Beyond Meat’s IPO success story withers into penny stock territory

All was rosy for Beyond Meat six years ago – alt-protein sales were enjoying a boom and the company’s shares rallied post its IPO to north of $230.

But the tide has turned and Nasdaq-listed Beyond Meat’s shares have been thrown into the dishwasher as a so-called penny stock, churned over by a debt swap and equity dilution.

At the close of play yesterday (13 October), they were trading at $1.04, down 48% on the day.

A calamity might be an understatement but TD Cowen analysts are predicting further declines as the US investment bank lowered its price target to 80 cents from $2.00. And one has to suspect that might be an underestimate unless Beyond Meat can wring out some mammoth undertaking.

The trouble is, efforts to do just that have so far failed to deliver any optimism, at best. After all, the business has been loss-making ever since its market debut in May 2019. The following year, Beyond Meat notched up a loss of $53m, which blew out to $175m in the next 12 months and $343m in 2022.

Those were the blossoming years for plant-based proteins, enabling Beyond Meat to record revenues above $400m annually in the three years after the IPO. With that came international expansion – sales in new markets such as Europe and China, and production facilities overseas.

However, the past few years have been a different story. Most notably, alt-meat sales have dwindled, not just in the US but further afield. The much-publicised issues around taste, texture, mouthfeel, and price have been the main culprits, which defeated the lofty aspirations of industry players and avid investors.

Back down to earth, Beyond Meat has suffered but is still just surviving, while a host of other manufacturers have fallen by the wayside. And the flip to health in the wake of the Covid pandemic hasn’t helped either, as consumers scrutinise ingredients lists – another weight on the plant-based meat category.

All of these factors are now fusing together and Beyond Meat has dug deep into its toolbox this year to try and find some stability but the measures undertaken so far have only served to exacerbate the share price declines.

Equity dilution

The latest, a debt swap, replete with an option to swap debt for equity. The completion of that programme was announced yesterday ahead of schedule. And the shares tanked, taking losses this year to 73%.

Key to the shares’ demise was equity dilution. But at the same time, Beyond Meat was swapping zero percent bonds with notes carrying an interest rate of 7% as it sought to cut debt by around $800m.

For a business that had $1.2bn of debt in June, as per the second-quarter results announcement in August, one wonders if ramping up debt-servicing costs was a sensible course to take.

However, the exercise did extend the maturity profile for Beyond Meat, which has been experiencing a cash-burn for some time.

Investors had the option of swapping existing zero percent convertible bonds due in 2027 into notes maturing in 2030, along with an exchange of up to circa 326 million in shares.

According to TD Cowen analyst Robert Moskow, Beyond Meat exchanged its $1.11bn 0% convertible notes maturing in 2027 for $196.2m of new 7% convertible bonds due in 2030.

Moskow wrote in a research note that interest payments will increase the rate of cash-burn by $14m per year, while participating noteholders will receive 316.2 million in new shares.

As TD Cowen amended its price target for Beyond Meat, Moskow said the exchange amounts to “significant shareholder dilution” as it equates to an increase in share count of 413%.

“The company remains financially and operationally challenged,” Moskow suggested.

Beyond Meat president and CEO Ethan Brown had a more optimistic tone.

“We are pleased to announce this early settlement of the exchange offer for our existing convertible notes, which marks a meaningful next step towards our goal of reducing leverage and extending debt maturity for Beyond Meat,” he said in a statement yesterday.

Investors, however, were already wary when the debt exchange was revealed in September. The shares dropped 36% to $1.82 on 30 September, the day of that announcement.

Challenges prevail

A shift from $1.82 to $1.04 in a matter of weeks must be concerning for Beyond Meat and no doubt market watchers will be eyeing subsequent movements today now the dust has settled on the debt swap to some degree.

Nevertheless, seen in context, the shares were priced at $25 in May 2019 before the market debut for an estimated market capitalisation of $1.5bn. They rallied to around $65 on the first day of trading to give a market cap of some $3.9bn, this publication reported at the time.

According to calculations by Bloomberg, the decline in the shares yesterday was the most abrupt since post the IPO, with the news service putting the current market cap for Beyond Meat at just below $80m.

Investors will likely now be looking beyond the debt-exchange programme, most notably the observations, conclusions and guidance from the external advisor hired in August.

John Boken at consultancy AlixPartners was assigned to the job, described in Beyond Meat’s second-quarter results filing as an executive with “corporate turnaround and restructuring experience”.

Those results only added to the gloom, however, has group sales dropped 19.6% to $75m for the quarter, accompanied by a net loss of $29.2m. The direction was the same in the opening three months of the year.

Amid all the uncertainty, CEO Brown has resorted to not providing guidance, leaving investors in the dark over the forthcoming third-quarter announcement. But given the record to date, it’s likely to take a surprise to knock investors off their perches.

That’s especially so when it’s difficult to reflect on how Beyond Meat can make up the ground in sales when the alternative-meat category is generally in decline, more so given the company’s recent exit from China.

Even in US retail, Beyond Meat’s largest market by revenue, sales were down in the second quarter by a whopping 26.7%, although they eked out a 6.8% increase in foodservice.

It was a similar picture in the international market, mainly Europe. Sales fell 25.8% in retail and 9.8% in the out-of-home channel.

John Baumgartner, a managing director at Mizuho Securities, summed up the precarious trading environment for Beyond Meat in August as he commented on the assignment of Boken.

“We view the appointment of an interim chief transformation officer via AlixPartners as a positive but Beyond Meat remains engaged in a formidable bind between needing to drive revenue growth while expenses are reduced.

“Combined with economic headwinds and stronger demand for animal meat, we are increasingly cautious about category growth prospects into 2026.”

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