Honest Company Prepares for Its IPO

Written by Jennifer Clark
Posted April 28, 2021

Actress Jessica Alba’s consumer goods company, Honest Company, has filed for its initial public offering (IPO). It is expected to go public on Wednesday, May 5, and is aiming for a valuation of over $1.5 billion in its IPO.

In 2011, Jessica Alba co-founded the Los Angeles-based company, which introduced its baby products as a safer alternative to what was already on the market and using synthetic chemicals. Now Honest is known not just for its eco-friendly baby products but als for its household and beauty products. 

Not a lot of companies have been able to withstand the effects of the coronavirus pandemic in the past year, but Honest Company has experienced a pandemic-driven surge in demand for its baby products, lotions, and sanitizers. Inside the company’s S-1, it says:

When the COVID-19 pandemic hit and we went into lockdown, people became more aware of their health and what they bring into their homes. Honest never wavered in being there for them. The nature of our business is nimble, so we’re able to listen to our consumer, innovate, and deliver when it matters most. For example, we created and brought to market a new Stay Safe cleaning collection, a complete set of cleaning, sanitizing, and disinfecting solutions, in less than six months.

According to the company’s recent financials in its S-1, the company was able to grow its revenue by 27.6% from 235.6 million in 2019 to $300.5 million in 2020, which could further prove demand for Honest's products endured throughout the pandemic in 2020. The company has also indicated that for the first three months that ended on March 31, 2021, it expects to report revenue in the range of $78 million–$80 million, which represents growth in the range of 8%–11% in those three months. 

The company writes that:

Revenue growth was driven primarily by an acceleration in volume of sales of our skin and personal care products across both the retail and digital channels in part as a result of our omnichannel marketing strategy. 

Throughout the early months of the pandemic, people were indoors and were shopping online a lot more instead of going to stores because most stores were closed or had reduced capacity. These consumers had time to research and try new products and discover new brands that were trending. Basically, people had a lot more time on their hands and didn’t have the pressure of buying a product right then and there while in a store. I believe that played an important role in ramping up demand in industries like the one that Honest Company is in.

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Beauty and skincare products have experienced massive growth because of the pandemic. According to Research and Markets, the global market for cosmetic skincare is estimated at around $145 billion in 2020 and is expected to reach $185.5 billion by 2027. And Statista is predicting that the skincare industry in the U.S. is on the path to growing annually by 5% from 2021–2025.

This growth for the skincare industry alone makes for a perfect case for the Honest Company to decide to go public. It’s kind of the perfect time for the company to push forward and become a publicly-traded company. It has been able to narrow its net loss to 14.4 million from $31.1 million a year earlier, which puts it in a better spot than it was a year ago. 

Honest Company plans to list its 25.8 million shares on the Nasdaq under the symbol “HNST.” It is aiming toward a $400 million IPO with an IPO price target range of $14–$17 per share. It has plans to strengthen its online business and increase its presence at third-party sellers in international markets — including the very lucrative Asia region. The underwriters for this IPO include Morgan Stanley, Jefferies, and J.P. Morgan. The company is approaching a breakeven point, which isn’t bad, and if it’s able to continue growing its revenue it could be on the path to profitability. 

Keep an eye out for Honest Company’s IPO next week on May 5.

Until next time,

Jennifer Clark
Pro Trader Today

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