Casper stock jumps in Wall Street debut

Shares Casper rose more than 20% once they began trading Thursday and quickly moved above $15 a share.

That would normally be considered a solid debut, but Casper priced its initial public offering at $12 per share. That was the low end of its already drastically reduced target price.

Investors are already giving the company an icy reception. Casper revealed the pricing late Wednesday after announcing in an earlier regulatory filing that it had cut its IPO target share price to $12 to $13 from $17 to $19.

Casper's IPO woes show investors are growing hesitant in supporting companies that don't have a clear direction toward profitability.

"The clear lack of enthusiasm among IPO investors stands in contrast to the continued interest in [consumer] companies," said Gary Dushnitsky, professor of strategy and entrepreneurship at London Business School. "If Casper's IPO unravels, we may see its fellow unicorns foregoing the path for a while."

Although many big companies like Amazon and Coca-Cola are thriving, investors have grown increasingly skeptical of money-losing consumer goods startups.

Peloton and SmileDirectClub have both stumbled since their recent IPOs, as have ridesharing giants Uber and Lyft.

But Casper's struggles come at a time when larger, established bedding companies are thriving. Shares of Sleep Number and Tempur Sealy, which are both profitable companies with growing sales, have surged about 50% and 70% respectively in the past year.

Casper's valuation has plummeted

Casper is offering 8.3 million shares at the start. The pricing of $12 per shares values the company at around $500 million, down from the $705 million it valued itself at last week. At one point, Casper was valued at more than $1 billion.

The company's long-term prospects for profitability are questionable at best. The company reported its preliminary 2019 financial results last week, and although sales soared 23% to about $439 million, it lost about $94 million in the past year. Its loss was about 2% more than its losses during 2018.

Casper blamed the losses on expenses and marketing to bolster its growth in retail stores. It also said it was spending a lot of money on developing new products to move beyond the saturated mattress-in-a-box market. Sales and marketing expenses continue to be a heavy burden on Casper. It spent roughly $155 million in 2018 — an increase of 23% compared to the year prior.

The company got its start in April 2014 after raising almost $2 million from venture capital firms and angel investors. Casper captured consumers' attention first with its mattress that fit into a cardboard box the size of a mini fridge and has since expanded to a portfolio of products including dog beds. It attracted several high-profile investors including rapper Nas and actor Ashton Kutcher.

Casper's plunging valuation could be a problem for these and other investors. Venture capital firms Institutional Venture Partners, NEA and Norwest Venture Partners collectively hold nearly 23% of the stock. And retail giant Target owns a more than 7% stake in Casper through its Red Cart Ventures unit.

But the market has grown increasingly saturated, with dozens of competitors entering the mattress shipping space. That's why Casper is trying to rebrand itself as a sleep and wellness company. So far, investors aren't buying it.