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Beyond Meat Tanks: Will IPO ETFs Also Struggle?

Sweta Killa

Beyond Meat Inc. BYND, which had a blockbuster IPO, took a hit in aftermarket hours on Jun 29. Shares of Beyond Meat tumbled as much as 14% in after-market hours on elevated volume, following its mixed earnings and secondary offering news. Though the Vegan burger maker reported wider-than-expected loss, sales came is stronger. The company raised its outlook for 2019 (read: Blockbuster Beyond Meat IPO Puts These ETFs in Focus).

Soon after its earnings announcement, the company said it would embark on a secondary offering of 3.25 million shares only three months after its IPO. It would use the proceeds to continue to increase production and supply capabilities, pay for marketing and promotional activities, and for general working capital purposes.

Earnings Insights

Adjusted loss came in at 24 cents per share, much wider than the Zacks Consensus Estimate of loss of 8 cents but narrower than the year-ago loss of $1.22. Revenues jumped 287% to $67.3 million and edged past the estimated $51 million. Strong sales of Beyond Burger, new restaurant partnerships and greater demand from existing customers drove revenue growth.

For 2019, the plant-based meat company raised its revenue forecast to $240 million from $210 million. The new guidance is much higher than the Zacks Consensus Estimate of $219.4 million.

ETF Impact

Being the first publicly listed veggie meat company, Beyond Meat has got enough investor love, surging about 800% since its initial public offering in early May. This gain has also translated into strong price performance for IPO ETFs. As such, the huge decline in BYND shares put these funds in focus (read: IPO ETF Returns Double the S&P 500 in 1H: What Next?).

Renaissance IPO ETF IPO

This fund provides exposure to the largest and most-liquid newly listed companies by tracking the Renaissance IPO Index. New companies seek inclusion on a fast entry basis on the fifth day of trading. The fund currently holds 64 stocks in its basket, with each accounting for no more than 9.6% exposure. The fund has amassed $61.9 million in its asset base while trading in a lower volume of about 40,000 shares, probably implying additional cost beyond the expense ratio of 0.60%. The product has surged about 41.8% in the year-to-date period.

First Trust US Equity Opportunities ETF FPX

This ETF focuses on the largest, best-performing and most-liquid U.S. IPOs, and follows the IPOX-100 U.S. Index. New companies can find entry into the fund’s holding after trading for a minimum of 100 days. In total, the fund holds 100 securities in its basket with each accounting for no more than 9.1% share. The fund has accumulated $1.3 billion in AUM and witnesses volume of about 81,000 shares per day. It charges 59 bps in fees a year and has gained 30.1% so far in 2019 (read: ETFs in Focus on PayPal's Mixed Q2 Earnings).

Bottom Line

The slide in BYND shares wasn’t that bad for the IPO ETFs. This is because the funds have spread out exposure to a number of firms in various sectors like information technology, consumer discretionary and telecom services among others, suggesting that the funds can easily counter shocks from some of the industry’s components.

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