Oatly, a Swedish consumer goods company with high-profile investors including Oprah Winfrey, former Starbucks (NASDAQ:SBUX) CEO Howard Shultz, and entertainer Jay-Z, just filed its F-1 — the pre-IPO prospectus that foreign companies are required to file before listing shares in the U.S. The document is intended to give potential shareholders a comprehensive view of the company’s business and financial history.
Here’s what investors need to know about Oatly before its shares start trading.
Founded more than 25 years ago by two food scientists, brothers Rickard and Bjorn Oste, Oatly, as its name implies, is an expert in oats. It sells oat milk and a range of oat-milk-based foods such as ice cream, yogurt, and other beverages. Its main markets are Europe, the United States, and China.
The brand is built around sustainability. According to the F-1, management thinks that linking its products to the ideas that underpin the world’s fast-growing environmental movement (all of its products are plant-based) will help Oatly build brand equity with customers over the long term.
Oatly products are currently available in 60,000 retail locations and over 30,000 coffee shops worldwide. Three big partners include Starbucks (and Starbucks China), Target (NYSE:TGT), and Alibaba (NYSE:BABA), which will help Oatly get its products in front of more consumers without it having to spend as much on advertising. It will give up some margin to these retails partners though, as companies rarely do deals like this for free.
In 2020, Oatly generated $421 million in sales, up 106% from 2019. This impressive growth shows that management’s global growth strategy is working, at least when it comes to the top line. Gross profit also grew by a relatively strong 94%, though the fact that this was somewhat slower than the revenue growth rate shows that Oatly is sacrificing a bit on margins as it tries to build out its global distribution network. (Some of that lag may also come from the deals it made with large retail partners.)
Oatly is unprofitable, with a $47 million operating loss in 2020, which was actually larger than its $30.8 million operating loss in 2019. Unprofitability is nothing to worry about in the short run (it’s hard to grow a business at 100% year over year and stay profitable), but in the long run, potential shareholders should expect Oatly to start generating cash instead of burning it.
Lastly, investors should be tracking Oatly’s capital expenditures. In 2020, it spent more than $134 million to build out distribution centers around the globe. These are necessary investments, and should help Oatly improve its profit margins, but its infrastructure needs will require a lot of upfront spending, unlike, say, a software business.
What will the valuation be?
Since Oatly isn’t currently trading publicly, we only have hints from the private markets as to how the business is being valued. When private equity group Blackstone invested $200 million in Oatly last July, the rumored valuation of the company was $2 billion, which would give Oatly a price-to-sales ratio of 4.75. This feels reasonable considering Oatly’s growth trajectory and the relatively low margins of the consumer packaged goods industry. However, some rumors have been floated before the IPO that Oatly could seek a valuation of $10 billion when it IPOs, which would be 5 times higher than last summer’s valuation.
We won’t know what market cap Oatly will command until it goes public, but $10 billion seems expensive, even when you consider its potential for growth. Taking that into consideration, it could be smart to exhibit patience with Oatly’s IPO, even if you’re bullish about the future of the plant-based food industry.
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