Founded in 2009, Beyond Meat (BYND 0.95%) aimed to revolutionize the food industry by developing plant-based proteins that closely resemble real meat in taste and texture. But over a decade later, demand for these meat alternatives has seemingly hit a wall, and the company has failed to create a sustainable business model.
Will the next five years be any different, or is the company trapped on its lackluster trajectory?
What Beyond Meat's present can tell us about its future
Beyond Meat's business is in crisis, and its third-quarter earnings offered a snapshot of its ongoing challenges. Net revenue declined 8.7% year over year to $75.3 million, driven by a stunning collapse in the U.S. retail and food-service segments, which saw their revenue down 34% and 22%, respectively.
From a macroeconomic perspective, headwinds like inflation and rising interest rates are pressuring household budgets, causing families to skip luxury food items (Beyond Meat's products are costlier than natural meat).
However, the company has much deeper problems. Just 4% of Americans identify as vegetarian, while 1% identify as vegan. This is a relatively small addressable market for Beyond Meat unless it can also appeal to omnivores, but this is easier said than done
Not only is simulated meat more expensive than natural meat, but even its alleged health benefits have come into question. A tasty plant-based burger patty, for example, still requires a load of processed ingredients and high amounts of sodium. Over time, Beyond Meat's research and development (R&D) can address these challenges by refining its production techniques and food science. But time might be running out.
The business model looks broken
Beyond Meat reported a $69.6 million operating loss in the third quarter, an improvement from the $89.7 million loss in the prior-year period.
But this improvement was partly a result of a one-time restructuring expense last year and a reduction in R&D spending, which might make it harder for the company to fix its previously mentioned problems with demand and perceived product value.
Nevertheless, management is leaning deeper into its cost-cutting. In November, the company cut 19% (65 staff members) of its non-production workforce. This follows the elimination of 240 workers in 2022.
Image source: Getty Images.
These efforts can further reduce Beyond Meat's operating expenses, but they won't end the cash burn because the company is currently generating gross losses, which means it costs the company more to manufacture and sell its products than it can recoup by selling them. That's before even considering operating expenses like managerial and office salaries, advertising, and R&D.
At the rate the company is currently burning through free cash flow -- $151.1 million of it in the trailing 12 months -- cash on its balance sheet will only last another 18 months before management has some really tough decisions to make.
How will Beyond Meat stock perform over the next five years?
Beyond Meat stock is already 97% off its all-time high, but the company is in a difficult situation that will continue to put pressure on its stock price over the next five years.
While macroeconomic headwinds like inflation and high interest rates will eventually ease, Beyond Meat's weak economic moat and uphill battle against traditional meat -- especially as cash challenges limit its growth initiatives -- make this stock one to avoid.
