Is IPO-bound eyewear company Warby Parker a good investment?

Since the IPO scene has been dominated by tech firms and biotechnology startups for quite some time, the upcoming initial public offering of lifestyle brand Warby Parker Inc. is expected to elicit significant investor interest.

The New York-based company is a leading provider of designer eyewear, with a mission to make quality products available at affordable prices. Recently, the company revealed its decision to become a public entity by offering around 78 million shares, to raise up to $190 million. The plan is to list on the New York Stock Exchange under the ticker symbol WRBY, but additional details like the offer price are not yet known.

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As per a statement submitted to the Securities and Exchange Commission, the company is looking for a direct listing, in which only existing/outstanding shares are sold without the involvement of underwriters. The IPO is tentatively scheduled for September 29, 2021.

Opportunities

The diverse portfolio and omnichannel capabilities place the company in an advantageous position, given the substantially low online penetration in the eyewear market competed to the other consumer categories. As a public company, Warby should be able to expand its market share considerably and turn profitable in the near future, thanks to the large market that is deemed highly underserved and the growing demand for fashion eyewear.

The value of the US optical market is estimated at $35 billion and is expected to grow at a combined annual rate of about 9% in the next four years. Statistics show that around 76% of the country’s adult population uses some form of vision correction.

The high level of digital content consumption during the shutdown and the increase in screen time usage is expected to lift the demand for eyeglasses. In addition, there is a natural replenishment cycle for eyewear as prescriptions change and new trends hit the market, which bodes well for the company.

In fiscal 2020, there was a modest improvement in Warby’s financial performance, though overall growth decelerated from the prior year. Revenues increased 6% annually to $393.7 million. As a result, net loss narrowed slightly to $55.9 million or $1.05 per share from $57.5 million or $1.10 per share in fiscal 2019. As of June 2021, the company served more than two million customers through its e-commerce platform and 145 retail stores.

Challenges

As in the case of most retailers, COVID-driven store closures had a negative impact on Warby’s business, and the uncertainty continues to linger. While the management remains focused on expanding the store footprint and preparing the company for the post-pandemic era, the highly competitive optical market would demand continued innovation. Due to Warby’s competitive selling prices, it is likely to take a bigger impact from elevated costs related to shipping and supply chain issues than peers.

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Holistic Model

Warby was founded in 2010 by Andrew Hunt, David Gilboa, Jeffrey Raider, Neil Blumenthal. Besides regular eyewear, it also offers contact lenses and eye examinations.  The company, which started as an e-commerce platform, is banking on its direct-to-consumer model to scale the business and offer products at competitive prices. So far, it has raised a total of around $536 million in multiple funding rounds, with the latest being $120 million raised a year ago.