I had never heard of BarkBox before today’s announcement that they were doing a SPAC merger with Northern Star Acquisitions Corp (STIC.U). Upon learning of the merger, I went to the company’s website and saw Snoopy and Charlie Brown prominently displayed as part of a limited-edition box. Apparently, there’s a special bonus of a Peanuts-themed toy or seasonal snack in the box every month. I guess this is exciting for those intersectional enough to be dog owners and Peanuts fans.

As you consider the prospects for BarkBox, is their future closer to Chewy Inc (NYSE: CHWY) or Charlie Brown?

BarkBox Introduction

Following the merger, the combined company (BarkBox) will have an enterprise value of $1.6 billion and will be listed on the NYSE using the ticker symbol “BARK.” What a deal! I’m surprised that nobody else had snatched that one up. The deal will supply the company with approximately $454 million in cash.

Typically, the point of going public is to raise capital for expansion. That appears to be what BarkBox is doing. They plan to invest in creating new and beefing up existing product lines, and also expanding internationally. The company projects that the current fiscal year, ending on March 31, will bring in about $365 million in sales, a 64.6% growth rate from 2020.

The company generates its revenue through its 1 million subscribers and the five product lines that are at 23,000 retail outlets. The outlets include companies like Target, Petco, and Costco.

BarkBox Valuation & Projections

It’s always difficult to value companies that are new, and BarkBox is no different. However, the company has provided a revenue projection and we have a company in CHWY that is very similar. This will allow us to do some comparison of the two companies and look at the earnings performance of CHWY.

Valuation

Chewy has a current price-to-sales ratio of 5.9. That figure is the highest valuation the company has achieved and has a median value of 3.13. Gaining a perspective on the valuation of CHWY is tough as well since the company went public in June of 2019. But we’ll do the best we can.

Currently, the price of Northern Star is $12.69 with 32.5 million shares outstanding. Using the company’s projected 2021 revenue of $365 million, we can construct a price to sales multiple based on the combined company. The gives the company a revenue per share of $11.20 and a price-to-sales of 1.12. That is a significant discount to Chewy, but it’s hard to say if a share offering is coming.

Earnings Projections

In 2019, BarkBox lost $37.1 million but was able to see that come in during 2020 to $31.4 million. The company is expecting to lose $21 million in 2021. The company also offered a conservative estimate for a 2023 loss in net income of $29.7 million

How does this compare to Chewy?

In the trailing twelve months, CHWY has taken in $6.45 billion in revenue and generated a loss of $172.47 million. While the company posted a GAAP loss, they were able to show operating cash flow of $129.6 million. The biggest hit to net income was the $144.7 million that went out as stock-based compensation.

For CHWY, analysts are currently projecting 45.7% revenue growth for the current fiscal year and 24.7% revenue growth for next year. Given BarkBox’s 2023 revenue estimate of $706 million, Chewy isn’t expected to grow nearly as fast. The current projected 5-year EPS growth rate for CHWY is 132.1%.

Conclusion

BarkBox and Chewy have benefited greatly in 2020 as people have adopted more pets and have been forced to transition more of their spending online. The near-term trajectory of BarkBox’s growth is much higher than that of Chewy and the valuation of the SPAC at its current price appears compelling. The questions surrounding cash flows can’t be examined at this point, but CHWY isn’t exactly lighting a fire with its profitability. If you put it on the Chewy to Charlie Brown scale, you might go with Chewy. However, watch out if Lucy shows up with a football.