A newcomer is bringing sustainable products to a market led by this titan so which is the better investment right now: Allbirds or Nike?
Dec. 8, 2021
Allbirds (NASDAQ: BIRD), named in honor of its founding country, New Zealand, the land of "all birds," has brought a hot product to market. The Wool Runners casual sneaker is made with eco-friendly products like merino wool, can be washed, and can be worn without socks. Nike (NYSE: NKE) is the largest footwear company in the business and is known the world over for its flashy commercials and multi-million-dollar endorsement deals with professional athletes. As the athleisure space boom continues, which is the better investment right now: Allbirds or Nike?
Allbirds: the bulls and the bears
Allbirds uses a direct-to-consumer (DTC) business model wherein nearly 90% of all its sales are made online and the other 10% in its retail stores. This paradigm helps to boost margins and that is reflected in the company's latest quarterly report (Q3 2021) where gross margin expanded 120 basis points year-over-year (YoY) to 54.1%. Additionally, in the same time period, net revenue increased 33%, gross profit grew 36%, and Allbirds opened four more stores. The company also offered an outlook for fiscal 2021 which represents growth of 24% YoY.
Allbirds is a certified B Corp (high standards in social and environmental performance) and sells footwear that averages 30% less carbon footprint than a standard pair of sneakers. This is important because recently, the environment was ranked as the most important issue by teens in a Piper Sandler survey; potential future customers that will no doubt be loyal to brands that embrace a sustainable product business model. Today, 30% of all funds going into global equities are directed to companies with a sustainability focus.
The company is in a fine position to expand its offerings and is doing just that by launching its first running shoe and a running apparel collection last year and last summer, respectively.
Non-profitability aside, Allbirds is a small fish in an ocean of competition. There is nothing stopping a behemoth like Nike from launching a sustainable line of shoes and apparel to attract Allbirds' customer base. And with Allbirds holding literally zero patents on its products, it is extremely vulnerable to just this sort of scenario. Also, the company removed its filing as the first-ever SPO (sustainable public offering) after the SEC found discrepancies in some of its claims.
Nike: the bulls and the bears
This sporting goliath has had one of its best quarters ever according to its last report (Q1 2022). Revenue is up 16%, direct sales were up 28%, digital sales grew by 29%, and gross margin increased by 170 basis points, YoY. Nike also raised its quarterly dividend 11% to $0.305 and its stock price is up over 23% year-to-date (YTD).
The company continues to innovate on its digital platform by using data and analytics to personalize product offerings and by engaging customers through phygital (physical-digital) experiences in its stores. And Nike proved to be pandemic proof by suffering very little during the crisis and more than rebounding thereafter. There are no significant bear cases for Nike.
So, which is the better investment right now?
Although Allbirds offers a compelling product, it just is not and likely never will be as profitable as Nike.
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