Tech Brew Ride Home - (Bonus) The Curious Case of Casper (with Dan Frommer)

Episode Date: January 25, 2020

One of my favorite newsletters—I’ve really gotta give you all a list of all the newsletters I subscribe to if you’re interested at some point—one of my favorite newsletters is The New Consumer (subscribe here) by Dan Frommer. Dan published his own analysis of the Casper IPO, and I couldn’t help myself. I needed to delve into the Casper financials in greater detail. But also: scandal marketing! Can brands be “cancelled”? And analysis of this week’s Netflix earnings. Sponsors: DoubleUp.agency Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to another weekend bonus episode of the Tech Meme Right Home. I'm Brian McCullough. One of my favorite newsletters, actually, I've really got to give you all a list of all of the newsletters I subscribe to at some point if you're interested in that sort of thing. One of my

favorite newsletters is the new consumer by Dan Fromer. Dan published his own analysis this week of the Casper IPO, and I couldn't help myself. I needed to delve into the Casper Financials in greater detail, but also we talk about scandal marketing. Can brands be canceled? And our own analysis of this week's Netflix earnings. Enjoy. So, Dan, the fact that your newsletter is, you know, the new consumer. And it's like about talking about the new ways people spend their money, the sorts of new relationships people have with brands and products. I imagine that Casper is like, it's kind of like a flagship sort of company or test case right in your wheelhouse, right? In many ways, especially because it was one of the first big,

kind of flashy direct-to-consumer e-commerce brands, along with, I think Warby Parker was probably the first big one, and Casper was already probably post that stage where folks were looking at Warby Parker and saying, oh, what can we do the Warby Parker for, whether it's luggage or mattresses, or makeup or anything. Right. Hundreds of ideas.

Away, Harries, Everlane, blah, blah, blah, blah, blah, yeah. Yeah, and Harries was actually started by one of the founders of Warby Parker, who saw the model work and wanted to solve some other problems with it. So actually, you know what, I'm thinking maybe let's back up. So let's define terms. Direct to consumer or D to C is like sort of the buzzword that everybody talks about. But like you actually, in your newsletter, I'm trying to pull it up real quick. You kind of described it.

They were all supposed to cut out the dusty, useless middlemen to deliver unbelievable value. They had simple product lineups. Casper had launched with, like, one mattress. The idea was they're moving dollars online that were previously spent offline, right? Yes, and Casper famously had all these ads, including a lot of podcast ads, that basically said, come on, that mattress store is gross, that sleazy salesman is getting paid on commission. they don't care about you. Here, we've designed the perfect bed for you. There's only one option. It's great. It's 500 bucks or whatever it is. And it gets shipped to you for free. And if you don't like it, we'll take it back.

And, you know, that was fresh. That was something that a lot of people hadn't heard. And they were clearly onto something. Well, and also, I think a key component of this is the idea, or at least maybe this is a key component of selling this to venture capitalist, is that you can have a direct relationship with your consumer in the sense that you, every product or company wants you to have a relationship with their brand, but then you have to do it via Target or Walmart or whatever. And all of these companies, we're all about, no, we own the customer directly. They have direct affinity with us. Exactly. And not only do they get our email newsletters, but a lot of them actually want to tell their friends about how awesome we are because it makes them look smart, too.

So there was this word-of-mouth thing. It was kind of ideal for the early era of Instagram. And for a lot of these companies, it really blossomed. So, okay, Casper is sort of a poster child of this whole thing, and they file to go public. The filing comes out. Everyone on Twitter falls all over themselves to drag it, to pick it apart. I guess we're just going to have to get into why they did that. But actually, it was funny in your newsletter. You're like, you know, there are worse possible outcomes than going public at maybe a billion dollar valuation. They're still alive, right?

Yeah. And that's kind of the funny place we're in, like, you know, sitting at computers, looking at IPO filings going, wow, if they only hadn't spent that much money on marketing, then, you know. But, you know, look, like they, the numbers, which we can get into or, you know, and do that, do that. Or even not. Like, here's the thing about all these filings is that treat it as a document, they are, they're a little ridiculous. Like, they're full of these crazy hyperbolic statements. We're a sleep company. We're, you know, we're starting to sleep economy, stuff like that.

We already knew what happened to Casper. It's very easy to like open your eyes and go, oh, there's a lot of these mattress companies now. We already knew that. We knew there was a ton of competition. We knew that they were one of over a hundred of these mattress in a box startups. Can I interrupt you? Please. Because I've wondered the hell out of that.

