Beyond Meat Stock: The Wait Towards Profitability Continues (NASDAQ:BYND) (2024)

Investment Thesis

Beyond Meat, Inc. (NASDAQ:BYND) is a company that develops plant-based meat products in the US and globally. It currently sells the majority of its alternative meat through supermarkets, restaurants, and e-commerce sites.

As part of its long-term expansion strategy, BYND has a multi-year partnership with McDonald's (MCD), Yum! Brands (YUM) and PepsiCo (PEP). Furthermore, BYND is expanding overseas, mainly in China and the EU, out of bounds for its main rival, Impossible Foods. As a result, these strategic plans may raise the prospects for the company. However, BYND may continue to underperform given its lower than expected guidance for FQ4'21.

We discuss whether investors should add BYND stock now.

Beyond Meat's Multi-Year Partnership with McDonald's, Yum! Brands and PepsiCo

On 25 February 2021, BYND announced its multi-year partnership with McDonald's Corporation and Yum! Brands. For the collaboration with McDonald's, BYND is the preferred supplier for the plant-based patty in McPlant burger globally. As of October 2021, the McPlant burger was sold in the US and globally, including in the UK and EU. Bernstein projected that the partnership within the US alone would help BYND generate additional revenue in the range of $168M to $305M. Previously in 2019, BYND and McDonald's successfully launched the P.L.T. burger with a Beyond Meat patty in Canada.

In addition, BYND will co-develop a plant-based menu with Yum! Brands' KFC, Pizza Hut, and Taco Bell. Previously in 2019, BYND offered its Beyond Fried Chicken in multiple KFC locations within the US. In 2020, Pizza Hut US also offered the first nationwide plant-based meat pizza, with Beyond Italian Sausage Pizza and the Great Beyond Pizza. In August 2021, BYND announced its plant-based pepperoni product with Pizza Hut, which was released in 70 locations within the US.

On 26 January 2021, BYND announced its partnership with PepsiCo to produce plant-based protein snacks and beverages. The new products are expected to launch by early 2022. The partnership will allow BYND to "leverage Pepsi's production and marketing expertise in new products." Ram Krishnan, PepsiCo Global Chief Commercial Officer, said:

Plant-based proteins represent an exciting growth opportunity for us, a new frontier in our efforts to build a more sustainable food system and be a positive force for people and the planet, while meeting consumer demand for an expanded portfolio of more nutritious products. (BYND)

Furthermore, in March 2021, BYND also announced its collaborations with Peet's Coffee and Caribou Coffee chains. Both chains offered Beyond Meat's sausage patty for its breakfast menu. As of November 2021, there are 341 and 457 stores nationwide for Peet's Coffee and Caribou Coffee chains.

Moving forward, these significant partnerships with major restaurants and brands are key to BYND's long-term growth and marketing efforts. In the process, BYND will also gain global exposure while educating the mass public about the health benefits of a plant-based diet.

BYND Increased Its Presence In China And Europe

BYND'S Plant-based Pork Meat. Source: Beyond Meat

In April 2020, BYND and Starbucks Inc. announced their partnership in China. In the same month, BYND also announced the completion of its new manufacturing facilities near Shanghai, China. The strategic move by BYND marks the first time that a foreign vegan meat company has successfully set up facilities within China. As a result, BYND is ahead of Impossible Foods, as China and the EU have yet to approve of Impossible's entrance due to its ingredient: soy leghemoglobin. BYND also developed Beyond Pork specifically for the pork-loving Chinese market. The company will manufacture products commonly used for local cuisines such as dumplings, mapo tofu, zhajiang noodles, and lion's head meatballs. BYND's products are also sold through JD.com's (JD) e-commerce platform in China.

On the other side of the globe, BYND has had two manufacturing facilities in Europe since June 2020. Additionally, BYND reported significant retail locations in Europe, accounting for multiple distributions in the UK, Germany, Austria, Switzerland, and The Netherlands.

The European plant-based meat segment reported massive growth in recent years. It recorded EUR 3.6B in total sales in 2020, at a CAGR of 22.47% over two years. In 2020, the UK and German markets accounted for EUR 502M and EUR 357M in sales, respectively. It represented a YoY increase of 36% and 76%, respectively. The success of plant-based food in Germany is best exemplified by the leading processed meat manufacturer, Rügenwalder Mühle. In its 186-year history, the company reported that for the first time, the sales of its meat substitute were higher than that of meat in August 2020.

In 2020, The Good Food Institute reported that plant-based food products have surpassed over $7B in global sales, representing a 27% YoY growth. The sales also directly displaced similar animal products in the retail segment. Furthermore, in November 2021, the Smart Protein Project reported that 46% of Europeans eat less meat than the previous year. As a result, we expect BYND to have a huge market globally, though it would also encounter massive competition amongst existing industry players.

BYND Under-Performance In FQ3'21

BYND Revenue. Data source: S&P Capital IQ

BYND has grown its revenue at a remarkable CAGR of 95.83% in the past five years. However, in FQ3'21, BYND reported only $106M in revenue, below consensus estimates of $153M. Furthermore, the company lowered its FQ4'21 revenue guidance to between $85M and $110M. It is also much lower than consensus estimates of $128M for FQ4'21 sales. In addition, BYND has also been consistently underperforming consensus estimates for the past five quarterly earnings. As a result of its poor execution, BYND stock also fell to its lowest level since April 2020.

