From 2014 to 2018 Casper was everywhere on the internet flooding advertisements to every trending podcast website and Youtube video; ‘need a mattress buy Casper. Not comfortable.

Buying a mattress online that you’ve never seen or touched before. No problem buy your casper mattress today sleep on it and if you’re not happy at any time return it for a full refund within your first 100 days no questions asked with a radically generous return policy and aggressive multi-million dollar advertising budgets, Casper quickly rose to fame as the flashiest and fastest growing online consumer brand. Hot out of Silicon Valley venture capitalists fueled casper’s rise as they were all really eager to showcase casper as another shining example of technological innovation and business transformation casper warby parker dollar shave club were all pioneers of a new type of business model that venture capitalists were really obsessed with called direct to consumer direct to consumer direct to consumer direct to consumer direct to consumer to go direct to consumer the direct to consumer movement that direct to consumer the d2c direct to consumers they’re able to get those prices because it’s direct to consumers right the d2c business model is simple one you make a quality consumer product it can be something as simple as a pair of glasses a razor or in casper’s case a mattress two you cut out the middleman retailer three you brand your product with sans serif font pastel colors and other hipster designs four you package that all onto a cool online website and you sell your product direct to consumers at a low price on paper the advantages of this d2c model look pretty strong traditional consumer brands operate in a wholesale model and so the only way that traditional consumer brands make money is by getting their products into retailers and selling in bulk quantities since all these consumer brands are fighting with each other to get their products into the shelves of target costco kroger’s whole foods sam’s clubs safeway and there are only so many shelves to go around these consumer brands end up designing their products to appeal and press and satisfy the retailers rather than actually solving the end consumer’s need and so by removing the retailer from the equation d2c businesses in theory can design and offer products to consumers that are higher quality and cheaper than the kind of stuff that they’d have to buy off the shelves of a target a dtc company can then promote its products very cheaply and efficiently through social media and sell them exclusively to customers over the internet removing the need for real estate and storefronts eager to ride on silicon valley’s hottest trends venture capitalists all over the world poured their money into d2c companies all eagerly chasing this vision as this would redefine e-commerce as we know it venture capitalists have poured over 3 billion dollars to date into d to c companies casper was the shining crown jewel and poster child for this business model attracting 340 million dollars in investment over five years the hype for casper and the d2c business model got so big that even celebrities like ashton kutcher leonardo dicaprio maroon 5 and 50 cent all joined in as investors even big retailers like target couldn’t ignore casper’s rise and those executives became so smitten with the idea that acquiring casper would inject freshness quirkiness and millennial appeal into its antiquated retail stores which is something that target has long since been obsessed with if we go back in time you think about that target guest that target shopper as the suburban housewife now she’s pulling up in the van with a couple of kids and they’re certainly coming to our stores today but we’re appealing much more to that millennial family target offered to acquire casper for 900 million dollars but quickly found that casper’s founders were not willing to settle for a purchase of anything lower than a billion dollars that shut everybody up unable to match that price tag target settled for just being a pre-ipo investor and in just a few short years casper had become a true silicon valley unicorn with a pre-ipo evaluation in 2019 of 1.1 billion dollars fast forward one year to 2020 where casper was now making its long-awaited ipo debut on the public stock market but instead of the glamour and champagne casper’s entry into the public markets was widely criticized as a desperate downright embarrassing disaster the company ended up slashing its lofty billion dollar valuation by 50 to 500 million in a last-ditch attempt to make the company palatable to public investors since its ipo casper’s struggles have continued dropping another 100 million dollars in its valuation the stock price has dropped by 40 to date they’ve shuttered down their european business they’ve lost their ceo and their cfo and they’ve ended up laying off 21 of their workforce casper’s investors including all the celebrities that had joined in at that billion dollar price tag before the ipo have all ended up losing their money it’s been an epic collapse for casper the one-time unicorn darling of silicon valley and the d2c business poster child a startup that no one could seemingly get enough of has now quickly become taboo in venture capital circles so what happened to casper the answer lies in the numbers as a private company casper had been able to spin the numbers to its unicorn status but as soon as casper went public its true financial performance was laid out for everyone to see casper had lost money in every year of its existence in 2017 negative 73 million 2018 negative 92 million 2019 negative 93 million and 20 20 negative 90 million losing money is nothing new to silicon valley and tech startups these days to be honest wall street has clearly shown an appetite in the past few years and especially under covid to look past companies that were putting in losses and put hope in future growth like a tesla amd data dog and atlassian but in casper’s case the reality is that it’s not a tech company casper sells mattresses at the end of the day not software or hardware the average casper mattress sells for about 700 after paying off the supplier and the delivery costs to get it from their warehouse to your door casper makes about 377 dollars from each mattress sold when you do that math it actually gives casper a very sexy and appealing 50 gross margin so what’s the rub the catch is that casper dumps all the money that it makes into advertising in 2017 casper spent 91 of its gross profit on advertising in 2018 80 of its gross profit on advertising 2019 73 and then 20 20 60 of their gross profit on ads this means that every one dollar casper makes off of each mattress sale 60 to 73 cents of that one dollar is going back into facebook spotify or instagram for ad that means that every company expense like salaries r d warehouse rent delivery website design customer support all of those expenses have to come out of the company’s pocket advertising is ultimately meant to grow not to sustain a business the nuance here is that online advertising itself has also dramatically evolved since casper’s founding in 2014 in 2014 and 2015 when casper was just getting off the ground internet advertising and influencer