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$BARK – $1.2 MM Position | Dog Brand Ready To Takeover | My Dog Needs Tendies Too

Here’s my case for $BARK. I am not a financial advisor, just a dog lover. I have two awesome dogs: a wheaten terrier, and a havashire.

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I currently hold an approximate $1.2 million position in $BARK, in the form of common stock, warrants, covered calls, and puts that I have sold. I’ve averaged up 3 times, and have eaten every dip.

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Summary

  • Dog owners love their dogs.
  • Before $BARK, there was no company that was able to deliver the full spectrum of products that dogs need under one universally trusted brand.
  • Most dog brands exist in their individual silos, i.e. just food, just toys, just sticks, etc.

It started as a monthly dog toy subscription service. Since 2020, it has added new divisions in order to be the go-to brand for all products your dog will ever need.

  • Barkbox has created a loyal base of 1.8 million subscribers,
  • Low churn rate of 5.4% — and has expanded into other products to maximize the value of this consumer relationship.
  • Thanks to it’s recent IPO, the stock has a warchest of ~$427 million to further boost its growth.
  • Vertically integrated, they make their own stuff which is why gross margins are high

My thesis is that Barkbox has created a noteworthy sticky brand – and will see substantial growth through it’s multi-pronged approach at monetizing it’s client base.

  • Most recently, Barkbox was added to Amazon’s subscription boxes landing page. This is a new development. More info about this can be read here and why it’s so important.
  • With over 50% of the e-commerce market on Amazon, Barkbox’s new inclusion into Amazon subscription will boost it’s existing revenue.

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The Opportunity

  • $36.9 billion is estimated to be spent on food in 2020
  • $19.2 billion is estimated to be spent on supplies/otc medicine
  • $29.3 billion is estimated to be spent on vet care

During covid, an estimated 11.38 million US households have gotten a new pet.

  • Petcare market in the USA is more than $50 billion and will continue to grow.
  • Pet industry is mostly dominated by brick and mortar retailers.
  • The pet market is in the early stages of innovation and is brimming for something new.

According to PYMNTS.com, ¾ of US adults – 182 million consumers, subscribed to at least 1 subscription service since last July. Nearly 50% of consumers who signed on for a new subscription since the pandemic began intend to stick with it even after the pandemic is over.

Here is the overview on Barkbox

Barkbox is the first full spectrum dog brand that is capitalizing on all aspects of the human relationship with his/her best friend.

  • Fun
  • Health
  • Food
  • Essentials

Barkbox has a product for every situation, and it has a loyal customer base.

Product

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  • Fun: Barkbox launched in 2012, with its signature monthly toys/treats box.
  • Fun with Big Dogs: Barkbox launched its Bark Super Chewer in 2017, a line of super durable toys.
  • Essentials: Barkbox launched Bark Home in 2019, selling essentials (beds, leashes, collars).
  • Health: Barkbox launched Bark Bright in 2020, selling dog dental solutions, and health/wellness goods.
  • Food: Bark launched Bark Eats in 2020, personalized health food blends.

Strong Economics

  • The average life time of a subscriber is 16.1 months
  • The customer acquisition cost is “paid back” within 4 months
  • Return on customer acquisition cost is over 350% in 2 years
  • Over the last several years, Barkbox has increased gross profit per subscription, while reducing customer acquisition costs.

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High Margin

  • Barkbox gross margin is ~60%
  • In comparison, Chewy, a marketplace for pet products, is around ~25%

Social Media

  • $BARK has 8.5 million social media followers, even though it specifically focuses on dogs.
  • $CHWY in comparison has ~2.3 million on Facebook/Instagram combined, even though it focuses on all types of pets..not just dogs

Growth Levers

  • Expanding into new product categories
  • Growing subscriptions
  • Cross-selling new products
  • Growing retail, and e-commerce channels
  • Cost efficiencies only possible with more scale
  • Build “own” facilities to do warehouse and fulfillment, which will improve customer experience too

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The Team

Former co-founder of Meetup, Matt Meeker, is Executive Chairman/Co-Founder.

Former Director of Amazon Global is CEO.

Members of the management team have been featured in Fast Company’s list of “Most Creative People,” and Forbes “30 under 30”, among other accolades.

Omni-channel Distribution

  • Barkbox has built an impressive brand, and it collaborates with retail partners in addition to selling directly to consumers.
  • It’s distributed by major retailers such as: Target, Amazon, Costco, Walmart, and Petsmart
  • It does joint collaborations with brand such as Bluestone Lane, and even Anheuser-Bush, among many others, such as the NBA.

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Barkbox has over 1.8 million annual active subscribers.

In an investment deck for the popular App Acorns, BarkBox was mentioned as having one of the biggest subscriber bases, alongside big brands such as: NYTimes, Dropbox, Peloton, and Spotify – due to its impressive subscriber base.

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Competition

Barkbox has no true competitors. Most brands exist in their own individual silo, i.e. just food, or toys. Other competitors like Chewy, are marketplaces.

$HIMS is a consumer subscription based model, that seems to be a good peer for comparison purposes. Due $HIMS recurring subscription revenue model, it is a good comparison for discussions. Based on $HIMS valuation, this would support $BARK trading in the $15-20 area.

For general purposes, I have included a comparison of other pet related brands.

CHWY – Chewy

FRPT – Freshpet

TRUP – Trupanion

source: https://twitter.com/spacanpanman

Risks

No DD is complete without thinking about the bear case.

Most recently, Chewy, a competitor of $BARK, reported profits but warned of labor shortages and supply disruptions.

Even though $BARK is vertically integrated, it is likely that it will have the same labor and supply disruptions, as all businesses are facing.

Shortly before it’s IPO, $BARK was accused of selling a chew stick that killed a pet. There is no evidence the chew stick was responsible.

  • Instead of ignoring the allegation, Barkbox immediately addressed it via social media, and said it was working with the manufacturer to look into the death.
  • Barkbox immediately stopped distributing the item.
  • Their emphasis on “doing the right thing,” speaks loudly to their ethos, and means we can trust them to do the right thing and continually expand with their consumer base

Market Reaction

  • Buy rating, and $16 PT from Cannacord Genuity analyst Maria Ripps.
  • Buy rating, and $14 PT from Jefferies
  • The stock IPO’ed at $10, and has slowly risen and is at $11.35 on 6/15/2021.
  • Fidelity owns 8.3% of $BARK, which is an impressive sign of their confidence in the company. In addition they ANCHORED THE PIPE!

Investment Highlights

Barkbox is a real company, with real revenues. The team has demonstrated it can execute. As investors, the goal is to find the next big thing. Without a doubt, as Barkbox continues executing in many of it’s new divisions, it will become a highly coveted gem.

  • The pet category is big and growing
  • This is a digitally focused brand, which is doing both DTC and collaborating with major brands for increased exposure
  • It uses data, to improve the subscription experience and to personalize the box/product for its clients – STRONG RETENTION!
  • It can continue to accelerate growth by introducing new products, cross selling, and adding more channels.

Business Model: Barkbox will continue to grow it’s subscription services direct to consumers, in addition to distributing its products with retailers like Amazon.

Defensibility: Barkbox has an impressive 1.8 million base of recurring consumers, and is considered one of the biggest subscription services.

Capital: Thanks to it’s recent IPO, it is flush with cash

For further info: May 2021 investor presentation by Barkbox

EDIT: Want to thank https://twitter.com/spacanpanman for being an amazing source of info! Follow this man!

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