Birkenstock, a revered footwear brand with a history spanning 249 years, made its highly anticipated debut on Wall Street. However, the performance was anything but seamless, marking a significant setback for the recent streak of initial public offerings (IPOs) that were garnering traction.
Opening Day Setbacks
Birkenstock’s shares tumbled by 12.6% on the day of its debut, a misstep that has not been witnessed in a US IPO valuing $1 billion or more in over two years. The last such poor performance was AppLovin Corp.’s IPO in April 2021, where the company saw an 18.5% loss on its opening day. To add a touch of tradition to the momentous occasion, Birkenstock’s CEO, Oliver Reichert, rang the opening bell on the New York Stock Exchange floor, surrounded by individuals proudly waving the brand’s iconic sandals.
But unfortunately, this palpable enthusiasm did not translate into investor confidence.
Renaissance Capital’s senior research analyst, Nicholas Smith, pinpointed the current risk-averse market environment as a significant factor, especially within the consumer sector. Additionally, Birkenstock’s IPO roadshow was riddled with external challenges ranging from potential US government shutdowns and public holidays to outbreaks of war.
Price Points and Market Response
- The company opted for a conservative pricing strategy:
- IPO Price set at $46 per share.
- The company was valued at $8.64 billion.
- Opened for trading at $41, below the initial expected range of $44 to $49.
- Closing at $40.20, marking a 12.6% decline.
These price points raised eyebrows amongst market experts, with some considering it overvalued compared to industry peers. Bloomberg Intelligence’s Abigail Gilmartin highlighted the disparity by noting that while Birkenstock was valued at 4.9 times the forward price to sales, other footwear brands traded at merely two times.
Historical Legacy and Modern Appeal
Birkenstock’s legacy dates back to 1774, founded by Johann Adam Birkenstock in Germany. Over the years, the brand has oscillated between being deemed unfashionable to gaining a dedicated cult following. The recent Hollywood blockbuster “Barbie” even showcased the brand, amplifying its modern appeal.
In a regulatory filing with the Securities and Exchange Commission, the company emphasized its longstanding commitment to foot health and the universal appeal of its products. The Birkenstock footbed, developed in 1902, is a testament to the brand’s dedication to ensuring optimal foot health.
Production and Revenue Insights
- A significant portion of Birkenstock’s production remains rooted in Germany:
- All footbeds are manufactured in Germany. Over 95% of products are assembled in Germany. The rest are produced within the European Union.
- From a fiscal perspective, the company has shown robust growth, with its revenue surging from 727.9 million euros in 2020 to 1.24 billion euros in 2022.
Market Trends and The IPO Landscape
The onset of October witnessed heightened volatility in the global stock market, with several companies including Triton and French software firm Planisware postponing their IPOs. Birkenstock’s IPO was one of the few launches in the U.S. in the past month, joining the likes of Arm Holdings, Klaviyo, and Instacart. Yet, it’s important to note that the overall number of IPOs has been dwindling, with only 71 in the U.S. in the previous year, the lowest since 2009.
Broader Market Implications
Birkenstock’s IPO outcome serves as a cautionary tale for both mature brands and burgeoning startups looking to tap into public markets. With volatile geopolitical scenarios and lingering economic uncertainties, companies need to be strategic and agile in their approach to listing.
- Consumer Sentiment: The consumer sector, in particular, has shown signs of increased discernment, as demonstrated by Birkenstock’s debut. Brands, irrespective of their legacy, need to continually evolve and align with current consumer preferences, ensuring their offerings remain relevant and appealing.
- Pricing Dynamics: Valuations and pricing will play a pivotal role in future IPO successes. Companies must ensure their valuation reflects not just their historical successes, but also their potential for future growth in a rapidly changing market landscape.
- Investment Strategies: The traditional norms around IPO investments are shifting. Birkenstock’s emphasis on long-only investors, and the subsequent debate around it, indicates that companies need to revisit and perhaps restructure their investment strategies, balancing between short-term gains and long-term stability.
Looking Ahead
Birkenstock’s less-than-stellar IPO performance has been a topic of debate and speculation. Some experts argue that the brand’s choice to focus on long-only investors might lead to downward pressure on the stock. Furthermore, this IPO outcome has led other firms, such as Microsoft-backed Rubrik Inc. and car-sharing platform Turo Inc., to reevaluate their listing timelines.
As the market grapples with various external challenges and internal dynamics, the coming months will be pivotal in shaping the trajectory for IPOs and the larger financial ecosystem, revealing the resilience and adaptability of companies navigating this complex investment landscape.