marketing online was extremely affordable running facebook ads was a very easy inexpensive and effective way to target consumers much cheaper than any billboard or television advertising ever was but as more companies have flocked to facebook instagram youtube and other popular platforms to target consumers online advertising has gotten saturated competitive and expensive it’s no longer just casper who’s able to dominate the airways with 340 million dollars of a war chest it’s casper and thousands of other d2c startups and big consumer brands like unilever and procter gamble all throwing in millions of dollars every year targeting the same consumers trying to hit the same demographics and ultimately driving up advertising costs for everyone else in 2019 alone it was reported that the cost per click for facebook rose by nearly 93 to break this down into simple math that means for every one dollar a company used to put in to promote a facebook advertisement they would now need to put in at least two dollars just to get the same result as before the saturation and explosion of online advertising costs have popped the bubble not just for casper but also for the hundreds and thousands of other d2c startups that had all been fundamentally dependent on these unsustainable business models that were reliant on cheap online advertising and an endless iv drip of venture capital but with the death of brandless and the struggles of honest company everlane and dollar shave club a lot of venture capitalists have begun to see their losses in d2c startups casper currently spends 275 to 300 to acquire a new customer with the increasing competition from other mattress startups that have followed and copied casper’s identical business model who are now aggressively competing for their same customers using the same online channels casper really has no choice but to keep throwing money into their advertising pit to stay competitive with their new competitors and to maintain their baseline growth so with this in mind casper’s business model basically boils down to one buying mattress from china for four hundred dollars to sell a mattress for seven hundred dollars three make three hundred dollars from that transaction and then lose 20 of all the mattresses you sell every year thanks to your excessively generous 100-day return policy and then after that you take your 300 in gross profit and you spend it on advertising you spend another 300 on your administrative expenses and you’ll end up losing 200 for every mattress that you sell now casper’s massive advertising budget and strategy would be forgivable if all that spent was leading to a comparably large multiplier in revenue growth but between 2017 and 2018 casper only grew its revenue by 43 from 2018 to 2019 that growth has fell down to 23 percent between 2019 and 2020 growth under coven was a measly 18 and that means that without even a one to one correlation between advertising dollar and revenue growth dollar it’s hard to imagine what light at the end of the tunnel is for casper to reach profitability on top of that the mattress industry reports that the average american only changes their mattress every 9 to 10 years so casper’s first customers came in 2015 and that was when the company had been pricing his product at the cheapest and had been advertising at the most aggressive levels with a 10 year long deal cycle and product life for a mattress it means that as an investor you would have to wait until 2025 just to understand casper’s true consumer retention rate and standing in the mattress industry but more importantly it sheds light into the possibility that growth for the mattress industry is maybe just that slow in constraint no amount of advertising is going to change the underlying market reality and consumer behavior the fastest growing sales channel for casper today is currently wait for it retail retail sales for casper have grown 74 percent year over year and now accounts for 20 percent of the company’s overall revenue in comparison its traditional direct to consumer sales revenue has only grown by 20 percent in the same period of time casper’s retail sales aren’t just beating their online sales when it comes to growth the average order for casper is 15 higher in retail than it is online in the company’s early days the casper founders were very prideful about never needing to open stores to grow their business when we looked at the way people were buying mattresses and it was still a very antiquated experience where you go to the store on every corner you walk in in your street clothes you’re expected to lay on a mattress under fluorescent lights and then know what how you’ll sleep just seem very perverse to us fifty percent off always science there’s commission sales people it is it’s like worse than buying a used car you know we’re totally different from the ground up uh the shopping experience is completely different we only sell our product through our website you can take your time read about the product and how we developed it the customer experience is completely different from anything else and it’s not confusing we designed it to be simple straightforward authentic and transparent with what we build and how we build it well it’s just the ironic wall that casper has run into here is that online growth is limited there are only so many people you can hit online before your endless spam of facebook instagram youtube and podcasts just become exhausting and ineffective so brick and mortar the very thing that casper was invented to disrupt has now become that very slim bastion of light that the company’s executives are hoping will save their business casper isn’t the only d2c brand doing this 180 of embracing the very thing it was trying to disrupt everlane and away two other formerly hot dtsc companies have now found themselves opening stores and begging to get on the shelves of big retailers to try and grow their businesses everybody loves to say you don’t spend money on online but the way it works now with facebook and instagram and how much it costs to acquire a customer and then you have to ship it all you end up what online only company is really profitable basically none of them that’s this dirty secret with retail when we move to customer first we get to figure out which channel is right and do the right thing for the customer and be profitable most recently casper shut down in its european business to quote focus on the american market but the numbers are pretty painful in that by all measures the american market is barely growing and only becoming more competitive casper’s future as a company just looks very bleak and painful if you couldn’t crack europe.

It’s hard to imagine being able to crack any other major geographic market turning down that 900 million dollar offer from Target before the IPO, just because it wasn’t a billion dollars, looks very regrettable by the day. With investor sentiment at an all-time low, geographic expansion out of the equation and the bursting of the D2C hype bubble, Casper the once untouchable Silicon Valley unicorn seems now destined to become forgotten in a sea of worthless penny stocks on the New York Stock Exchange.


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