An S-1 is usually the first opportunity to see a private company’s closely-guarded secrets, and besides the figures about growth rates and financials, the “risk factors” chapter often shows some of the most interesting parts of how the company does its business.
One of the things revealed is how concerned Casper is about its brand, and how important marketing is. Among the first risk factors is that the business is all about the health of the brand and if the image and name loses strength, the company is in trouble.
Furthermore, keeping the brand strong could require “substantial investments” in marketing, so much so that the company says: “Our future growth and profitability depend on the effectiveness and efficiency of our marketing programs.”
“We are highly dependent on the effectiveness of our marketing programs and the efficiency of our related expenditures in generating consumer awareness and sales of our products,” the company says. The S-1 draws a complex picture of paid and unpaid sources of marketing and advertising, including influencers and more traditional methods like direct mail.
‘We rely exclusively on third-party contract manufacturers’
There’s good reason for being so marketing-focused: Casper doesn’t make its own stuff.
Instead of vertical integration, which is how many of Casper’s competitors operate, it relies on contractors to fill its needs.
Though Casper does note its research and development costs through its “Casper Labs” wing, the fact that its products are made in factories shared by other brands could be read as a reminder that mattresses and “sleep technology” are fairly commoditized — hence the need for a giant marketing budget.
Casper spent $200 million on buying mattresses to sell in 2018 and around $126 million to market and sell them. From 2016 to the end of September 2019, the company spent $422.8 million in marketing, according to the S-1.
This may change, eventually. Casper notes that it would like to vertically integrate. Not vertically integrating, Casper says, “may make our products less desirable than products produced by our competitors who have complete control over the manufacturing process.”
Casper now has a bunch of other direct-to-consumer competitors these days with similar products — foam mattresses that come in a box that have 100-night guarantees. Leesa, Avocado, and Tuft & Needle are a few competitors, and even old standby Tempur Sealy (TPX) is doing it now. The main differences may be the companies’ marketing budgets.
The commodified atmosphere could make things interesting for Casper in the future — especially if it has to keep spending so much on marketing. If the price of a Casper mattress, which starts at $395 for the budget option twin and ends at $1,395 for the same size, is so marketing heavy, that could be an opportunity for a competitor.
The company will trade as CSPR. According to the S-1, the size of the offering would be $100 million. The company saw revenue of $312 million from January to September of 2018, with a net loss of $67 million, making the company the next non-profitable unicorn to throw its hat in the public ring.
It last had a private valuation of $1.1 billion.