Beyond Meat, a maker of meat alternatives, went public on stock markets on Thursday, and investors quickly drove up the price of the shares within minutes of being able to finally sink their teeth into the company.
The company is the first pure-play maker of vegan “meat” to go public, according to Renaissance Capital, which researches and tracks IPOs.
Beyond Meat raised about $240 million US selling 9.6 million shares for $25 each on Wednesday alternative. That values the company at about $1.5 billion US.
But when the shares started trading on the Nasdaq on Thursday afternoon, investors quickly bid up the price of the shares to $72, almost three times the IPO pricing. The first trades came in at around $46 per share before rising steadily through the day. By the end of the day, the shares had closed at $65.75, up 163 per cent.
Growing sales, but not profits
The 10-year-old company has attracted celebrity investors such as Microsoft co-founder Bill Gates and actor Leonardo DiCaprio, as well as buzz for placing its products in burger joints like Carl’s Jr. It sells to 30,000 grocery stores, restaurants and schools in the U.S., Canada, Italy, the United Kingdom and Israel.
Beyond Meat CEO Ethan Brown said the IPO timing is right, as the company wants to expand overseas. He also wants consumers to be able to buy shares because they’ve fuelled the company’s growth.
“It really is a wonderful feeling to be able to welcome people in who have helped this brand,” Brown told The Associated Press.
Still, Beyond Meat has never made an annual profit; it lost $30 million last year. It’s also facing serious competition from other “new meat” companies like Impossible Foods and traditional players like Tyson Foods Inc. Tyson recently sold a stake in Beyond Meat because it plans to develop its own alternative meat.
The IPO comes amid growing consumer interest in plant-based foods for their presumed health and environmental benefits. U.S. sales of plant-based meats jumped 42 per cent between March 2016 and March 2019 to a total of $888 million, according to Nielsen. Traditional meat sales rose by one per cent to $85 billion in that same time frame.
The trend is a global one. Sales of meat alternatives in the U.K. jumped by 18 per cent over the last year, while sales of traditional meat and poultry slid by two per cent.
Even Burger King has recognized the appeal. Earlier this week, the fast food chain announced it would start testing the Impossible Whopper, made with a plant-based burger from Impossible Foods, in additional markets after its month-long test in St. Louis proved successful.
Brown says the fact that Beyond Meat uses only natural ingredients that haven’t been genetically modified, and that it doesn’t use soy, sets it apart from competitors. Its products are made from pea protein, canola oil, potato starch and other plant-based ingredients. Its burgers “bleed” with beet juice; its sausages are coloured with fruit juice.
Grocery store expansion
Unlike competitors, Beyond Meat products have been available in the meat sections of grocery stores since 2016, thus broadening their appeal beyond vegetarians. Beyond Meat says a 26-week study last spring showed that 93 per cent of Kroger customers who bought its burgers also bought animal meat during the same period.
Health comparisons are mixed. A four-ounce burger from Laura’s Lean Beef that’s 92 per cent lean has more fat and cholesterol than a Beyond Meat burger, but the latter has more sodium and carbohydrates and slightly less protein. The lean beef burger has 160 calories, while a Beyond Meat burger has 270.
Brown says Beyond Meat is working to reduce sodium, which is a natural byproduct of its manufacturing process. But he also says red meat and processed meat have been classified as possible carcinogens by the World Health Organization.
Beyond Meat also costs more than real beef. Two four-ounce patties of Beyond Burger sell for $7.99 at Canadian grocery stores.
Brown said Beyond Meat has a five-year goal of getting at least one product — most likely beef — to cost less than the animal version. He expects the supply chain will grow as sales expand, which will lower the cost of raw ingredients like peas.
But Beyond Meat touts environmental benefits, as well. The company says a plant-based burger takes 99 per cent less water and 93 per cent less land to produce than a beef burger, and generates 90 per cent less greenhouse gas emissions.
Beyond Meat was founded in 2009 by Brown, a former clean-energy executive. Brown’s family were part owners of a Maryland dairy farm, so as a child, Brown spent weekends and summers on the farm. As he grew older, he began to question whether people really needed animals to produce meat.
Brown teamed up with two professors from the University of Missouri, Fu-hung Hsieh and Harold Huff, who had been developing soy-based chicken since the 1980s. By 2013, Beyond Meat was selling plant-based chicken strips nationwide at Whole Foods. (The company discontinued chicken earlier this year, saying it’s working on a better recipe.)
For investors, the stock is not without risk. Amid its annual losses, Beyond Meat must also continue to spend heavily on research and development. The company, based in El Segundo, Calif., employs 63 scientists, engineers, researchers, technicians and chefs at its 30,000-square-foot lab. It also has manufacturing facilities in Columbia, Mo.
Renaissance Capital, which has researched the company, says investors will likely tolerate the losses because the business is growing so quickly. Beyond Meat’s net revenue was $87.9 million last year, 170 per cent higher than in 2017.
In documents filed with the U.S. Securities and Exchange Commission, Beyond Meat says it will invest $40 to $50 million in current and new manufacturing facilities, and spend $50 to $60 million on product development and sales. The rest will be used to pay down debt and fund operations.
This story originally appeared on CBC