April 30, 2019 / 9:36 PM / 20 days ago

Breakingviews - Beyond Meat’s green IPO could still burn buyers

Cows are seen in the walkway to the milking parlor at Fair Oaks Farms in Fair Oaks, Indiana, November 4, 2013. Picture taken November 4, 2013. REUTERS/Jim Young

NEW YORK (Reuters Breakingviews) - Beyond Meat’s market debut may not be to everyone’s taste. The plant-based burger maker is seeking a $1.5 billion valuation after raising its initial public offering target price by about 20 percent. The eco-friendly business has developed a following among consumers. But with former investor Tyson Foods entering the alternative-meat space, investors may have more appetizing options.

The 10-year-old company run by Ethan Brown is seeing sales of its legume-based burgers and sausages grow at an accelerating pace. Revenue grew 170 percent last year, to $87.9 million, up from a 101 percent expansion pace the previous year, and preliminary figures suggest growth hit roughly 200 percent in the first quarter of 2019. The IPO seeks a valuation of 17 times last year’s revenue, a premium to Lyft’s recent 12 times multiple, but Beyond Meat is growing much faster than the ride-hailing app.

Brown’s outfit is still losing money, but in contrast to Uber Technologies and Lyft, it’s keeping costs under control and shrinking red ink slowly even as the business gets much larger. Last year’s net loss declined by 2 percent, to $30 million. Assuming he can double revenue each year and generate an operating margin of 20 percent, the company could turn a profit of $440 million in 2023. Put that on a multiple of 15 times, not excessive for a fast-growing food company, and Beyond Meat could then be worth $6.6 billion.

That potential explains the company’s ability to super-size its offering. Yet Beyond Meat isn’t the only player out there. Competitors include startup Impossible Foods, Tyson and Kellogg’s MorningStar Farms. Kellogg and Tyson could undercut Beyond Meat and Impossible Foods in the grocery aisles, where their brands are better known.

Supply deals with Carl’s Jr. and TGI Fridays are helping Beyond Meat’s restaurant and food-service sales grow more than four times faster than retail sales, but deep-pocketed rivals can make inroads there too. Investors are right to seek greener options, but this share offering still risks burning investors.

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