Why, of all segments, are there 100 players in mattress and a box companies? Well, they saw that Casper had a hit right out of the gate, and it makes sense. Like, yeah, the mattress store does suck, and those things are overpriced. And it's an expensive enough. But there aren't 100 Warby Parker competitors. I don't know. I mean, probably not as many because there's the whole regulated prescription element of it, which was a bigger headache to solve.

But mattress sales are, I mean, unless that tag on the bottom is, is scarier than I thought to. You and I could probably, if we wanted to, start a mattress company by next week. And many did. And they saw how Casper was finding customers. And I mean, I could probably name three or four of them. I definitely couldn't name 10.

And I don't think most of them have anywhere near the brand equity that Casper does. But apparently that doesn't matter that much. I mean, you can at least look, like not all of them are going public, although one of them purple, I guess purple sleep or something did do a reverse merger with the public company and now is public so you can see their numbers as well. But Casper, you know, Casper figured it out until all of a sudden, which we knew, like there were tons of competitors in the market. It was extremely expensive to acquire customers. Luckily, beds are still pricey enough that they could and have continued to focus on acquiring customers profitably. So, you know, essentially spending less money to acquire the customer than they would make in, I guess, probably gross margin on each mattress, on the first mattress sale.

But then the big picture was, all right, as you said, we're going to own this customer and, yeah, we're going to start with the mattress, but then we're going to sell them all this other. stuff. And if you look in their filing, it's everything from the things they already offer, like pillows and bedding to, you know, sleep technology and sleep services and all this sort of stuff. And I don't know. Well, I think that's why a lot of people were dragging them because it's like they mention that stuff, but there's no actual indicate. Like, it's not like, well, two years ago, Casper created this sleep wearable that has taken off or that, you know, there's other of these direct-to-consumer people like Brooklyn and that do the stuff that, in theory, they can go into ancillary products and things like that.

Yeah, you could make the argument that they just didn't push enough stuff out fast enough. And really, if you look at a lot of these companies, you can praise them for their minimalism, but maybe they actually move too slowly. In Casper's case, you look at the filing, and I think it said something like 16% of their customers have come back and bought something else. but most of the people who bought mattresses just bought another mattress. So, you know, which is great. I mean, listen, people like your product. They come back for another one. It's just that how many mattresses does a household buy in its lifetime, you know?

Right. And does this message, you know, we're a sleep company, we're starting the sleep economy, I know you have to put that stuff in the filing. And I know that that helps raise venture capital. And it sounds good. It certainly sounds better than, yeah, we're a mattress company. unless there's some like extreme highly patented technological thing that they're doing with mattress technology that no one else can copy, which is not the case here, then you've got to move fast if you're going to be the sleep company that everybody, you know, trusts their sleep to, which they're not. So I don't know. Well, but see, that's the, I think that's what a lot of people react to or maybe everybody, like the climate has changed for this sort of thing. Yes. So I'm literally looking at the numbers here. The so-called sleep economy, as they're calling it, is a $432 billion market, they claim. But mattresses are only $81 billion of that. And so I think the thing that people are reacting to is it's like not lipstick on a pig is maybe too harsh. But the sort of somersaults that these companies have to do to make it sound like there's something other than, oh yeah, a mattress company. Right. And then the key question is, is this a very strong public company that should be independent and has a very clear path to, you know, whether it's multiple brands under one parent company, the way a lot of these companies are setting themselves up now is these kind of DTC holding companies? Or, you know, is the Casper brand so strong and already generating a profit so that they can self-fund this.

this new phase of their growth. And the answer seems to be neither of those. So there's a lot of people who have pointed out, you know, either this is a head fake to get someone, presumably target, to pony up a billion dollars and take them out and make them a target brand, or maybe just the IPO won't happen. They're low on cash.

They don't know. I think they're, I think it's like under $100 million in cash left. Something's going to have to happen. Clearly, they put the time and effort into this IPO document. My guess is that the founder and CEO, Philip Crimm, would love to be the CEO of an independent public Casper, but certainly not the most confident I've been in an IPO filing that I've ever seen. Yeah, I mean, $100 million left. They lost $67 million in the first nine months of 2019.

And then, I mean, one more thing is like, so all of the, everyone pointed out that it's something like 30, and 42% of sales, like, goes to marketing? So, you know, in theory, they could turn that tap off, but if you do, then you have no growth, and then why would anybody buy stock in a company that suddenly their growth is, like, that's not, their growth is already slowing, which is not a good thing to have happened right before you IPO anyway. Yeah, pretty dramatically, too. I believe it was something like, you know, 40% in 2018.

and then 20% in the first nine months of 2019. So, no, not ideal. And potentially we'd be looking at a situation where going public would essentially kill the company anyway because if they do go public and the markets turn up their nose at it and then all of a sudden they're down at a $200 million valuation, they're going to get bought out anyway, just not at anywhere near the valuation that they would have wanted.

