Beyond Meat withers: its shares could fall to zero

For a Nasdaq company to lose more than 40% this year is hardly news. More than 150 firms on the Nasdaq Composite are in that situation today. But for one of the companies that represented the responsible consumption model of the future to do so and some to place it on the verge of bankruptcy in the medium term is remarkable.

Beyond Meat is a food company that creates plant-based products that claim to replace meat. Founded in 2009, in the following years it achieved private financing and visibility through celebrities who stand out for their fight for sustainability, such as Bill Gates, Leonardo DiCaprio or Jessica Chastain. But its moment of glory came in 2019, when it began trading on the Nasdaq and its price skyrocketed.

However, the increasing expansion of the company’s products has not achieved the desired results and may now face extinction. So at least the analysts at New Constructs think, who have included Beyond Meat in their list of “zombie stocks”, pointing out that the constant burning of capital is unsustainable.

David Trainer, CEO of New Constructs, points out that the company “has failed to generate positive cash flow since it went public in 2019”, and that already in 2018 the firm burned about 1,000 million in cash flow.

“Beyond Meat must dramatically cut its costs and reduce its cash burn, or it will go bankrupt,” stresses Trainer, who believes that the firm’s situation “puts the company’s shares at significant risk of falling to $0 per share”.

The big problems: inflation and ‘animal and vegetable’ competition

In fact, the company has already started cutting costs, starting with laying off 40 workers (4% of the workforce) as part of a larger plan to “reduce operating expenses and support sustainable growth.” according to an internal memo from CEO Ethan Brown.

In fact, the company has presented its second quarter results this week, and expectations are far from positive. “Progress for us and for the industry is taking longer than anticipated,” Brown said on the investor call after the earnings release.

In this aspect, Brown blames “inflationary pressures” from the reduction in consumer spending, and direct competition that continues to lower prices despite the increase in inflation, forcing them to compete at the price level by reducing margins.

Thus, for the recovery of the firm, the CEO trusts in a general improvement in the economic situation and in the spending cut plan that includes the reduction of inventories and the reorganization of its structure, together with the reduction of operating costs. To this is added the attention to the taste of their products so that “it is indistinguishable from animal protein”, insisting to the consumer on the health benefits of their products and achieving lower prices to the level of what the meat alternative costs animal.

The numbers speak for themselves

Despite the plan presented by Brown, they capture the crudeness of the situation. Its losses amounted to $97.1 million ($1.53 per share vs. $1.18 the Refinitiv consensus forecast), while income was capped at $147 million vs. $149.2 million expected by the Refinitiv consensus. experts, and net sales decreased by 1.6%.

But it is also that the company itself has significantly cut its revenue forecast for the whole of 2022, going from a range of 560 – 620 million that it predicted in the first quarter to a range of 470 – 520 million in the accounts presented this week.

From stock market glory to below IPO

Beyond Meat debuted on the stock market on May 3, 2019, with an initial price of $25 per share, and that same day. Its advance was unstoppable for weeks, until it reached an all-time high of $234.9 on July 26 of that year, multiplying its starting price by almost 10 in less than three months.

The subsequent fall brought it to around 75 dollars by the end of 2019, and the ‘covid crash’ made it lose 60 dollars, although in its recovery it touched 200 again in October 2020.

But the last 12 months have been an ordeal for Beyond Meat stocks, with a retracement of almost 70%. And the bleeding does not stop, since it has come to trade below 25 dollars – and therefore losing the value of its stock market debut – for a good part of the month of June.

Shareholders who have bought in recent weeks have seen a juicy rebound, with a 40% rise in the last month (largely driven by the double-digit rise this Friday). It is worth asking, therefore, if what is gradually becoming a ‘meme action’.