Casper Sleep Inc on Wednesday sold shares in its initial public offering (IPO) at the bottom end of a targeted range it had already lowered, slashing the online mattress retailer’s valuation by more than half in less than a year.
The outcome of the IPO underscores the growing mismatch between the valuations that startups have attained in private fundraising rounds from venture capital funds and the valuations that stock market investors are willing to assign to them.
Casper said it sold 8.35 million shares in the IPO at $12 to raise $100.2 million. Earlier on Wednesday Casper had already cut its IPO target range to $12-$13 per share from $17-$19 per share.
At $12 per share, the IPO valued Casper at around $470 million, substantially below the $1.1 billion valuation Casper had commanded in a private fundraising round last March.
It indicates stock market investors remain lukewarm toward money-losing, direct-to-consumer companies following IPO flops in 2019 by the likes of ride-hailing firms Uber Technologies and Lyft Inc, and online dentistry company SmileDirectClub.
Office-sharing company WeWork was last year’s most high-profile IPO casualty, revising down its potential IPO valuation by tens of billions of dollars before eventually shelving plans to go public.
“(Casper’s) valuation drop reflects the overvaluation of the prior financing round, a valuation that was made during the disappeared era when growth mattered and profits didn’t,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
Casper priced its IPO on the same day that private equity-owned drug research firm PPD Inc pulled off the biggest stock market offering of the year thus far, raising $1.62 billion after pricing shares at the top end of its targeted range.
New York-based Casper generated $312.3 million in revenue for first nine months of 2019, up 20% from a year earlier, while net losses widened 5% to $67.3 million.
Casper competitor Purple Innovation, which has been public since 2018 and recently became profitable, has a market capitalization of about $700 million. Its shares have more than doubled in the last year.
Led by co-founder Philip Krim, Casper made its name by selling one “universally comfortable” type of memory-foam mattress, as opposed to offering options for different firmness and designs. It now sells three different types of mattresses directly to consumers.
Casper will begin trading on the New York Stock Exchange on Thursday under the symbol “CSPR.” Morgan Stanley, Goldman Sachs and Jefferies are the lead underwriters on the IPO.
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