BARK Is Ready To Fetch Returns: Strong Business, Good Buy

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BARK, Inc. is a rapidly growing, vertically integrated pet company that offers a diverse range of products and services for dogs, with significant growth potential in an enormous market.BARK is ...

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Uwe KrejciBARK, Inc. (NYSE:BARK) is a small dog-centric company operating in a very large market. It is positioned as a vertically integrated player, and caters to over 40,000 subscribers. The company's performance showcases some very impressive financial milestones that indicate its business is currently at its strongest point yet. With some promising shifts in commercial and marketing approaches that are already yielding great results, I feel confident about the growth trajectory BARK is likely to ride. Its price multiples indicate an undervaluation, making now a good time to enter the stock. I rate BARK as a buy. Overview BARK Inc. is a leading player in the dog owners market, working to deliver high-quality and personalized products and services to dogs across the United States. The company started off as a subscription service, delivering toys and treats to dogs, based on their tailored preferences, style, and behavior. Today, BARK has established itself as a $280 million vertically integrated, omnichannel retailer that serves predominantly direct to consumer and, to a limited extent, in the commercial markets. According to Statista, expenditure from the US pet industry surpassed $150 billion in 2024, with its largest subset belonging to the dog category. This makes BARK a small player in an enormous market, with significant market share to capture. In fact, keeping up with evolving trends, the company has been active in building an ecommerce presence to diversify its sales channels and extend its reach beyond brick-and-mortar locations. What I find especially promising about BARK is that it has not limited itself to a certain section in the dog space, such as being an exclusively pet food distributor or a company specializing in dog toys. It focuses on toys, consumables, treat boxes, supplements for various ailments, dental kits, and much more. In fact, BARK does not shy away to diversify into untapped areas in the dog market that can better help it fulfill its mission. Earlier this year, the company launched BARK Air, a premium service that allows for dogs, along with their owners, to book flights and travel on a chartered jet, solving a real market problem. Not only has this move been extremely profitable, but it has also been incredibly effective at enhancing the reach of the company's brand to millions of people across the world. Similarly, it also has the potential to become a major business line for the company, owing to the vast demand this type of service caters to. Overall, BARK is resiliently positioned in the consumer discretionary sector, and is working towards building a highly valuable brand which has the potential of commanding strong customer loyalty. The enormous total addressable market the company faces is promising, and with a stellar brand, the company is poised to make its mark. Performance Overview Things have been progressing really well for BARK, and the milestones achieved during its recent FY25Q1 results are a good indicator of the momentum that the company is riding on. The current year is all set to deliver the company's first full year of positive EBITDA and free cash flow figures. The company beat expectations on its topline by delivering a revenue total of $116 million, denoting a slight 3.6% YoY fall. While revenue did not bring in notable growth, per se, owing to slightly reduced volumes in the year, the company has been showing strong signs of growth in other areas. For instance, the company has seen its third consecutive quarter of growth in the number of its BarkBox subscribers. This is a welcome sign, as customer acquisition faced macro headwinds in early 2023, owing to pressured discretionary spending. The improvement here shows that BARK is increasingly operating in an environment that is more conducive to growth. Moreover, BARK has been really shifting its marketing strategy to a more sustainable one. Previously, the company would rely on promotional incentives or discounts to attract customers, whereas now it is leveraging AI to convey more engaging and creative product stories. In the long-run, this is far more advantageous to BARK in terms of building a strong customer connection, that is not reliant on promos and free gifts. The commerce side of the company's business, which, although represents less than 8% of total revenue, did see a positive topline jump of 5.2%. This was driven by strong performance on Amazon, a newly launched selection of bestseller dog toys on Chewy, and a brand-new treat line introduced to 1,000 subscribers. These three are important early step growth drivers that will work to extend the company's reach in a sustainable manner. The Chewy launch in particular is an important growth driver in my opinion, as it positions the BARK brand directly in an exclusively pet-oriented digital market space. The response, according to CEO Matt Meeker, during the latest earnings call, has been \"incredible\", and in just a few months into the launch, has been seeing growing demand. Although the 5.2% topline jump on the commerce front may seem like a minor gain, given the relatively small portion of the revenue the segment brings in, it is still quite promising. This is especially so because the commerce side of the business is set up to enhance brand awareness among consumers through multiple channels, both physical and online, while also expanding BARK's reach. I believe success on this front will translate to an overall gain on the company's topline in a steady and sustained manner. I also believe that the company's improving gross margins are worthy of mention. Historically speaking, the company has been doing quite well on this side, consecutively expanding its margin for the last seven quarters:   MacrotrendsIts most recent gross margin figure of 63.05% is at a record high, which reflects a 248 basis point jump, YoY. Once again, the commerce segment displayed stellar improvement here, with its margin climbing by a full 680 basis points to 46.5%. This is solid execution which makes me confident about the company continuing onwards with this winning momentum. On the adjusted EBITDA front, the company reported a 76% improvement from negative $7.4 to $1.8 million, YoY. This represents the eighth consecutive quarter