Complete Guide To Warby Parker IPO

The first half of 2021 was an extremely active time for initial public offerings (IPO) on U.S. stock exchanges. In the 14 months following the COVID-19 market panic of March 2020, equities investors became extremely active. As a result, stocks rallied across the board as large, mid, and small caps posted epic gains. In fact, from 1 April 2020 to 1 July 2021, the Dow Jones Industrial Average (+59.1%), S&P 500 (+67.9%), NASDAQ 100 (+87.7%) and Russell 2000 (+102.9%) were all exceedingly positive.^[1]

Subsequently, hundreds of private companies chose to capitalise on the 2020/2021 bull market by transitioning from being privately held to publicly traded. From 1 January 2021 to 2 July 2021, 589 companies issued IPOs, a 477.5% year-over-year gain.^[2] Businesses from every sector joined the fray, with big names in the fintech, defi, crypto and online retail industries leading the way.

Given how active 2021 has been with IPOs, many additional private holdings plan to go public ahead of 2022. A few notable names were zero-commission brokerage giant Robinhood, financier NerdWallet and optics dealer Warby Parker.

What Is Warby Parker?

Warby Parker is a direct-to-consumer eyewear retailer that specialises in the provision of high-quality, affordable eyeglasses, sunglasses and contact lenses to its clientele. The company's self-stated mission sums up its core operations: "Warby Parker was founded with a rebellious spirit and lofty objective: to offer designer eyewear at a revolutionary price, while leading the way for socially conscious businesses."^[3]

Founded in 2010, the company was originally launched by four students of Wharton's School of Business—Neil Blumenthal, Andrew Hunt, David Gilboa and Jeffrey Raider. As of 2020, Warby Parker grew to 2,500 employees and 126 stores throughout the U.S. and Canada.^[4] It's headquartered in New York, N.Y., and founders Neil Blumenthal and David Gilboa currently serve as co-CEOs.

Warby Parker's business model is cost-saving and innovative. Through designing and producing eyewear in house, the company is able to avoid costs attributable to outsourcing and logistics. Below is a brief look at Warby's facets of production^[5]:

• Design: All frames are conceived and engineered in-house.
• Materials: Premium materials are used, including single-sourced cellulose acetate (Italy) and titanium.
• Construction: Frames are machine-cut before being hand polished and assembled.
• Lenses: Impact-resistant polycarbonate lenses are custom-cut and polished per customer order.
• Quality Control: Completed glasses are manually examined and prescriptions checked during an extensive final review.

Instead of investing in large inventories, Warby Parker builds eyewear tailored to each customer. In doing so, the company can generate profits from each of its segments:

• Prescription eyeglasses
• Prescription/non-prescription sunglasses
• Contact lenses

For customer support, Warby offers home try-on and eye exam services. Under home try-on, customers are free to pick five eyeglass/sunglass frames to examine at home free of charge.^[5] In addition, clients can book eye exams at or close to any of Warby Parker's 126 locations in North America.^[6] Both offerings are intended to help streamline and enhance the customer experience.

Private Valuation

Since inception, Warby Parker's innovative direct-to-customer business model has attracted the interest of growth-oriented investors. However, the road to success was an arduous one, with the company first establishing itself as a profitable enterprise in 2017 on an EBITDA (earnings before interest, taxes, depreciation and amortisation) basis. CEO Blumenthal lauded the accomplishment stating, "it demonstrates that we have a successful financial model in place. And, equally important, the discipline and ability to devise a plan and execute."^[7]

Below is a look at Warby's funding rounds, Seed through G:^[8]

• Seed Round, 6 July 2011: Nine investors contributed a total of US$1.5 million.
• Series A, 22 September 2011: Nine investors contributed a total of $12 million. The lead investor was Tiger Global Management.
• Series B, 12 September 2012: 15 investors raised a total of US$41.5 million. Acting lead investor was General Catalyst.
• Series C, 20 December 2013: Seven investors raised a total of US$60 million. Lead investor was Tiger Global Management.
• Series D, 30 April 2015: Six investors contributed a total of US$100 million. Lead investor was T. Rowe Price.
• Series E, 14 March 2018: One investor, T. Rowe Price contributed US$100 million.
• Series F, 1 April 2020: Three investors raised a total of US$125 million. Acting lead investor was Durable Capital Partners.
• Series G: 27 August 2020: Four investors contributed a total of US$120 million. Lead investor was D1 Capital Partners.

Financial market participants certainly took notice of 2017's breakout year for the company. In addition, the onset of the COVID-19 pandemic and ascent of online shopping were key contributors to Warby Parker's upside potential. As the data set above shows, the intensity of funding activities grows dramatically from 2018-2020.

In total, Warby Parker has raised US$535.5 million from a total of 31 investors.^[8] Prominent funding participants include T. Rowe Price, D1 Capital Partners and Tiger Global Management. Due to the institutional interest, Warby Parker garnered a US$3 billion valuation as of September 2020.^[9]

The Warby Parker IPO

The COVID-19 pandemic brought concerns over public safety to the retail sector. In response to the concerns, brick-and-mortar stores of all varieties were forced to shut their doors. Warby Parker took the lead in this regard, being the first optical retailer to close its 126 outlets on 14 March 2020.^[10]

Despite the initial impact of COVID-19 on in-person sales, the company's online platform flourished. To capitalise on the pandemic-induced remote shopping boom and the late-2020 US$3 billion valuation, Warby Parker filed its form S-1 with the U.S. Securities Exchange Commission (SEC) in late June 2021.^[11]

S-1 Filing

Form S-1 is the mechanism by which companies register and propose an initial public offering with the SEC. Essentially, the S-1 is a prospectus that discloses corporate financials, the size of the share offering, offering price, use of proceeds and associated fees.^[12] If a private company intends to go public, they must file the Form S-1 with the SEC.

