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VOL. 44 | NO. 6 | Friday, February 7, 2020

Online mattress pioneer Casper soars in debut trading

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NEW YORK (AP) — Shares of online mattress pioneer Casper Sleep Inc. popped in their debut trading on the New York Stock Exchange Thursday.

But the New York-based company still faces challenges ahead to prove to investors it can profitably sell mattresses as it becomes a bigger name in the so-called "sleep economy."

In early afternoon trading, the shares were changing hands at $14.47, 20% above the $12 IPO price. The stock opened at $14.50 and traded as high as $15.85.

The strong opening offers encouraging news after several recent IPO flops and after Casper had to sharply cut the price of its IPO. Casper had said earlier this week that it anticipated an offering of $12 to $13 per share, but then later pegged that to the low end of that range.

Last month, Casper said it expected to price the IPO between $17 and $19 per share.

Philip Krim, co-founder and CEO of Casper, told The AP he was happy with the debut but said he continues "to be very focused on a long-term vision." He declined to comment on when the company would become profitable but said that he's focused on driving market share and growth while controlling expenses.

Casper, based in New York, became the first well-known name to reveal plans to go public this year, serving as a test for investors' appetite for unprofitable startups heading for the public markets. Since last year, investors have grown more cautious on startups that don't make money. The ride-hailing companies Uber and Lyft debuted on the market last year but have continued to lose money, and both have traded well below their IPO prices. Office-sharing company WeWork scuttled its IPO in September, a crisis that left it on the brink of bankruptcy and forced the ouster of co-founder Adam Neumann.

Matthew Kennedy, senior IPO market strategist for Renaissance Capital, a provider of institutional research and IPO-exchange-traded funds, said that Casper had to discount its IPO price to be more realistic for investors' current state of mind.

"They will need to show they can work toward profitability and that sales growth is not based on marketing spend," said Kennedy. He says it will also need to show that it can outperform the competition.

Casper has expanded beyond online selling, opening 60 Casper stores and selling to 18 retail partners like Target and Amazon. It has plans to eventually expand to more than 200 stores in North America.

It has also expanded beyond mattresses to pillows, sheets and dog beds. It currently operates in seven countries.

Founded in 2014, Casper proved naysayers wrong that no one would buy a mattress online. In fact, it revolutionized the way mattresses were delivered by coming up with a mattress flexible enough to be folded into a box small enough to fit into a trunk of a car.

Casper has said that it has lots of room to grow, estimating that the global sleep economy was worth about $432 billion last year. It says the U.S. sleep business was nearly $80 billion last year. Casper's success has also helped to spur other online mattress rivals like Purple, Leesa Sleep and Tuft & Needle, which merged with the world's leading mattress manufacturer Serta Simmons Bedding.

"Casper is doing a bunch of things that are extremely beneficial to customer and extremely costly to offer, and many of their competitors don't do it," said Steve Dennis, a strategic retail adviser. Casper, for example, is known for its generous return policy and its "risk-free, 100-night trial" for every product.

But Casper is losing money. For the nine months ended Sept. 30, it had sales of $312.3 million. Net losses were $67.4 million during that period. In 2018, sales were $357.9 million, while losses were $92.1 million. In 2017, the company had sales of $250.9 million and incurred losses of $73.4 million.

Casper and other digital native consumer brands face higher costs to expand their business. Just a few years ago, online-only brands believed that they didn't need a physical presence to generate robust sales growth. Now, they are finding that the cost of acquiring new customers online is soaring as competition for eyeballs has increased the cost of online ads on Google and other platforms. So, now they've been opening physical stores, another added cost.

Casper plans to use proceeds for working capital and to fund growth and for other general corporate purposes.

The stock is traded under "CSPR" on the New York Stock Exchange.

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Follow Anne D'Innocenzio: http://twitter.com/ADInnocenzio

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