of an improvement in quarterly adjusted EBITDA. Although the solid progress on these financial metrics are promising on their own, the company's financial position further adds to its potential as well as to its appeal. The company's cash on hand, as per June 2024, was reported as $118 million. This not only exceeds the company's long-term debt of $40 million, but also its total current liabilities of $77 million. I must also mention, the company's trailing cash flows generated from its operating activities are $18.6 million, which is the second highest figure reported in its history. Seeking AlphaWhat's even more remarkable is the fact that the company is spending a lot of these gains on returning value to its shareholders through share buybacks. In the previous quarter alone, BARK bought back 3 million shares at a price of $1.43 per share. With insiders owning nearly 20% of the company, I am comfortable knowing that the management has skin in the game, and would be working to drive up share price in a sustainable manner. Overall, I very much feel that BARK's business is currently at its strongest point so far, and it has never been in a better position to bring on long-term sustained growth through the capture of market share. What I Expect for Q2 Looking to the next quarter, I believe BARK is likely to push on this winning momentum. For one, I find it promising that, following the success with introducing an initial line of toys on Chewy, the company has decided to go all in and launched an additional bestseller toy line on the platform. This substantially expands the BARK brand to millions of users on the Chewy platform. The management also stated its plans to launch additional products, such as dental kits for dogs and other consumables, on the platform in the upcoming months. Another initiative that is indicative of the strong momentum is the company's initiative to expand its Season’s Sweetings Advent Calendar to more Costco stores. This has been decided following strong demand from customers at Costco. Although this is a holiday theme boost, and will fully be materialized in Q3, towards the end of the year, it is likely to drive marketing benefits like social media engagement. Overall, there is a strong indication that the company will keep pushing on its winning momentum. Going by seasonal trends, August has always been a strong month for the company, so I expect to see a good boost in the results during the earnings release next month. Assessing Valuation The number one challenge I faced when working on the valuation of BARK was finding suitable peers for the company. The company is very unique with its subscription-based business model in the dog market, along with its retail and D2C segments, and not to mention its entry into the pet air travel domain. For this reason, on account of not finding any comparable players, I have decided to focus on how the company compares to the consumer discretionary sector instead, with the data provided by Seeking Alpha, on the company's valuation section. Although a valuation of this nature compared to the broader sector is less than ideal than, say a direct peer comparison, it does give us some sense of how the stock is valued as a company that is consumer discretionary facing. Based on this, there are strong indications that BARK is cheap, and is in the undervalued zone. AuthorAs can be seen from the graph above, BARK is trading a lot cheaper, in terms of the revenue it generates, compared to how the market is valuing other players in the consumer discretionary sector. Both the price of the stock, and the company's enterprise value, seem relatively low, given the amount of revenue it is managing to pull in. Moreover, it is also useful to note that BARK, with its 12-month price gain of 43%, outperformed the S&P 500 discretionary index, which rose by only 26%, during the same time. With further catalysts and growth drivers ahead, to further take on a sustained climb, I think it would be fair to say that the stock is trading at a significant discount. For these reasons, I rate the stock as a buy. Risk While I believe that BARK is facing a large TAM, and stands to grow significantly, owing to its strong brand and its improved marketing strategy, the elephant in the room is the macro uncertainty the company potentially faces. Although a recession now seems far less likely than it did a few months ago, thanks to positive US jobs data, there is still broader uncertainty that may put pressure on consumer discretionary spending. For instance, economists have begun pointing out that, with the better-than-expected US jobs data, the Fed may take a softer stance on its fed cuts, moving forward. Moreover, economists continue to point out the uncertainty regarding the Boeing Strike, and how the economic impacts of Hurricanes Helene and Milton will translate into the broader trend. Even with the fed rate cut that did take place last month, there is no guarantee that the move will translate directly into a boost in consumer spending. In fact, a recent report by the Wells Fargo Research Team points out that the fed rate lowering could potentially lead to lost income, which in turn may offset potential savings. Overall, when it comes to consumer discretionary spending, there is always some risk due to the volatility of the broader economy. When people's incomes take a hit, a premium subscription to periodic dog offerings could seem like an easy way to cut spending, and instead go for more economical alternatives. Also, we have got to keep in mind that, although BARK has been showing some positive metrics in its financial performance, it has been seeing negative YoY quarterly growth on its topline for the last 7 quarters, consecutively. When this trend will turn around is uncertain. But it is clear that, as a discretionary play, its performance is sensitive to spending trends. This aspect of the company could obstruct the smooth sailing picture portrayed in my analysis. Takeaway  BARK Inc. has positioned itself as a small player in an enormous market. It is working towards becoming the leading dog-centric player with a valuable brand. Its data-driven approach to personalizing offerings for each dog helps it to stand out, and differentiates it from standard pet product suppliers in the market. I believe the company's financial performance indicates that its business is currently at its strongest point so far, and with an attractive valuation compared to the consumer discretionary sector, it is a great time to enter. I rate the stock a buy.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2474054463"}