Wall Street banks severely underestimated the popularity of plant-based foods when pricing the market debut of Beyond Meat (BYND +10.63%). The miscalculation has proved costly.
Consider that the initial public offering (IPO) included over 11 million shares priced at $25 apiece, which raised over $240 million. But shares traded hands at nearly twice that amount on the day of the IPO and are comfortably above the $70 range today. While the animal-free protein developer isn't worth its current market valuation, it probably could have raised a few hundred million dollars more.
That's OK, though. Wall Street bankers will get another chance. Many chances, actually. Beyond Meat is just the first of a wave of animal-free protein developers that are likely to splash onto public markets through IPOs and acquisitions. There are dozens of companies developing products in the space and securing investments from established food developers such as Tyson Foods (TSN 1.81%), Cargill, Archer Daniels Midland (ADM +0.13%), Awano Food Group, and Ingredion (INGR 1.01%).
Here's what the future holds for investors -- and why it's best to avoid calling it "fake meat."
Image source: Getty Images.
What's in a name?
A burger by any other name would taste as awesome, right? Probably, but discussion of Beyond Meat and its competitors gets messy quickly. From "fake meat" to "meatless meat," "plant-based" to "vegan," investors and curious onlookers will have to wade through a number of awful and inaccurate descriptions. Sometimes it's just journalists without technical backgrounds covering technical subjects. Other times it's just that marketing teams are still figuring out how best to describe products to consumers in the early days of the field.
That said, there are three main terms that will likely come to dominate the discussion:
- Vegan -- The product doesn't contain animal-derived ingredients.
- Plant-based -- The protein source is from plants, but secondary ingredients in the product might still come from animals.
- Cultured -- The protein source was grown from microbes or tissue culture in a bioreactor. The microbes are usually genetically engineered, and fed plant-derived energy sources such as sugar, so sometimes companies just say "plant-based" to avoid bringing up the genetically modified organism debate. Additionally, when tissue culture is used, the product is real animal meat, but a live animal wasn't the vessel used to grow it.
In the long run, it won't matter if products are manufactured from genetically engineered microbes or considered "lab meat," only that they deliver on ideals (avoiding industrial livestock production), taste (indistinguishable from animal-derived meat), and cost.
Therefore, above all else, the most accurate way to think about the field is also the simplest: protein. The entire technology focus of the first vegan IPO was that it delivered a non-animal protein source. That's also what connects Beyond Meat to the companies that are destined to follow in its footsteps to mass-market products -- and even the public markets.
Image source: Getty Images.
The field is stacked
Beyond Meat's successful market debut has catalyzed interest in animal-free protein sources from established food and restaurant chains. TGI Friday's, Burger King, Chick Fil A, and Little Caesars are just a few of the major industry players exploring how to introduce new products to consumers. As that diverse list suggests, non-animal protein sources aren't confined to replacing animal-derived burgers.
Consider a sample of the companies and animal-free protein products being developed and market-tested.
|
Company |
Animal-Derived Product Targeted |
Notable Development(s) |
|---|---|---|
|
Beyond Meat |
Plant-based beef and sausage |
Successful IPO, market valuation over $4 billion |
|
Impossible Foods |
Plant-based beef, sausage, other |
Burger King sells an Impossible Whopper in some cities, Little Caesars testing sausage product |
|
JUST (formerly Hampton Creek) |
Plant-based eggs and mayonnaise, cultured beef |
Partnered with Awano Food Group to develop, market, and sell cultured beef products |
|
Memphis Meats |
Cultured beef, poultry |
Tyson Foods purchased a stake in 2018 |
|
Clara Foods |
Cultured proteins for food (egg whites) and beverages |
Ingredion led its Series B fundraising round in April 2019 |
|
Geltor |
Cultured collagen (gelatin) |
Selling collagen to cosmetics industry, 2020 launch for food |
|
Finless Foods |
Cultured seafood |
Raised $3.5 million in 2018 to develop cultured bluefin tuna |
|
Wild Earth |
Cultured protein for dog food |
The vegan dog market is larger than you think, apparently |
Data source: Author.
That table is in no way an exhaustive list of the animal-free protein start-ups that exist, of which there are dozens, but it goes to show the diversity of the market opportunity. Not every company will succeed or make it to the public markets, but some will, while others will be acquired by established food companies.
The market is still in its infancy
Beyond Meat may have paved the way for animal-free protein on Wall Street, but it certainly will not be the only investing opportunity in animal-free protein products. That realization might chip away at the company's premium market valuation over the remainder of 2019. After all, the stock trades at an astonishing 50 times sales. That's not to suggest that the business can't thrive in the $1.4 trillion global meat market, but a lot of future growth is priced into shares right now. Investors would be better off waiting for a better entry point -- or even the next animal-free protein developer to make a splash.
