Shopify Transition And Global Partnerships Will Yield Future Success

Key Takeaways

• Transitioning to Shopify will boost D2C revenue growth by lowering acquisition costs and increasing conversion rates.
  
• Expanding Commerce partnerships and BARK Air's early success are key to driving substantial future revenue and profitability.
  
• Transition uncertainties, DTC challenges, international expansion risks, and marketing shifts may hamper revenue growth, customer retention, and short-term profitability.

Catalysts

BARK Inc., a dog-centric company, provides products, services, and content for dogs.

• Transitioning to the Shopify platform is expected to drive increased conversion and lower customer acquisition costs, which should boost the D2C segment's revenue growth.
  
• Expanding partnerships and shelf space in the Commerce segment, including significant growth with Chewy, Amazon, and international markets, is anticipated to contribute substantially to revenue growth.
  
• BARK Air's early success in generating revenue and achieving positive gross margins, despite being a new venture, could be a future contributor to both revenue and profitability.
  
• Ongoing improvements in gross margins and G&A cost reductions, including more favorable shipping terms and strategic headcount management, are likely to enhance net margins in the future.
  
• The company is investing in brand-building and moving up the marketing funnel, which is expected to enhance long-term D2C performance and drive sustainable revenue growth.

BARK Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BARK's revenue will grow by 2.5% annually over the next 3 years.
• Analysts are not forecasting that BARK will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate BARK's profit margin will increase from -6.8% to the average US Specialty Retail industry of 4.4% in 3 years.
• If BARK's profit margin were to converge on the industry average, you could expect earnings to reach $22.9 million (and earnings per share of $0.15) by about July 2028, up from $-32.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.7x on those 2028 earnings, up from -5.4x today. This future PE is greater than the current PE for the US Specialty Retail industry at 17.6x.
• Analysts expect the number of shares outstanding to decline by 2.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.96%, as per the Simply Wall St company report.

BARK Future Earnings Per Share Growth

Risks

• The reliance on a new platform transition carries inherent uncertainties, which could create operational challenges or disruptions, potentially impacting revenue growth and conversion rates.
  
• The direct-to-consumer (DTC) segment experienced a decline, driven by various challenges, including shipment delays due to a supply chain revamp, which might impact customer retention and, consequently, future revenue.
  
• The expansion into international markets and new segments like BARK Air, while promising, introduces unpredictability and the risk that these channels might not scale as expected, affecting revenue diversification.
  
• The planned shift towards upper-funnel, brand-building marketing strategies typically involves longer payback periods, potentially impacting short-term profitability and EBITDA margins.
  
• Variability in timing concerning commerce shelf resets and shipment timings can create fluctuations in quarterly revenues, posing risk to short-term revenue predictability.

Valuation

• The analysts have a consensus price target of $2.333 for BARK based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $3.0, and the most bearish reporting a price target of just $2.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $520.8 million, earnings will come to $22.9 million, and it would be trading on a PE ratio of 20.7x, assuming you use a discount rate of 9.0%.
• Given the current share price of $1.04, the analyst price target of $2.33 is 55.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.