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Why Casper Stock Plummeted on Monday Morning

What happened

Shares of Casper Sleep (NYSE: CSPR) plummeted on Monday morning, after the company reported results for the third quarter of 2020. Management said demand for its mattresses was strong, but problems in its supply chain didn't allow the company to fully capitalize on it. Investors didn't like that, leading to the stock being down 19% as of 11:30 a.m. EST.

So what

For Q3, Casper's revenue was down 3.3% year over year to $123.5 million. According to management, website traffic was at an all-time high. But some of its suppliers of foam didn't have what they needed to manufacture it, leading to many of Casper's mattresses being sold out. Management said this was an industrywide problem.

Image source: Getty Images.

However, a quick glance at results from other mattress companies gives a different perspective. Purple Innovation, Sleep Number, and Tempur Sealy International all reported year-over-year revenue growth in their third quarters, although investors should note Purple has better control of its supply chain since its mattresses are manufactured in-house.

For its part, Sleep Number noted in its Q3 earnings call, "While supplies are tight, we did not experience meaningful disruption for our customers in the third quarter." And Tempur Sealy management in its Q3 conference call said the company grew revenue, "despite the material impact of supply chain constraints on our operations."

Now what

Casper says the supply chain issues are in the rearview mirror now and shareholders certainly hope that's true. This growth stock is still operating at a loss ($7.2 million net loss in Q3) and needs to grow revenue quickly to justify its sales and marketing expenses. For example, the company spent $42.6 million on sales and marketing in Q3 -- a whopping 34.5% of revenue. That's a hefty expense especially when it didn't have products on hand to sell.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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