Casper stocks jumped 30 percent following its IPO on Wednesday morning, ultimately closing up on the day, despite a chorus of doubts from investors who questioned the online mattress seller's underlying profitability.
Skepticism ratcheted up in recent days as Casper lowered its starting price from $17 to $12 per share — the bottom end of its expected range and a signal to investors that the company was bracing itself for a less than stellar opening on the stock market.
Either price is a far cry from the $1.1 billion valuation that Casper received as a private company in March 2019 after another round of venture capital.
But the slight pop in stock value is no cause for celebration, according to Sucharita Kodali, a retail analyst for Forrester.
"The numbers for Casper don't look terribly impressive right now," Kodali told Cheddar. "It's not been improving from a profitability standpoint."
For the last quarter, the company reported a net loss of $67.3 million on $312.3 million in revenue. Heavy marketing costs and a generous 100-day return policy have also given investors pause.
Kodali said the IPO does not bode well for the direct-to-consumer space, which has become saturated with venture capitalists eager for an exit through either an acquisition or public markets.
The botched IPO of WeWork — another company with a more straightforward business model than its Silicon Valley trappings might suggest — has served as a cautionary tale for investors.
"I think the industry has been so skeptical towards these companies that call themselves tech startups," she said. "I think investors are becoming wizened to the fact that these are often VC-inflated stories."
Not quite a tech company but not content to be a simple mattress seller, Casper in recent years has expanded into what it calls the "sleep economy," encompassing bed-sheets, bed-frames, pillows, dog mats, and even CBD gummies for sleep aid.
"Casper tried to make a darn good case that it was more than just mattresses," Kodali said. "They tried to brand this whole vision of the sleep economy, but the truth is that its bread and butter is a mattress in a box and that is fundamentally what everyone sees them as."
But even competing on those terms has gotten more difficult. Since Casper launched in 2014, a number of competitors have adopted the mattress-in-a-box concept, including Nectar, Helix, Ghostbed, Purple, and Allswell, some of them at lower price points.
As the novelty of getting an entire mattress delivered in a box fades, Casper could face some difficult adjustments to the size and scope of its operation.
"You have to cut staff and you have to cut marketing, unfortunately, and that is the only path to profitability that these companies have," Kodali said.