It's been a tough year for Beyond Meat (BYND 0.95%), and by extension, its shareholders. The stock's down about 40% year to date with the plant-based meat company's top line on pace to fall nearly 20% for the full year. Given that Beyond Meat still isn't turning a profit, such signs of trouble take an oversized toll on the stock.
Just know that at least some of this year's sales headwind was the result of high inflation, and this pricing pressure is finally leveling off. At the same time, some consumers remain turned off to alternative meats' taste and texture, while others question whether its health benefits are worth the cost and trouble. These impasses, however, are being addressed.
Bottom line? The company's survival depends on doing three things in the coming year, and doing them well. Any delayed or ineffective effort might leave Beyond Meat in even more of a financial lurch than it's in right now.
1. Change the messaging
Generally speaking, consumers aren't completely dismissive of plant-based meat alternatives -- they're just not thrilled with them. Consumer market research firm 210 Analytics reports that fewer than half of U.S. consumers who purchase and prepare a plant-based meat once end up buying the product again, due to a combination of its taste, texture, and cost.
They're also not convinced this young category of food is as healthy as it's been made out to be. As Beyond Meat CEO and founder Ethan Brown conceded during November's earnings call, "[...] 50% of U.S. consumers believe that plant-based meats were healthy in 2020. By 2022, this number had declined to 38%, and my guess is that this percentage would be lower today."
And Beyond Meat's results suggest Brown's guess is right. Last quarter's U.S. sales fell nearly 31% year over year, extending a well-established decline despite promotional partnerships with the likes of Kim Kardashian, high-profile venue partnerships like its deal with Madison Square Garden, and an ever-growing network of distributors and retailers.
It's not exactly clear what's not clicking with consumers, although it's worth pointing out the nation's traditional meat industry is waging a campaign against plant-based competition. What is clear is the company can't continue what it's already doing and expect to regrow domestic demand.
2. Double down on overseas markets
While U.S. consumers aren't yet stoked about alternative meats, that's a dynamic largely limited to the United States. Overseas, consumers increasingly like their plant-based meat options.
Numbers compiled by the Good Food Institute Europe put things in perspective, indicating sales of plant-based alternatives reached a new record in Europe last year, up 22% from 2020's levels. In this same vein, a recent report from the EU's Smart Protein project says a little over half of Europeans are deliberately cutting back on meat consumption, primarily for health reasons. The Asia-Pacific market is another promising one for the nascent plant-based meat industry.
This matters to Beyond Meat in a big way.
As it stands right now (and thanks to last quarter's 59% international sales growth), about 40% of Beyond Meat's current revenue is generated outside the United States. That's the result of an intentional effort to promote its products where consumers are far more receptive to them. The overseas market is much, much bigger than the U.S. market is on its own. It would be wise to continue ramping up its overseas efforts to promote its brand in these markets before a rival captures market share.
3. Raise funds
Last but not least, down to its last $217 million in cash, analysts with TD Cowen say Beyond Meat will "need to tap the financial markets in 2024 to maintain operations." For perspective, Beyond Meat had nearly $310 million in the bank as recently as the end of last year. The company lost $70 million during the three-month stretch ended in September with operating cash flow nearing negative $80 million. Both of these numbers also prolong well-established trends.
Getting this cash injection, however, will be no easy feat.
Profits remain soundly out of sight here, even though the company's been around since 2009 and public since 2019. Investors aren't simply going to fork over more money to buy newly issued shares of a stock that's been sinking since early 2021 when the plant-based meat mania finally started slowing down.
And the prospect of raising money by selling more bonds isn't any more compelling. Issuing new debt, after all, only piles on more (and inflexible) expenses to the unprofitable company's income statement.
And yet something must be done that provides the company with cash. As TD Cowen's recent note concludes, "We see 'going concern' risk for Beyond, given deteriorating trends in their U.S. meat alternatives business and negative cash flow." The key will be convincing investors they're not simply throwing away good money after bad.
Just keep Beyond Meat on the shelf for now
Things might end up falling into place for this struggling company. Domestic sales may start growing again, while international sales growth accelerates. Anything's possible.
Mere possibility isn't much of an investment thesis, though.
To make this ticker truly worth owning, investors need to see the first of the two tasks described here handled skillfully in the coming year. Meanwhile, the third one -- raising cash -- must be done in a manner that doesn't put the company in an even more precarious situation. There's no room for any new low-interest rate loans right now, let alone loans at the high interest rates that most would-be bond buyers would insist on.
Issuing stock is an alternative, but given the company's continued losses and existing shares' continued decline, an equity offering would no doubt result in some serious value-crushing dilution.
Bottom line? The Beyond Meat story will certainly be one worth watching in 2024. From a risk-versus-reward perspective, though, there's way too much risk and not enough likely reward to justify owning the stock right now.
