DJ BarkBox Has More Than a Million Subscribers. Now It's Going Public Via a SPAC. -- Barrons.com
3:12 PM ET 12/17/20 | Dow Jones
People spend an insane amount of money on their dogs, and getting any kind of package in the mail is an exciting event during these quarantine times. BarkBox satisfies both of those cravings, offering monthly subscription boxes full of dog toys, treats, and other goodies for America's four-legged companions.
The eight-year-old company has seen a 58% surge in subscriptions in 2020, to over 1 million as of December. Taking advantage of that momentum -- and with an eye toward expanding to new product categories and international markets -- BarkBox announced on Thursday its plans to merge with Northern Star Acquisition (ticker: STIC.UT), a special purpose acquisition company, or SPAC.
The deal values BarkBox at $1.6 billion before proceeds and is expected to close early next year. BarkBox will become publicly traded via the transaction, and Northern Star's ticker will change to BARK.
The Covid-19 pandemic has provided a huge tailwind for BarkBox and other pet-focused online retailers, as stuck-at-home Americans adopted new cats and dogs or shifted more of their shopping to digital channels. Chewy (CHWY) has been the poster child for that growth, reporting at least a 45% year-over-year revenue increase each quarter this year. Its shares have soared 241% since the start of 2020.
"What we're seeing is a massive acceleration in consumers' online confidence and comfort," says Northern Star CEO Joanna Coles. "You're seeing groups of people that never bought online now having to buy online, breaking decades-old shopping habits to create new habits online. And you're seeing movement from one-time purchases to subscription purchases for staples."
That's a key area of growth for BarkBox, says co-founder Matt Meeker, having launched the BARK Eats line of dog food subscription boxes earlier this year, which is currently available in 52 ZIP Codes around Columbus, Ohio. Of the more than $100 billion that Americans spend on their pets annually, about a quarter of that goes to dog food. It's a big market.
BARK Eats asks for information about a dog's size, breed, age, level of activity, and more, and has a nutritionist come up with a portion size and meal type for each pet. That customization makes dogs healthier, and keeps customers subscribing, according to Meeker.
"We can provide that unparalleled level of personalization, and we can deliver it right to your home and do it at competitive price points," says Meeker. "And once you've got a personalized, nutritionist-validated food supply for your dog, you're not going back to just the regular 30-pound bag from the store that's supposed to be meant for all dogs."
BarkBox isn't the only one aiming at the subscription dog-food market: A Google search yields over a dozen competitors, including options from Petco, Chewy, and Chewy's parent company, PetSmart.
The classic toy-and-treat BarkBox goes for $35 for a single package, or $26 a box for a six-month plan, and is also customizable. The company says it ships out 150,000 different configurations each month to its 1.05 million subscribers. BarkBox also sells its products through 23,000 retailer locations, including Target (TGT), Costco Wholesale (COST), and Petco. It's developing new subscription plans in categories including dog dental care and goods like leashes, beds, and collars. Its products are all proprietary under its own brands.
The other expansion opportunity for BarkBox Meeker highlights is outside the U.S. Manish Joneja, a former executive in international divisions at eBay (EBAY) and Amazon.com (AMZN), took the CEO reins from Meeker in September. He'll lead the company's entrance into international markets, which it plans to do via Amazon first to gauge local demand and preferences, then follow with its direct-to-consumer subscription plans.
"Monish's background at Amazon was global e-commerce expansion, opening up Amazon in country after country," says Meeker, who remains BarkBox's executive chairman. "We've always thought that BARK will be a global brand someday. Adding Monish accelerates that rather rapidly because that's his playbook."
Expanding to cats or other pets could be another option down the road, but Meeker says the company is focused on dogs for now. His Great Dane Hugo is BarkBox's honorary co-founder.
Building out BarkBox's new product lines and distribution infrastructure will use up the bulk of the SPAC deal's proceeds, along with funding a marketing push to raise brand awareness and attract more subscribers. The transaction will provide BarkBox with about $419 million in cash after expenses, coming from Northern Star's $254 million trust and a $200 million private investment in public equity, or PIPE. BarkBox's current shareholders are rolling over their entire stakes and will own about 74% of the postmerger company.
Northern Star stock has surged more than 20% on Thursday, to a recent $12.70. That would imply a $2.5 billion valuation for the postmerger BarkBox, or about 4.9 times management's forecast of $516 million in revenue in its fiscal 2022, which ends in March.
Chewy stock currently goes for 4.6 times Wall Street's consensus estimate of $8.8 billion in sales in its fiscal 2022, ending in January. It's also expected to turn a profit sooner -- in 2023, according to analysts -- while BarkBox sees its losses continuing through that year after peaking in fiscal 2022.
BarkBox's advantage is that it generates nearly 90% of its revenue from subscriptions. Wall Street prefers recurring sales -- they're predictable and can carry higher profit margins given greater supply-chain efficiency and lower customer-acquisition costs.
Northern Star's Coles is former chief content officer of Hearst Magazines and a current board member at Snap (SNAP) and Sonos (SONO). She and the SPAC's Chief Operating Officer, Jon Ledecky -- chairman of Ironbound Partners and a co-owner of the National Hockey League's New York Islanders -- will join BarkBox's board of directors once the deal closes.
More Americans are becoming pet owners, and more of them are treating their dogs like members of the family. BarkBox hopes to ride that craze by tapping into the biggest trends in retail: direct-to-consumer, online, and subscription.
