p>\n<p>While Reichert had worn Birkenstocks as a kid, he had no prior experience running a shoe company. <em>Forbes<\/em> reported Birkenstock helped Reichert by appointing \u201clongtime employee Markus Bensberg\u201d as co-CEO.<\/p>\n<p>Reichert now has a chance to show the world how well he can run a publicly traded shoe company.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">Will Birkenstock\u2019s Falling Shares Hurt The IPO Market?<\/h2>\n<p>The IPO market is rebounding somewhat from an awful 2022. However, the rebound is mixed. Companies with growth potential are trading higher after their IPOs while shares of firms with less potential have lost ground.<\/p>\n<p>How the IPO market has fallen. Traditional U.S. IPOs raised $85 billion in 2020, nearly doubled to $150 billion in 2021 and then falling 94% to $8.6 billion in 2022. So far in 2023, about $19 billion has been raised \u2014 \u201ca third of which came from Arm, Klaviyo and Instacart,\u201d the <em>Journal<\/em> noted.<\/p>\n<p>While Instacart\u2019s IPO has lost 17% of its value since going public, Klaviyo has held up relatively well \u2014 losing only 2% since its September IPO. The market\u2019s message from Birkenstock\u2019s broken IPO is to take public companies growing very rapidly with high growth potential \u2014 OpenAI comes to mind.<\/p>\n<h2 class=\"subhead-embed color-accent bg-base font-accent font-size text-align\">What\u2019s Next For Birkenstock?<\/h2>\n<p>Birkenstock is bullish about its future. \u201cThrough the strong reputation and universal appeal of our brand \u2014 enabling extensive word-of-mouth exposure and outsized earned media value \u2014 we have efficiently built a growing global fanbase of millions of consumers that uniquely transcends geography, gender, age and income,\u201d noted the company\u2019s prospectus.<\/p>\n<p>I think investors should wait a quarter or two before considering buying Birkenstock stock.<\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.forbes.com\/sites\/petercohan\/2023\/10\/12\/shares-down-13-birkenstock-wont-revive-the-ipo-market\/\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Birkenstock, the nearly 250-year-old German shoe company, went public Wednesday and its shares fell 13%. Are the company\u2019s shares now a bargain? What does this mean for the revival of the market for initial public offerings? Here are three reasons not to rush into Birkenstock shares: Stretched consumers are not likely to pay up for its product. The sandal-maker\u2019s high valuation is not justified by its business model. CEO Oliver Reichert has no prior experience running a U.S. listed shoe company. The company\u2019s post-IPO drop is not good news for the overall market. But the market could revive itself if<\/p>\n","protected":false},"author":1,"featured_media":493,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[39],"tags":[],"class_list":["post-492","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markets"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>With Shares Down 13%, Birkenstock Won\u2019t Revive The IPO Market | ConnectWithFund<\/title>\n<meta name=\"description\" content=\"Birkenstock, the nearly 250-year-old German shoe company, went public Wednesday and its shares fell 13%. Are the company\u2019s shares now a bargain? 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