Entities that elect to file Form S-1 have two distinct filing options; they may choose to file publicly or confidentially. Below is brief look at each alternative:

• Public: Companies that choose to file publicly offer the utmost in transparency. All information is disseminated to market participants, including corporate financials and the specifications of the proposed IPO. Companies choose to file the S-1 publicly to instill investor confidence and gauge public interest.
• Confidential: When a company files an S-1 confidentially, all information is kept private. Filing confidentially has several advantages, namely withholding corporate financials from competitors.

On 22 June 2021, Warby Parker filed Form S-1 with the SEC confidentially. Accordingly, corporate financials and the details of the proposed IPO remained unknown to the public. After the SEC completes its review process, the IPO is expected to take place with respect to market conditions and other outlying factors.^[13]

Timing And Value

As of this writing (early July 2021), the timeline and potential valuation of the Warby Parker IPO remain unknown. Additionally, the company is being reported as uncertain on whether to conduct a traditional IPO or a direct listing.^[14] Despite the lack of clarity, several facts point to the Warby Parker IPO generating significant public interest:

• 2020 was a big year of raising capital for Warby Parker. In the two latest rounds of funding (F and G), the company increased their working capital by US$245 million.
• Warby has institutional financial backing. Household names such as T. Rowe Price and Tiger Global Management head up the list.
• The company plans to open 35 new retail locations throughout the U.S. and Canada by the end of 2021.^[14]

Although recent corporate financial data is largely a mystery, Warby Parker projected sales to be in the neighborhood of US$250 million for 2017. This figure was expected to be split 50/50 between online and brick-and-mortar revenues.^[15] While the commercial landscape is vastly different than it was in 2017, Warby's online presence and direct-to-customer business model likely served the company well during the COVID-19 pandemic.

Warby Parker's Wall Street Debut

On 29 September 2021, Warby Parker made its much-anticipated Wall Street debut. Under the ticker symbol "WRBY," shares of the company's Class A common stock became publicly available on the New York Stock Exchange (NYSE). The initial reception was positive, as traders and investors aggressively priced Warby's growth potential.

Direct Listing

Putting to rest weeks of speculation, Warby Parker elected to go public via direct listing instead of conducting a traditional IPO. The action mirrored that of cryptocurrency exchange Coinbase, which carried out its own direct listing in spring 2021. By pursuing a direct listing instead of a traditional IPO, Warby was able to do the following^[16]:

• List shares on the exchange at a price negotiated with public investors
• Forego raising new capital from investment banks
• Allow employee and insider stockholders to sell their shares free of restrictions

The company's decision to execute a direct listing created a bit of uncertainty on WRBY share price. On the evening of 28 September 2021, the NYSE priced WRBY at US$40 per share, well above April's private trading price of US$24.53. Although preliminary, the NYSE's valuation equated to a roughly US$4.5 billion market capitalisation on 92.5 million Class A shares outstanding.^[16]

WRBY Stock Performance

During the initial hours of trade, WRBY stock skyrocketed on the back of positive public sentiment. For the first day, shares rallied 36% from the NYSE preliminary price of US$40.00 to close at US$54.49.^[17] The robust performance made the Warby Parker IPO a top performer of 2021 and earned the company a market capitalisation above US$6 billion.

Following the better-than-expected Wall Street reception, many industry experts questioned whether Warby was overpriced. According to Dan McCarthy, assistant professor of marketing at Emory University, "The market perception of Warby is very, very generous."^[18] Kathleen Smith, principal at investment bank Renaissance Capital, also proposed caution by saying "It's [Warby Parker] being priced at a tremendous premium to anyone else in its peer group."^[18]

Over the course of WRBY's first week of public trade, many of these overvaluation concerns were justified^[19]:

• On 30 September 2021, WRBY share price fell 2.64%, closing at US$53.05.
• WRBY closed its first week at US$53.68, down 1.9% from its IPO high (US$54.74).
• Over the first seven sessions, WRBY pared opening day gains. The session of 7 October 2021 accentuated the bearish action, with shares closing at US$49.87, down -2.71% on the day. The 7 October sub-US$50.00 close cut gains to 24.7% above the NYSE's preliminary price of US$40.00.

Past Performance: Past Performance is not an indicator of future results.

Warby Parker's first week of trade was tumultuous. However, the aggressive pricing of WRBY stock was reflective of the company's growth potential in the eyewear, contact lens and vision screening segments. Ultimately, only time will tell if the company can meet shareholder expectations and justify its IPO valuation.

Summary

Warby Parker is a direct-to-customer optics retailer that specialises in delivering quality eyewear at affordable prices. The company's core business is focussed upon three segments: eyeglasses, sunglasses and contact lenses.

As of year-end 2020, Warby Parker operated 126 brick-and-mortar stores throughout the U.S. and Canada. Also, the company employed 2,500 workers and held an estimated value of US$3 billion. Lead investors are T. Rowe Price, Tiger Global Management and Durable Capital Partners.