Last week, McDonald’s announced it will sell Beyond Meat patties as a “PLT” sandwich in 28 locations in Canada.

The Golden Arches is the latest food chain hoping to tap a new consumer frenzy for plant-based products that look, and in some cases “bleed,” like real meat.

In August, Burger King announced it will start selling Impossible Whoppers, from Beyond Meat competitor Impossible Burger. A slew of other fast-food chains have already begun offering plant-based burgers, including Carl’s Junior, Bareburger, and White Castle. Even IKEA, the Scandinavian-inspired design store, is planning to offer an “Impossible Meatballs,” as an alternative to its famous in-store Swedish meatballs made from meat.

While the products these chains are serving are produced primarily by competitors Impossible Meat and Beyond Burger, many other food manufacturers are developing their own alternative meat products.

Here’s a quick look at the growing alternative meat market.

What are alternative meat burgers, anyway?

They’re different from the veggie burgers made from beans and tofu and other widely available vegetable products, which have been around for a long time and are aimed at vegetarians. The current generation of products are meant to mimic the taste and texture of meat. And they are created with meat-eaters in mind. Impossible Burger’s patties famously “bleed,” thanks to a yeast protein called heme.

Attracting new consumers

Fast food companies aren’t just interested in providing healthier alternatives to meat for their customers. Many of the traditional burger chains have experienced declining sales growth as they’ve fought to keep their traditional customer base, mostly by slashing prices.

By offering alternative meat products, they may have an opportunity to attract a new customer base willing to pay more for an alternative burger.

About the meat substitute market

Beyond Meat and Impossible Foods are part of a small but growing number of meat substitute companies, competing increasingly with big meat manufacturers who are producing their own alternative products. For example:

• Tyson Foods recently launched a plant-based meat alternative called Raised and Rooted. It also invested in a plant-based seafood alternative called New Wave.
• Kellogg Co. has launched a line of vegan products called Incogmeato. It also produces veggie burgers and other meat-free options through its Morningstar Farm division.
• In 2017, Nestle purchased vegan burger company Sweet Earth, which produces the Awesome Burger.
• Hormel Foods is exploring vegan pizza toppings that mimic meat.
• Jensen Meat Co. acquired alternative turkey, chicken, and breakfast patty maker Before the Butcher in June, 2019.

Additionally, Europe has a growing alternative meat market of its own, with a company called Moving Mountains, called the Impossible Burger of Europe. Moving Mountains recently formed a partnership to sell its burgers at Hard Rock Cafes in Europe.

Sales of plant-based meat alternatives increased 22% to $1.5 billion in 2018, according to reports. And in the next ten years, the plant-based food market is expected to grow to $140 billion.

But it’s still a fraction of the worldwide market for meat products, valued at $1.4 trillion.

According to a recent Gallup poll, 5% of Americans identify as vegetarians, and 3% are vegans. But nearly 40% say the want to eat more plant-based foods, according to consumer research company Nielsen.

Many consumers, vegan or otherwise, are also interested in environmentally-friendly food options, out of concern about the meat industry’s impact on the environment and its contribution to global warming.

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But what does that mean? After all, the company just had an initial public offering, or IPO.  So what’s the difference between an IPO and a secondary offering? Read on and we’ll explain.

IPO vs. Secondary Offering

An IPO is when a company sells its stock to the public for the first time. One of the goals of an IPO is to raise money for the company, through the stock sale. In Beyond Meat’s case, it raised nearly $250 billion through its IPO.

A secondary offering, sometimes called a follow-on offering, since it follows the IPO, allows the company to sell more stock to the public. And the goals of a secondary offering are similar to an IPO, because it lets the company raise more money through the stock sale, for a variety of purposes.

In Beyond Meat’s case, it hopes to sell 3.25 million more shares, 250,000 of which are new shares expected to bring in as much as $40 million for the company, according to its filing with the Securities and Exchange Commission (SEC). Beyond Meat plans to use the money to expand its product offerings to expand its manufacturing capabilities both domestically and internationally, and to increase branding and marketing efforts, according to the filing.

Good to know: Secondary offerings can be used in other ways. Sometimes a company insider such as the chief executive, can use a secondary offering to sell a portion of his or her stock to raise money for some other purpose. For example, in 2013, Mark Zuckerberg sold more stock after Facebook’s IPO in 2012, to raise money to pay taxes related to his stock sales.

How does a secondary offering affect share price?

Issuing more shares can sometimes—but not always—cause the price of a company’s stock to decrease.

Think of it as a simple economics lesson, where experts often talk about supply and demand. If the supply for a particular product or service is greater than demand, prices will fall. If demand outpaces supply, prices will rise. So, if a company offers more shares, it could lower the value of the existing shares, in a process called dilution. Simply put, there are more shares to buy and sell.

Here’s something else to keep in mind: Companies that have had successful IPOs may conduct a secondary offering, prior to the expiration of something called a lock-up period, when more shares will be offered to the market, and the stock price could fall.

A lock-up agreement requires employees, and other company insiders who own stock, to sign an agreement that prohibits them from selling shares for a specified period of time once the IPO is complete. (In Beyond Meat’s case, the lock-up period is 180 days.) When lock-up periods expire, insiders will often sell their stock in order to realize a profit, which can cause the stock price to fall. The expiration of a lock-up can affect the share price.

