481882

Bark (BARK) Research Report: Q1 CY2024 Update


Full Report / June 03, 2024

Pet products provider Bark (NYSE:BARK) missed analysts' expectations in Q1 CY2024, with revenue down 3.6% year on year to $121.5 million. Next quarter's revenue guidance of $114.5 million also underwhelmed, coming in 7.7% below analysts' estimates. It made a non-GAAP loss of $0 per share, improving from its loss of $0.04 per share in the same quarter last year.

Bark (BARK) Q1 CY2024 Highlights:

  • Revenue: $121.5 million vs analyst estimates of $122.5 million (small miss)
  • Adjusted EBITDA: $2.2 million vs analyst estimates of $2.1 million (roughly in line)
  • EPS (non-GAAP): $0 vs analyst estimates of -$0.01 ($0.01 beat)
  • Revenue Guidance for Q2 CY2024 is $114.5 million at the midpoint, below analyst estimates of $124 million (adjusted EBITDA guidance also missed for the period)
  • Management's revenue guidance for the upcoming financial year 2025 is $495 million at the midpoint, missing analyst estimates by 3.2% and implying 1% growth (vs -8.2% in FY2024) (adjusted EBITDA guidance also missed for the period)
  • Gross Margin (GAAP): 62.7%, up from 57% in the same quarter last year
  • Free Cash Flow was -$3.17 million, down from $13.26 million in the previous quarter
  • Market Capitalization: $230.3 million

Making a name for itself with the BarkBox, Bark (NYSE:BARK) specializes in subscription-based, personalized pet products.

The company's journey started with a vision: to fill a gap in the market for high-quality, engaging, and personalized pet care items. This concept quickly gained traction during COVID-19, leading to its June 2021 SPAC debut.

Bark's primary offerings include subscription-based bundles such as BarkBox and Bark Super Chewer, which contain a customized selection of toys, treats, and chews. These bundles can be purchased online and scheduled for home delivery. Additionally, Bark sells pet food and dental products, and its goods can also be found at retailers like Target.

Bark’s customers are affectionate pet owners who prioritize their pets' happiness and well-being. The company's revenue is primarily derived from subscription services, supplemented by direct sales of individual products. Maintaining its subscription revenue base is key to its success.

Toys and Electronics

The toys and electronics industry presents both opportunities and challenges for investors. Established companies often enjoy strong brand recognition and customer loyalty while smaller players can carve out a niche if they develop a viral, hit new product. The downside, however, is that success can be short-lived because the industry is very competitive: the barriers to entry for developing a new toy are low, which can lead to pricing pressures and reduced profit margins, and the rapid pace of technological advancements necessitates continuous product updates, increasing research and development costs, and shortening product life cycles for electronics companies. Furthermore, these players must navigate various regulatory requirements, especially regarding product safety, which can pose operational challenges and potential legal risks.

Competitors operating in the pet care and products industry include Chewy (NYSE:CHWY), Petco (NASDAQ:WOOF), and Amazon (NASDAQ:AMZN).

Sales Growth

A company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones demonstrate sustained growth over multiple years. Over the last four years, Bark grew its sales at an impressive 21.6% compounded annual growth rate. This is encouraging because it shows Bark's offerings resonate with customers, a helpful starting point for our assessment of quality. Bark Total Revenue

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Bark's recent history marks a sharp pivot from its four-year trend as its revenue has shown annualized declines of 1.7% over the last two years.

This quarter, Bark missed Wall Street's estimates and reported a rather uninspiring 3.6% year-on-year revenue decline, generating $121.5 million of revenue. The company is guiding for a 5.1% year-on-year revenue decline next quarter to $114.5 million, an improvement from the 8.1% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 3.6% over the next 12 months, an acceleration from this quarter.

Operating Margin

Because consumer discretionary companies have volatile demand characteristics, unprofitable businesses have less control over their destinies.Bark doesn't give us much confidence as its high expenses have contributed to an average operating margin of negative 10.7% over the last two years.

Bark Operating Margin (GAAP)

This quarter, Bark generated an operating profit margin of negative 5.3%, up 4.8 percentage points year on year. Looking ahead, Wall Street expects Bark to shrink its losses but remain unprofitable. Analysts are expecting the company’s trailing 12 month operating margin of negative 9.3% to rise to negative 1.5% in the coming year.

EPS

Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although Bark's full-year earnings are still negative, it reduced its losses and improved its EPS by 56.7% annually over the last four years. The next few quarters will be critical for assessing its long-term profitability.

Bark EPS (Adjusted)

In Q1, Bark reported EPS at $0, up from negative $0.04 in the same quarter last year. This print beat analysts' estimates by 100%. Over the next 12 months, Wall Street is optimistic. Analysts are projecting Bark's EPS of negative $0.11 in the last year to reach break even.

Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, Bark's demanding reinvestments to stay relevant have drained its resources. Its free cash flow margin has been among the worst in the consumer discretionary sector, averaging negative 1.9%.

Bark Free Cash Flow Margin

Bark burned through $3.17 million of cash in Q1, equivalent to a negative 2.6% margin. The company's quarterly cash flow turned negative after being positive in the same quarter last year, but we wouldn't read too much into it because working capital needs can be seasonal and cause quarter-to-quarter swings in the short term.

Balance Sheet Risk

Debt is a tool that can boost company returns but presents risks if used irresponsibly.

Bark is a well-capitalized company with $125.5 million of cash and $87.82 million of debt, meaning it could pay back all its debt tomorrow and still have $37.68 million of cash on its balance sheet. This net cash position gives it the freedom to raise more debt, return capital to shareholders, or invest in growth initiatives.

Key Takeaways from Bark's Q1 Results

The quarter itself was relatively in line, but guidance was bad. Specifically, revenue and adjusted EBITDA guidance for both the upcoming quarter and the full year came in below expectations. The company is down 12% on the results and currently trades at $1.25 per share.

Is Now The Time?

Bark may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of Bark, we'll be cheering from the sidelines. Although its revenue growth has been good over the last four years, its projected EPS for the next year is lacking. And while its EPS growth over the last four years has been fantastic, the downside is its cash burn raises the question of whether it can sustainably maintain growth.

Bark's EV-to-EBITDA ratio based on the next 12 months is 51.9x. While one can find things to like about Bark, we think there are better opportunities elsewhere in the market. We don't see many reasons to get involved at the moment.

Wall Street analysts covering the company had a one-year price target of $1.95 right before these results (compared to the current share price of $1.25). Readers should still exercise caution as analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other lucrative business lines. As a result, they typically hesitate to say bad things for fear they will lose out on other business. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds of the data being released, and especially for companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.

Is Now The Time?

Bark may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of Bark, we'll be cheering from the sidelines. Although its revenue growth has been good over the last four years, its projected EPS for the next year is lacking. And while its EPS growth over the last four years has been fantastic, the downside is its cash burn raises the question of whether it can sustainably maintain growth.

While we've no doubt one can find things to like about Bark, we think there are better opportunities elsewhere in the market. We don't see many reasons to get involved at the moment.

Wall Street analysts covering the company had a one-year price target of $1.95 per share right before these results (compared to the current share price of $1.25).

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds of the data being released, and especially for companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.