Analyzing Small Cap Stocks: Allbirds
The TDR Three Key Takeaways regarding Allbirds and Small-Cap Stock:
- Allbirds’ market cap plummets from $2 billion to $87 million, reflecting severe financial decline.
- Allbirds’s year-to-date revenue has decreased by $17.4 million, reflecting a downward trend.
- Allbirds’s financial troubles are further evidenced by its EBITDA loss of $94 million over the past 12 months.
Allbirds, Inc. (NASDAQ: BIRD), a company that operates in sustainable footwear, has experienced a dramatic decline in market valuation. Originally celebrated for its innovative use of natural materials, the company’s current market cap stands at $87 million, a contrast to its former $2 billion valuation.
Allbirds was founded as a Kickstarter campaign aimed at producing shoes from natural, sustainable wool instead of traditional leather. This approach quickly gained traction, propelling the company to a significant market presence and an initial market cap of $2 billion. However, the rapid growth was unsustainable, and the company has since seen a substantial decline in its stock value, now trading at $0.55 per share.
In the last fiscal year, Allbirds generated $239 million in revenue. However, the company’s year-to-date revenue has decreased by $17.4 million, reflecting a downward trend. Despite maintaining a healthy gross margin of 42.2%, the company’s financial stability is undermined by SG&A expenses, which account for 90.5% of revenue. This means that for every $100 in sales, over $90 is consumed by operational costs, highlighting a significant inefficiency in the company’s cost management.
The company’s financial troubles are further evidenced by its EBITDA loss of $94 million over the past 12 months. The high operational costs and declining revenues create a precarious financial situation, particularly for a small-cap stock with limited resources.
Allbirds’ liquidity position is concerning. With a total working capital of $140 million and a negative credit rating of -1.6, the company may only have a year to a year and a half of runway at its current burn rate. The possibility of raising additional equity is unattractive, given the significant drop in stock price, and the potential for securing further debt is minimal. This situation underscores the urgency for Allbirds to restructure its operations or find new revenue streams to remain viable.
A notable aspect of Allbirds’ history is its involvement in numerous lawsuits, including cases against competitors like Steve Madden. While defending intellectual property is common, the frequency and duration of these legal battles indicate deeper strategic issues. These ongoing lawsuits have likely been a distraction and a financial burden, contributing to the company’s challenges.
Allbirds’ story is an interesting case of a company of rapid growth without sustainable financial planning. The company’s innovative products and initial market enthusiasm were insufficient to maintain long-term profitability. With high operational costs, declining revenues, and limited liquidity, Allbirds faces significant hurdles. Investors should approach Allbirds with caution, recognizing the substantial risks and the uncertain future of this once-promising company. Want to be updated on Cannabis, AI, Small Cap, and Crypto? Subscribe to our Daily Baked in Newsletter!