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From analytics to messaging and creative direction, their experience helped turn my viable business into one that is thriving. That was from Rhonda Patrick, PhD in Biomedical Science, host of the Found My Fitness podcast. Over the last year, Double Up has helped companies, influencers, and podcasters build millions of dollars of value, build some value out of what you. you're passionate about today. Go to the folks at Double Up Agency. That's Double Up. Dot Agency. And when you get in touch with them, tell them Brian sent you. Can we talk about away real briefly, not a way specifically, but sort of a lot of these

DTC companies have had controversies lately. I don't think I ever talked about it on the show, but, like, Away had this controversy surrounding leaked slack messages from the CEO. The CEO stepped down. You had a Peloton with its whole ad that people thought was misogynistic, and it supposedly led to, like, a one-day drop of millions of dollars of market cap and things like that. First of all, on a way, though, specifically, like, you delved into the data, and while the controversy didn't help, you saw that Away's growth was already slow, much, much earlier in the year? Yeah, it's an interesting situation and there's probably a lot of different factors, but

including potentially this desire to focus on profitable growth. I've heard several times that a way and maybe it was in the articles around this controversy that away is profitable. I don't know. I haven't looked at their books, but

they've always kind of suggested that they are They've always been profitability focused. And my guess is that the margins on a $400 suitcase are pretty good, so especially that's made out of molded plastic. So, yeah, but so that's kind of what I dug into. And just for context, so a lot of the data I'm going to talk about is from this company that I've been working with called Ernest Research.

And they're one of several companies that basically buys aggregated credit card and debit card spending data from the credit card companies and then builds a user interface around it that their clients can use to track consumer spending. You can guess who their clients are, hedge funds, venture capital funds, anyone who really would get some sort of benefit from knowing what people are spending their money on. I wish I could afford a subscription. You and I can't afford one. But anyway, so they've been very helpful and they partner with myself and a lot of a journalist and analysts to provide their data. So, you know, when the away thing happened, I asked them just for context, you know, how is their growth looking these days? And it's down. I mean, you know, this is one of these situations where like the company at some point is just growing so fast.

that of course the numbers are going to shrink. Like you can't, if you're doubling every year forever, that's pretty crazy because then to double, you have to grow twice as much as you did the year before. So, you know, it was something like the end of 2018, they were still growing over 100% year over year. And these are on a monthly basis. So every month's a little different. But then by the middle of 2019, they had, you know, a month or so below 50%.

And then starting really in the summer, it looks like it really declined. I went back up to 100 and then down below 50%. So it looked like growth was already starting to slow before this controversy, this kind of PR crisis that they had. And then it was one of these situations where, and feel free to read my articles on new consumer.com or really anywhere, but the verge was the first. report this, the CEO was saying some unpleasant things to the employees of the company. It didn't look good. And there's kind of this movement right now, very pro-labor movement. And so there was a lot

of kind of a lot of backlash, especially on Twitter. We could have a whole side conversation about what the mood of Twitter does and does not reflect about. Is Twitter real life? Hashtag is Twitter? to really yeah exactly um and you know and how that correlates to people's actual shopping i will say like you know in real life and yes i'm a part of the new york media world and i hang out with a lot of people who work in d tc and e-commerce and media it was definitely something we were we were all talking about you know every holiday party i went to for a couple weeks was like man those slack those slack screenshots huh um and But so I went back to Ernest this year in January, and I said, hey, does your data for the holiday season suggest that Away's controversy had a material impact on their holiday sales? Obviously, Q4 is a huge quarter for a lot of companies, especially in e-commerce where holiday sales plus holiday travel, plus all these things would add up to a big quarter.

and it looked like the year over year for December was already kind of below where it was last year. November was basically flat year over year, which is not good. Although, big asterisk here, Black Friday and Cyber Monday were a week later in 2019 and they were in 2018. So the months kind of shift on you, and it's really hard to make these year-over-your comparisons. Anyway, the big picture point is away sales, at least according to earnest research, did not plunge like 50% or something like that. There wasn't this massive, massive mainstream. We're not going to buy away anymore. That just didn't happen.

