VXF - BARK: End Of The Pain

• BARK reported Q1 2023 earnings that positively surprised investors.
• BARK's guidance reaffirmed what it had previously guided for. However, with the stock down circa 80% in the past year, all news that isn't bad is good.
• BARK is seeing a lot of investors attempting to bottom fish this stock.
• On balance, there are some positives and negatives to this investment.
• Positive is its cheap stock with a strong balance sheet. The negative is that BARK's business is unprofitable.

Investment Thesis

BARK, Inc. ( BARK ) ("Bark") just posted Q1 2023 earnings that positively surprised investors. The company is currently navigating fiscal 2023 and provides unchanged guidance for the remainder of its fiscal year.

Bark offers investors a reminiscence of Pets.com, a business that came to the market at the top of a bubble only to see its valuation get fully whipped out.

Pets.com would soon become bankrupt in a few years as the business struggled to remain viable amidst mounting losses. Bark, on the other hand, declares that it has more than enough cash on its balance sheet , more than $170 million, to carve its path to profitability.

I believe that this extremely speculative business may just have what it takes to survive. But is it a good investment? I'm no longer sure one way or another.

Revenue Growth Rates Still Reasonable

Bark's revenue growth rates for Q2 2023 point to be up 12% y/y.

This is not a significant increase from what analysts were already expecting, yet investors have welcomed the fact that despite the challenging post-pandemic comparables, Bark is still able to guide for some topline growth for the quarter ahead.

Bark believes that this guidance already factors in the impact of broader macro-uncertainty.

For a stock that is down 80% from the same period a year ago, I believe that anything that wasn't strictly horrible news, investors would have given a wide pass.

And that's exactly what's happened, with the stock up 10% at the open (at the time of writing).

Bark's Near-Term Prospects

Bark came to the market at the height of the SPAC bubble. At the time, I didn't believe that it was a bubble . I called this stock absolutely wrong. But I'm not averse to changing my mind as the facts change.

I believe that Bark today is in a very different position than it was this time last year. As nearly all of the enthusiasm for this stock has now washed out.

Meanwhile, Bark has continued to see an increased number of subscription shipments, which were up 5.6% YOY to 3.8 million. This metric is the total number of subscription product shipments shipped in the quarter.

This metric demonstrates that not only has Bark kept up with its subscription numbers from last year, but it has actually increased its figures slightly.

BARK Stock Valuation - Difficult to Quantify

How does one appraise Bark? The business has no profitability to speak of. While its revenue growth rates are rapidly decelerating.

Ultimately, the biggest question at hand is whether or not Bark can see its revenue growth rates stabilize around double digits.

As it stands right now, including the jump at the open, the stock is priced at less than 1x this year's revenues.

But again, with slowing revenues and no profits to speak of, what's the value of those revenues?

Bark would make the case that its gross margins could in time return to higher than 60% gross margins, in line with where its gross margins were in fiscal 2021, during the pandemic.

And if that were to happen, the business could in time through the development of new product categories including food and dental see Bark reporting positive profitability.

On the other hand, keep in mind that Bark is guiding for full-year fiscal 2023 EBITDA losses of $33 million. Given that H1 2023 is expected to report a negative $23 million of EBITDA, this means that the second half will see less than $6 million of negative EBITDA per quarter.

Thereby reinforcing Bark's argument that Bark is indeed moving rapidly towards profitability.

The Bottom Line

In this really volatile market, Bark can have massive swings in its share price. Hence, this stock is not for the faint-hearted.

Since Bark's co-founder, Matt Meeker, returned to run Bark, Bark has been resolutely focused on improving its profitability.

However, I don't know if he'll succeed. In sum, I'm neutral on the stock.

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