VS1 Cloud Blog

VS1 Cloud Blog

'The market's on fire': What's behind the flood of DTC IPOs?

28th Oct 2021 | Retail

Eleven years after its founding, Warby Parker last month made its public debut.

The DTC brand, which disrupted the way consumers buy eyewear, helped pave the path for other DTC companies, spurring the phrase "The Warby Parker of X" whenever a new, hot brand entered the scene. Warby Parker, which got its start selling glasses directly to consumers online, has grown its business over the years, from opening its first location in April 2013 to expanding its physical footprint to over 145 stores. 

And it appears Warby Parker is betting on those stores as it works toward becoming a profitable retailer. DTC brands have used stores as a tool to help offset the high marketing costs associated with acquiring customers online, which often hinder a company's ability to reach profitability.

Nonetheless, Warby Parker's direct listing came amid a flood of e-commerce brands looking to go public over the past two years: Other DTC darlings, like Casper and soon Allbirds, have placed their bets on the public market as well.

Warby Parker's public listing has been one to watch. When Warby Parker went public via direct listing last month, it began trading at $54.05 a share — more than double what it was being sold for in the private markets in August. In the month or so since its public debut, the brand's stock has remained around the $50 per share mark. 

In contrast, when Casper filed for an initial public offering in early 2020, it initially set its share price between $17 and $19. Just over a week later, the mattress brand slashed that price, and when it officially began trading on the New York Stock Exchange, it opened at $14.50 a share. About a month and a half after its public debut, Casper's stock hit an all-time low of $3.18 a share. Though its stock has ticked up in recent months, it has yet to exceed — or even reach — its opening share price.

For companies that have operated in the private markets for their entire existence, why take the risk of not only listing shares publicly, but also making financials publicly available? 

Theoretically, if a company is growing quickly and is cash flow positive, it could delay going to the public markets forever and remain a privately held company, according to David Wessels, an adjunct professor of finance at the University of Pennsylvania's Wharton School. But at some point, a company needs more.

"If you need cash — historically speaking, at some point the private markets could no longer fill your needs," he said. "That's when you would have the public markets."

Aside from gaining access to more capital, entering the public markets also gives companies a tremendous amount of credibility and gravitas, Wessels added, because brands not only have a strong consumer base at that point, but also an investor base supporting the business.

"A strategic sale usually doesn't have quite the splash that an IPO would have," Wessels said.

And sometimes, when the conditions are right, the market can help sway a brand in the direction of an IPO.

While acquisitions have remained the most popular option among DTC exits, public listings have been gaining steam: Retail Dive has tracked 17 major IPO or other public listing filings this year alone. And according to Pitchbook, IPOs in the DTC space this year have already hit a 12-year high, reaching 19 IPOs, up from nine and seven in 2020 and 2019, respectively.

Continue Reading

By: Caroline Jansen