Companies that went public via direct listing are beating the market average – and anything that beats the market deserves a closer look. Last week, Warby Parker, the e-commerce eyewear retailer, announced plans to go public via direct listing – the 11th company to do so.
What’s beating the market? Direct listings
Spotify made waves in 2018 as the first-ever company to go public via direct listing. Now, the strategy is gaining more traction. With a direct listing:
- Companies go public on the stock market without raising additional capital.
- Companies pay less banking fees incurred while going public.
Palantir, Asana and other popular companies followed in Spotify’s footsteps – with outstanding returns. According to research, direct listings are up an average of 64%, while the S&P 500 returned 27% in the same time period.
Why the better returns? According to Jay Ritter, “It reflects the fact that the group that’s chosen to do direct listings is a really high-quality group of companies.” And Warby is looking to continue that trend.
Warby’s bold retail expansion plan
Warby became famous for disrupting the eyewear industry with low-cost glasses – pushing the industry online with 7% of glasses now sold online compared to <1% when the company was founded in 2010. Don’t forget its “buy a pair, give a pair” Toms model.
Over the years, Warby expanded beyond e-commerce by opening retail stores – operating 135 stores today with plans to open 35 more this year. Like most retailers, its sales took a nosedive during the pandemic – but business is rebounding for the eyewear retailer.
For the first six months of 2021, the company reported:
- $270m in sales, up 53% from 2020.
- $20m in losses, compared to $10m in 2020.
Unlike traditional retailers, Warby took a different approach with expanding – negotiating the rent of their retail stores as a percentage of sales. This reduced risk if sales fell or stores were shut down (i.e. COVID).
Investors: Can Warby break the DTC curse?
Warby’s hoping to avoid the fate of other DTC (direct-to-consumer) e-commerce companies that went public:
- Casper (NYSE:CSPR), a mattress e-commerce company, is down 55% from its first-day trading price.
- Blue Apron (NYSE:APRN), the first meal-kit delivery service to go public, is down 97% since it began trading in 2017.
These companies had something Warby doesn’t – massive losses of $94m and $55m at the time of going public – while Warby has been near-profitable since 2019.
The DTC trend: Allbirds, a sustainable sneaker brand, also filed to list on the NASDAQ.
