The S&P 500 has surged about 24% in 2023 despite a tough economic backdrop. The index is hovering around its all-time high, and plenty of stocks have been taken along for the ride. A new bull market is approaching, although not all stocks will benefit.
Beyond Meat (BYND +3.69%) and Etsy (ETSY 0.08%) were left behind in 2023, with both stocks tumbling around 30%. If these companies can't get their acts together, a repeat performance could be coming in 2024.
Beyond Meat
The fake meat revolution has hit a brick wall. Beyond Meat, one of the industry's pioneers, is struggling mightily with sinking demand. Through the first nine months of 2023, Beyond Meat's revenue tumbled 20% on a 12% drop in product volume. Consumer demand is faltering, and Beyond Meat has had to ramp up trade discounts to prevent volumes from falling further. In the U.S. retail channel, net revenue per pound declined 18.6% in the third quarter.
NASDAQ: BYND
Key Data Points
Not only is Beyond Meat unprofitable, but it's unprofitable to an almost shocking degree. The company's gross margin is currently negative, which means that it's selling its products for less than they cost to produce. Meat is a commodity business, with supply and demand largely dictating pricing. It turns out that fake meat has similar economics.
Beyond Meat can cut costs, which is the extent of its turnaround plan at the moment, but that won't fix the demand problem. The company is burning through cash, and its balance sheet is looking increasingly precarious with each passing quarter. Its $218 million in cash will last another two years or so at the current burn rate, and there's already $1.1 billion of debt. Book value, or assets minus liabilities, is now deeply negative.
The most likely outcome for Beyond Meat, at least in my opinion, is failure. The company could be sold for its brand down the road, but that won't net much given how little value the brand seems to have in the eyes of consumers. Barring a miraculous recovery in demand for fake meat, it's hard to see a path forward that involves Beyond Meat surviving as a stand-alone company.
The stock market is nearing its all-time high, but Beyond Meat has been left behind. That trend is unlikely to change in 2024.
Etsy
Online marketplace provider Etsy finds itself struggling to grow. The company had great success during the pandemic as buyers and sellers of unique and handmade items flocked to the platform, but sales have stagnated. Etsy has wrung out more revenue by boosting fees and leaning on advertising sales, but the platform is stuck.
Etsy works as a business if its platform works for sellers, and right now it's not working nearly as well for sellers as it has in the past. Etsy recently laid off 11% of its workforce in an effort to save money, and CEO Josh Silverman admitted that the company has failed to deliver more sales to sellers in the post-pandemic period.
NYSE: ETSY
Key Data Points
Etsy has found a lucrative corner of the e-commerce market that isn't dominated by Amazon, and I would argue that its size gives it a distinct competitive advantage. A competing marketplace for the same types of items would be difficult to get off the ground. Etsy benefits from network effects that are fueled by its 7 million sellers and its tens of millions of buyers.
However, if Etsy can't get sales through its platform growing again, sellers will eventually start looking for alternatives. Network effects work in reverse as well. If the company starts to lose sellers, the situation could snowball and become difficult or impossible to reverse.
Unlike Beyond Meat, Etsy is a solid and profitable business with a viable path to turning itself around. But as the stock market booms, Etsy stock may find itself trailing behind until the company convinces investors that it's not the next eBay.