A secondary offering could let executives and early investors in a company sell before the lock-up expires, as is likely the case with Beyond Meat, according to reports.

It’s always important to remember that stock prices may fluctuate significantly due to the expiration of something called a lock-up period.

The stock of newly public companies can be volatile

In the months following an IPO, the newly issued stock can be subject to significant increases and decreases, at least in the short run. That’s known as volatility. Volatility for the stock can be especially high in the first few months following an IPO, and so can the potential for short-term losses as a result.

That’s because investors, analysts, and other stock market participants are often uncertain about the prospects of a newly public company, and that can all factor into the share price. For example, investors typically want to know if a company is worth the valuation it achieved at the time of its IPO. They may also want to know if a company will be profitable in the years to come, or whether it will continue to have losses.

Other companies that have had follow-on offerings

Social networks Facebook and LinkedIn had follow-on offerings in 2013 and 2011, respectively. More recently, BJs Wholesale Club sold 10 million shares in a follow-on offering.

Stash encourages all investors to follow something called the Stash Way, which includes regular investing, diversification, and investing for the long term. Find out more about the Stash Way here.

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It also had one of the most successful IPOs of 2019 so far, suggesting that investors may be interested in vegan and vegetarian food products that may have less of an environmental impact than traditional meat production, according to some sources.

The company had priced its shares at a range between $23 and $25. On May 2, 2019—its first day of trading—the stock price leapt 164% to $65 a share, according to reports. Since then, the company’s stock has traded as high as $88, and as of mid-day May 21, 2019, it was trading at $78.50 a share.

Here are more details about Beyond Meat, the market it hopes to tackle, and the risks of investing in companies that have recently had IPOs.

About Beyond Meat

Beyond Meat was founded by Ethan Brown in 2009, in Los Angeles, California.

Its products, made from pea protein and other vegetable sources, include vegan sausage and chicken. The Beyond Burger, a veggie burger, is currently sold in grocery stores such as Whole Foods and restaurants including TGI Fridays.

Prior to going public, the company received $122 million in venture capital funding, including money from venture capital firm Kleiner Perkins and the meat producer Tyson Foods, according to sources.

It raised about $250 million through its public offering, and currently has a market cap of $4.6 billion. Beyond Meat will use proceeds from the sale of its stock to expand its facilities, according to its prospectus.

About the meat substitute market

Beyond Meat is one of a small but growing number of meat substitute companies, including Impossible Foods (maker of the Impossible Burger) and Morningstar Farms.

The global market for vegan and vegetarian meat alternatives had sales of roughly $4.2 billion in 2017, according to industry data. U.S. consumers purchased $3.1 billion of plant-based foods in 2017, an 8% increase compared to 2016. By 2025, the plant-based food market is expected to grow to more than $7.5 billion. And, by some estimates, it could grow to $41 billion in the next ten years.

According to a recent Gallup poll, 5% of Americans identify as vegetarians, and 3% are vegans.

Risks to Beyond Meat

In its prospectus filing with the Securities and Exchange Commission (SEC), Beyond Meat reports that it has yet to achieve profitability. In other words, it loses more money than it makes each year.

• For the full year 2018, it lost $29 million, with revenue (total sales) of $88 million. It also lost between $25 and $30 million in 2016 and 2017, according to its SEC paperwork.
• Beyond Meat says its expenses will continue to increase as the company expands.
• Beyond Meat also says it may experience expansion and supplier issues, such as pea protein shortages, that could hamper its growth.
• At least one analyst predicts the company won’t break even for another five or six years. When a company breaks even, it’s making as much money as it’s losing.

IPOs can be volatile

When a company has an IPO, it’s typical for a newly issued stock to be subject to significant increases and decreases, at least in the short run. That’s known as volatility. Volatility for the stock can be especially high in the first few months following an IPO, and so can the potential for short-term losses as a result.

That’s because investors, analysts, and other stock market participants are often uncertain about the prospects of a newly public company, and that can all factor into the share price. For example, investors typically want to know if a company is worth the valuation it achieved at the time of its IPO. They may also want to know if a company will be profitable in the years to come, or whether it will continue to have losses.

After an IPO, prices may fluctuate due to the expiration of something called a lock-up period, where company insiders such as employees sign an agreement that prohibits them from selling shares for a specified period of time. (In Beyond Meat’s case, the lock-up period is 180 days.) When lock-up periods expire, insiders will often sell their stock in order to realize profit, which can cause the stock price to fall.

Do your homework

It’s important for investors to carefully examine any company whose stock they plan to buy. Remember, as a public company Beyond Meat is required to file paperwork with the Securities and Exchange Commission (SEC) on a regular basis, detailing its financial performance and providing other critical information about the company that investors will want to know about.

That information, which includes a company’s revenue, profits, and losses is available to the general public—meaning anyone can look at it.

You can find out more about the Beyond Meat by looking at its prospectus, a publicly available document on the Securities and Exchange Commission’s website EDGAR.

Follow the Stash Way!

Stash recommends following the Stash Way, which includes regular investing, diversification, and investing for the long term.

Investing for the long term can help insure that you aren’t locking in your losses due to short term fluctuations in the price of a stock.

And remember: All investing involves risk. It’s possible for stocks, bonds, and other securities to lose their value due to changing market conditions.

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