Well, that's kind of what I wanted to poke out a little bit is, like, you know, we just said that these, one of the, the things that these direct-to-consumer companies sell themselves on and rely on is the brand affinity and, like, you're an aspirational brand, you want to identify with the brand or whatever. So, maybe they're more sensitive than others to controversies and things like this. But at the same time, I'm just wondering, you know, in the information and news and social media metabolism that the world has right now, is it basically impossible for a company or a brand to be canceled? And I'm even thinking of, think all the way back to like hashtag delete Uber. Like maybe, and I'm not suggesting conspiracy theories here, like you would gin up a controversy just to get attention. But I mean,

you know, I think a lot of normal people might have heard about, you know, a way for the first time because of this controversy. Like is, is, is it impossible, I guess, for a brand to be canceled right now? I mean, it, it probably depends on what you're measuring, like sentiment. and you're totally right. These brands rely on their customers not only to provide word of mouth referrals, but to almost act as a community and almost to endorse them on social media, away, Glossier, Everlane, a lot of these brands probably get a non-trivial amount of sales through essentially free marketing through people's social media accounts.

That's definitely part of their model and really important to their future is that they are not only loved, but beyond normal, like that people are almost freakishly fans and promoters of their brands. Probably less so for a way than like a glossier or a sweet green or something like that, but it's definitely part of it. People post their luggage all the time, and that's definitely part of their model. So look, their sales did not, like I said, their sales did not crash the month of December. They did slide quite a lot the last half of the year. Their growth did specifically. They're still growing year over year, but on a much slower rate than they had the year previously. Again, according to this one data provider, which the way has not, you know, I've offered

away the opportunity to tell me that these numbers are totally wrong. wrong and they have not taken that opportunity when I've asked for comment. But according to this data, again, US only through credit card tracking, their growth really did start to slow in the second half of the year, but they did not shrink according to this data. So it's not like their customers all ran away. And by this point, no one even remembers the controversy anyway. Yeah, yeah. However, so Ernest also sent me something else, which is interesting. And this is kind of how I even found out about them is that they were tracking soul cycle attendance after the Trump fundraiser with the guy who, you know, everyone thinks owns soul cycle and equinox.

And there remained in, and this was late October data, their sole cycle attendance was still shrinking year over year versus 2018, you know, throughout August, September, and October, even though it was growing in May and flat in June and growing a little in July. So again, one data source, but it looks as if, and then, you know, in summer months, I guess it, I guess, I don't know, I'm not an expert on this company right now, but the, it looks as if the shrinkage was worse this time around than previously. is that all attributable to the controversy around a Trump fundraiser? You know, probably not. Like maybe a lot of people are buying peloton's. Maybe people are running.

Maybe they're bored with SoulCycle. I don't know. But it does seem like, and if you, you know, if you talk to someone in the world of media and related fields, if you mention Equinox or SoulCycle, you're probably still. going to get an eye roll or something like that. So I think there is some lasting damage to these brands from this, especially because they rely on people to really love them. But I don't think, you know, in the delete Uber case is a great example. Like, that's not what caused a lot.

Their internal problems are what caused most of their difficulties, which allowed Lyft to survive, which, you know, caused a real competition to exist in the U.S. that would not have probably otherwise existed, but yeah. Well, and I was just going to say, like, you know, maybe you were saying not enough data, not a big enough sample size, but also it could entirely be situational specific, you know, different countries or different companies versus different news events and things like that. I think what we can say conclusively is like none of these companies were ruined by one small controversy that may have lit Twitter up for a couple days, but I'd be very surprised if any of these companies,

you know, cease to exist solely because of one of these controversies. Real quick, before you go, the Netflix earnings were on Tuesday, and I spoke this week about how it's seemingly Netflix all of a sudden just wants you to know about its international growth. But what I actually didn't know until I saw your chart, in the newsletter this morning, was the real story is that international growth has come back. I didn't know that, but it had cratered a bit recently around, I guess, the price hike,

and now it's back to where it was and accelerating above that. Yeah, and I went back and looked at that because I was a little surprised by that, too, and I think if I recall that, you know, it's one of these things where, like, quarterly data is probably easier than monthly to digest, but it's still, you know, there's still like a day or a month or a week where, you know, where something may have happened in one quarter that maybe could have happened in the next quarter, something like that. If I recall, there was a point this year where, or last year, I guess, where Netflix says, I think we actually grew a little more this quarter than we thought we would. Maybe some of those people were from, you know, would have signed up next quarter.

But because there was a show that launched last quarter that was really great, they joined earlier. That's going to happen. There's lumps here and there. I mean, I see that every week in my subscription newsletter business. Some weeks are great, other weeks less great, and you're like, oh, well, maybe that person was going to sign up next week, but they signed up this week? I don't know. I think the broader picture is like, yeah, the U.S., they have a lot of subscribers in the U.S. It's going to be harder for them to gain new subscribers in the U.S.

relative to the rest of the world where billions of people live. So, you know, clearly the story going forward for Netflix is not just a U.S. story. It's a global story. They do have competition in the U.S. It is good that they have competition in the U.S. It's good for the consumer. It's, you know, it's good for the media industry. It's probably good for the art of TV and cinema.

