Beyond Meat (BYND -0.82%) was one of the hottest initial public offerings (IPOs) in 2019. Shares jumped over 100% on its first trading day in May of that year and rocketed up over 500% at one point that summer.
Investors wanted all they could handle of the plant-based meat craze, and Beyond Meat stock was able to give it to them. But in 2022, it started to tumble -- and fast -- after the company kept reporting deteriorating financial results. Shares of the stock are now down 70%, wiping out any gains (and more) for investors.
Beyond Meat has taken a major tumble since going public in 2019. Let's try to see if the stock is ready to make a comeback, or ready to head even lower.
What is Beyond Meat?
Beyond Meat is one of the leading plant-based meat retailers around the world, with a large presence in the United States.
The company touts its innovative products like Beyond Sausage and the Beyond hamburger patty as healthier and environmentally friendlier substitutes for the $1.4 trillion global meat market. It has also just released a new Beyond Steak product as it tries to expand its product portfolio.
The company sells its products to retailers, grocery stores, and restaurants. It partnered with huge restaurant chains like McDonald's to offer Beyond Burgers and other products. This was (hopefully) a gateway for people around the world to try plant-based meat substitutes and thus turbocharge growth.
The hype effect has worn away
So far, these partnerships have not done much to move sales. Revenue is only up 23% since the company went public and has actually started to decline in recent quarters.
In the third quarter of 2022, revenue dipped 22.5% year over year, a terrible sign for a company that was supposed to be in hyper-growth mode and disrupting the entire traditional meat market.
Profitability looks even worse. Beyond Meat had negative gross margins over the last 12 months that have only deteriorated in recent quarters, leading to an operating loss of $89.7 million on just $82.5 million in revenue in the third quarter.
The problem with Beyond Meat -- and the plant-based category in general -- is that it was a lot of hype not backed by what consumers actually wanted. Celebrities, politicians, and scientists around the world heaped praise on plant-based companies like Beyond Meat a few years back, making it a big theme for people to try it out. Distribution reached restaurants around the globe.
Now, in early 2023, it is pretty clear that people either want to stick with real meat or don't like the substitutes.
Where does it go from here?
Beyond Meat raised a $1 billion convertible bond in March of 2021 to help it invest for growth. Now, it only has $390 million in cash left on the balance sheet, negative gross margins, and declining revenue. At its current loss rate, the company will be out of money sometime in 2023.
In order to fix this mess, management plans to cut costs across its business. It believes that positive cash flow is achievable by the end of 2023, which would require major operational changes.
I just don't see this cash-flow recovery happening. Beyond Meat is already spending a ton on marketing in order to prop up a product line that is printing negative gross margins. If it slows down marketing spending, this will likely exacerbate its revenue declines, keeping the company from finding a profitable cost structure.
Unless its unit economics get fixed sometime within the next few years and these revenue declines reverse, I believe Beyond Meat could be staring at a bankruptcy filing a few years from now, if not sooner.
