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Casper Is Setting The Tone For IPOs This Year And It Doesn't Look Good

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What do 50 Cent, Ashton Kutcher, Leonardo DiCaprio, Kevin Spacey and Target have in common? They're all investors in mattress startup Casper Sleep, commonly referred to as Casper, and they're not going to be happy with their investments. 

It was last March when Casper achieved the holy grail of private valuations. Casper raised $100 million in funding at a $1.1 billion valuation, therefore punching its ticket into the elite unicorn club. 

Casper was founded in April 2014 and hit a $1 billion valuation, with $340 million in total raised, before its fifth birthday. Everything was going as planned. The next step would be to grace the public markets with the opportunity to invest in Casper via an IPO. Casper did just that on January 10, filing an S-1 with the United States Securities and Exchange Commission to go public.

In the S-1, Casper referred to itself as "a pioneer of the Sleep Economy" going after a $432 billion "global sleep economy." The company's co-founder Neil Parik even said he wants Casper to be the "Nike of sleep." When Casper filed the S-1, it didn't disclose how much money it intended to raise or the valuation it was seeking.

"We bring the benefits of cutting-edge technology, data, and insights directly to consumers, the S-1 read. "We focus on building direct relationships with consumers, providing a human experience, and making shopping for sleep joyful."

At the time, Casper disclosed it lost $92.1 million on $357.9 million in revenue in 2018, compared to a net loss of $73.4 million on $250.9 million in revenue in 2017. Before the botched WeWork IPO last year, investors would salivate over the opportunity to buy a fresh public company with its losses outpacing revenues. 

However, times have changed and with it, so has Casper's valuation. Last week, Casper said it would offer 9.6 million shares between $17 and $19 per share, indicating a valuation of $768 million at the top end of the range. The range represented a staggering 30% haircut from the $1.1 billion valuation it received a year ago in the private markets. 

Things went from bad to worse when Casper slashed the range of the offering price to between $12 and $13 per share yesterday, indicating a new valuation of $520 million at the top end of the range. After the bell yesterday, Casper priced the IPO at $12 per share, the low end of the new range. At $12 per share, Casper's valuation drops all the way to $472 million, nearly a 60% haircut from the company's $1.1 billion valuation from last year.

As Casper's valuation has plummeted since its final private funding round, it appears even the investors in the later private funding rounds are set to take a hefty loss.

Simply put, Casper was a beneficiary of easy money flooding through the private markets. The company, which obtained unicorn status for shipping mattresses in a box has since expanded into brick-and-mortar stores. Even worse, there's an estimated 175 direct-to-consumer mattress-in-a-box companies, with some of them even manufactured by the same companies.

Ironically, just a few weeks ago when discussing the state of IPOs, New York Stock Exchange President Stacey Cunningham said "The first couple that come out of the gate will really set the tone for the year." If the Casper IPO, which begins trading today on the NYSE under the ticker CSPR, will "set the tone for the year," it appears many of these unicorns may have missed their opportunity to dump shares on gullible retail investors at their private market valuations.

Leftover Crumbs

  • From hopes of a trade deal to hopes of a vaccine. With no more hopes of a trade deal rumors for stocks to rally on, global equities have resorted to rallying on hopes of a coronavirus vaccine. The only problem is, the World Health Organization says there is no vaccine for it. Following reports a "significant breakthrough" has been made in creating a vaccine, the WHO said "There are no known effective therapeutics against this 2019-nCoV." Regardless, markets took the rumors as a buying opportunity and shrugged off the reality of the situation, with the S&P 500 gaining 1.13% on the day and 3.7% since last Friday's low.

  • They still hate bitcoin though. The United States Federal Reserve is exploring cryptocurrencies, looking at policy, design and legal considerations surrounding issuing its own digital currency. "By transforming payments, digitalization has the potential to deliver greater value and convenience at lower cost," said Fed Governor Lael Brainard. In a telling sign, Brainard criticized cryptocurrencies—such as bitcoin, that aren't issued by government entities saying "Some of the new players are outside the financial system’s regulatory guardrails, and their new currencies could pose challenges in areas such as illicit finance, privacy, financial stability and monetary policy transmission."

  • Macy's continues to look for a solution. Macy's announced a $1.5 billion cost-cutting plan that will see the company close 125 stores over the next three years and cut 2,000 corporate jobs. The closures, 30 of which are already in progress, will come from the "least productive" locations. Macy's will use the cost savings to refurbish stores, expand its loyalty program and launch new private label products. "We are taking the organization through significant structural change to lower costs, bring teams closer together and reduce duplicative work," Macy’s chairman and CEO Jeff Gennette said. "The changes we are making are deep and impact every area of the business, but they are necessary." 

  • Not all publicity is good publicity. Deutsche Bank is instructing its employees how to respond to various questions in anticipation of three books that are set to be released this year detailing the bank. The talking points cover subjects such as Deutsche Bank’s loans to United States President Donald Trump, its role in the financial crisis and its involvement with the Nazi government. "Some of the books may go beyond the facts and stray into extensive conjecture and speculation," the internal memo reads. "In preparation for questions from customers, clients or other stakeholders about these books, please use the following talking points."

  • Not like the rest. As brick-and-mortar retailers struggle, particularly at shopping malls, beauty retailer Sephora is planning to expand. The company will embark on its largest expansion yet, opening 100 stores this year, which is more than double the amount it opened last year. The new stores will be slightly smaller, not located in shopping malls and focus on fragrances and hair care. "We love our stores in malls ... but the focus on this next 100 is more off-mall locations," said Jeff Gaul, Senior Vice President of Real Estate and Store Development at Sephora Americas. "We are getting closer to where she lives and works, where she does most of her errands ... where she can pull right up and grab something."