But the reality is that they are now years ahead of their U.S. competitors at building global brands. and they've put a lot of money and time into that. And we see the results. And I don't think it's just this case where it's like, oh, well, they're just signing up a bunch of people in, you know, wherever. I think that is the point that they are building this global business, that they are trying to build a global culture around streaming media. And right now they're way ahead.

Well, it's funny that you say that because until you said it in the newsletter this morning, I mean, this is obvious to say, but I hadn't thought about it until you said it, but, like, Netflix is now the incumbent. Like, the Netflix narrative all along has been like, oh, all of these legacy media companies have to quickly build some way to compete with Netflix before Netflix kills their businesses. But, no, Netflix is now the incumbent, and they have to defend their moat. And right now, international is their moat, right? because a lot of these other players won't be able to play internationally for a while or even at all in some cases. Yep. And it's clearly not going to be easy. And a lot of these, look, as I also said, like, these are companies that are worth tens or hundreds of billions of dollars. So they'll find the money to make an app. You know, will they figure out the formula that Netflix has in terms of creating shows and marketing them and recommending them?

maybe like a lot of them have been making shows a lot longer than Netflix has been in existence. But this idea of marketing to consumers and not to the person at the cable company who's in charge of their carriage agreement is different. And, you know, that's where some companies, I think Disney will be successful there because they've always been really good at consumer marketing. But I'm less confident, you know, I'm just making this up now, but I'd probably be less confident in like, NBC for figuring that out. But it's so weird now. All these brands are owned by different companies. AT&T owns HBO.

Like AT&T signs up millions of customers every month for cell phone service. So I don't know. It's such a funny, weird thing that's happening right now. And yeah, Netflix is the incumbent. Like they're the default. When you turn the TV on, like, give me something to watch. If you don't have a cable box, then you're just by plopping on the Netflix icon. looking for something. And I think that's a powerful position to be in.

Or asking people to pay to watch something, which some of these other companies haven't had to do before. That is true. And I'm less nervous about that. Like, people spend money on all kinds of stuff. And yeah, it's easy to say that people will get subscription fatigue or whatever. But a lot of these services are still an incredible value. Like, you know, I went to a bunch of movies over the holidays. And it's like 40. every time you go to the movies now if you can get a a month of whatever service for like eight bucks or something that's a great value so I'm I'm less concerned about that there is still obviously some some hurdles and getting people to download your app and

sign in and sign up especially if they're trying to run away from Apple's 30% cut on Apple TV or whatever it is but I think some of them will figure it out I think that's fine I don't think there's any logical world in which Netflix is ever going to be just alone I don't think this is Google search or Facebook where there is only one massive aggregator. I think that the very fragmented world of creativity and there are a lot of things at play beyond just economics that cause people to make decisions on who they work with there. So I would be surprised if we're sitting here in 10 years and Netflix owns 90% of paid

video attention in the world. I think they're what, like 15% of viewership now or something like that. I just made that up, but that sounds like something that they've said in the past. We're like, yeah, we're only like 15% of TV time or something. Well, not even TV time. They're always talking about like your leisure time. They don't care about TV time. They want all of your, you know, non-working, non-sleeping time. Yeah. Yeah, sleep is a competitor. So anyway, yeah, I think, I think they're fine. Dan, I've been talking about all of these insights and charts that have made me realize things.

If other people want to get insights and charts like that, tell me how they should find out about new consumer. Please, yeah. Newconsumer.com. It's a biweekly. Is that right? Is biweekly twice a week or every other week? I don't think there's a word for when it's twice a week. Is it?

Yeah, I don't know. I've always assumed biweekly as every other week, yeah. It's a newsletter that you get twice a week that is my analysis and commentary and reporting on how and why people spend their time and money. I write about direct-to-consumer. I write about future media. I write about what interests me, and hopefully it interests you as well. There are some free articles.

They're a little hard to find. I'm going to make them easier to find. fine and there will be more free articles. But if you go to new consumer.com, there's a click the join button and you can see all the options. You can sign up for a paid membership. You can sign up for a team plan if you want to sign your whole team up or you can just sign up for free articles now as well. And of course, I'm also on Twitter, Frome Dome, and I'm there every day. Go do it. It's a good newsletter. Thank you. Thanks, Dan. You know what? Do you know that you were my first subscriber. I do know that. I remember you. I appreciate you every day. I remember that

you emailed me directly and told me that. And I was like, well, hey, listen, I know, I know a good thing when I see it. I appreciate it.