There have also been reports that the plant-based meat market could be reaching market saturation. It is attributed to the intense competition from BYND's rivals such as Impossible Foods, Kellogg (K), Nestle (OTCPK:NSRGY), Hormel Foods (HRL), and Quorn. Bank of America analyst Bryan Spillane said:

Among our biggest concerns is that it appears US demand/trial has continued to slow for plant-based protein options particularly in retail. (Markets Insider)

BYND also attributed the decrease in FQ3'21 revenue to global supply chain issues, leading to cost inflation in raw ingredients, packaging, transportation, and warehousing fees. In addition, there is a decrease in retail orders from distributors and labor shortages in grocers, which delayed shelf resets. Beyond that, BYND's manufacturing facility experienced a disrupted water supply for two weeks due to Storm Ida. The storm also destroyed packaging inventories in its warehouse. As a result, it led to delays in production and delivery schedules, resulting in reduced sales numbers in the same quarter.

In July 2021, BYND launched its Beyond Chicken Tenders on a relatively small scale, with fewer than 400 restaurants. It pales in comparison to its previous launches of Beyond's Sausage in 9K Dunkin' locations or Beyond Burger in 1.5K Denny's Corp. restaurants in 2020. Furthermore, retail sales were announced much later in September 2021, with the stocks arriving even later on the 4th week of November. Bloomberg highlighted that BYND's belated decision-making for product formulation and format resulted in delays in production and delivery schedules. As a result, sales for FQ2'21 and FQ3'21 were also consecutively reduced.

BYND EBITDA Margin. Data source: S&P Capital IQ

BYND has reported five straight quarters of negative EBITDA margins. Furthermore, in FQ3'21, BYND's EBITDA margin declined further to -40%, similar to FY2017 levels. Increased product discounts partly cause the decline due to rising competition in the plant-based meat market. In addition, as part of its long-term expansion strategy, BYND also increased its hiring and equipment expenditure as it expanded its product trials and innovation in multiple countries.

Furthermore, investors have been worried over the departure of five members of its management team. There are also legitimate concerns about the company's capabilities and execution, especially after the delay in the launch of Beyond Chicken Tenders. Mary-Hunter McDonnell, an associate professor of management at the University of Pennsylvania's Wharton School, said:

Just after the IPO, [investors] want to see stability, a determined strategy and that the company is executing it. Market participants have some patience while you’re ironing out the kinks, but a lot of turnover indicates a lack of strategy. (Bloomberg)

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BYND's Competition With Impossible Foods Within The US

Within the US, BYND faces stiff competition in the plant-based meat market from its main competitor, Impossible Foods. Though BYND has a larger market share of 22% in retail sales for plant-based meat, Impossible (9%) has been gaining ground as well. BYND is currently available in 34K retailers and 36K restaurants in the US, compared to Impossible's 20K and 30K. Internationally, BYND is sold in more than 85 countries, while Impossible is only in 6.

However, Impossible Foods has grown aggressively due to multiple strategic partnerships with major restaurant chains, such as Burger King, White Castle, Red Robin, Qdoba, and Starbucks. It proved successful during the COVID-19 pandemic due to drive-through and delivery options in its partner restaurants. Impossible's products are also available at major grocers like Walmart (WMT), Kroger (KR), and Trader Joe's.

Bloomberg reported Impossible's valuation of around $7B compared to BYND's Enterprise Value of $4.9B. Bernstein has previously stated that both companies will likely remain market leaders in the plant-based meat market. However, it also mentioned that there is a possibility that Impossible may overtake BYND in sales moving forward.

The Future Of Plant-Based Meat Looks Promising Globally

BYND Projected Revenue. Data source: S&P Capital IQ

BYND's revenue is expected to grow at a CAGR of 37.88% in the next two years and may report EBITDA profitability after FY2023. In FY2020, BYND's US sales of $324M accounted for 30.5% of the market share, which looks promising. However, based on its FQ4'21 guidance, its share is expected to drop to 25%, as BYND has failed to maintain its leadership in FY2021.

Nonetheless, with multiple strategic partnerships in place, we expect BYND to recover by the end of FY2022. BYND CEO commented:

Although we see continued uncertainty for the balance of this year, we look to 2022 with enthusiasm as we expect to bring to life, together with our strategic partners, product and production capacity that we’ve been steadfastly investing in throughout the pandemic. (BYND)

Global Meat Market In Future. Source: Kearney

Globally, the alternative meat market is projected to grow to $14.9B by 2027, at a CAGR of 15%. By 2040, the alternative meat market is also expected to reach $450B, with a 25% market share in the global meat market. The growth of the plant-based meat market would be driven by companies such as BYND and Impossible Foods. Therefore, BYND could continue to improve its scale efficiencies over time compared to the leading meat manufacturers, such as Tyson (TSN) & JBS S.A. (OTCQX:JBSAY). Rinka Banerjee, the founder of Thinking Forks, said:

We are looking at the entire global supply chain on plant protein and seeing how we can build those economies of scale. It’s going to be a while before we reach that, and it will probably take somewhere between 15 and 20 years. (CNBC)

TSN and JBSAY are two of the largest meat producers globally, with $43.2B and $52.4B of sales in 2020, respectively. In addition, the future of the plant-based meat market looks promising, as shown by TSN's and JBSAY's eventual entrance in 2019 and 2021, respectively.

So, Is BYND Stock A Buy?

BYND EV/ Fwd Revenue. Data source: S&P Capital IQ

BYND is currently trading at an EV/NTM revenue of 8.97x. It's significantly higher than its peers' comps set mean of 2.36x. However, it's markedly lower compared to its 1Y revenue multiple mean of 13.66x. We think there's still a considerable amount of growth premium embedded into BYND's current valuation.

Moreover, with a weaker outlook after its poor performance in FQ3'21, investors should be prepared that BYND may continue its underperformance moving ahead. Furthermore, the company is not expected to report EBITDA profitability in the next three years. As a result, though the current dip may represent a buying opportunity, it comes with a relatively high level of risk.

Therefore, we rate BYND at Neutral for now.