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Will this coffee IPO be a potential challenger for Starbucks?

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In a publicly traded coffee field dominated by a few big names like Starbucks (NASDAQ: SBUX) and previously independent Dunkin ‘Donuts (now a subsidiary of privately held Inspire Brands), a new player is about to emerge as Dutch brothers coffeeis now preparing for its IPO. Going from a coffee machine at an Oregon dairy barn to a cart at more than 470 current locations, the chain filed with the Securities and Exchange Commission (SEC) on Sept. 7 to go public. It remains to be seen if he can turn his positives into a successful publicly traded stock and perhaps challenge Starbucks for market share east of the Mississippi.

Here are three important things to take away from your IPO filing as well as a history that potential investors should consider.

1. Dutch Bros. will be valued between 3 and 3.3 billion dollars

The company, which will be listed on the New York Stock Exchange (NYSE) under the symbol “BROS”, plans to sell approximately 21 million Class A common shares when it goes public. However, three other classes of shares, B, C and D shares, will bring the total number of shares outstanding to approximately 165.1 million. With an expected IPO price of $ 18-20 per share, the initial valuation will be between $ 2.97 billion and $ 3.3 billion for the company, assuming all estimates are correct.

A paper S-1 registration statement form for an IPO, with a share certificate and several hundred dollar bills sitting on it.

Image source: Getty Images.

Class A shares will have one vote each, while the other classes will provide between 3 and 10 votes per share. While the exact details will vary depending on whether underwriters actually exercise their right to purchase additional shares, founder and executive chairman Travis Boersma will own around 74.4% of the voting rights provided by the different types of shares. Investment firms supporting the IPO will hold 22.2% of the voting rights, which represents all but 3.4% of the total voting rights of shareholders. At this point, Boersma will remain firmly in control of the business.

2. The company is growing rapidly and has laid the foundation for future growth.

In addition to its approximately $ 100 million IPO, the company has experienced steady and strong growth for years. It has seen same-store sales increase during the pandemic at a rate of 2%. Other growth figures include a compound annual growth rate (CAGR) of 16% of new outlet openings from 2018 to 2020. Over the same period, revenue grew at a CAGR of 33%, while Revenues from stores operated by -2020 jumped 61% to $ 244.5 million. Total sales, including franchises, increased by 37.3%.

Revenue in 2021 looks even more positive for Dutch Bros. In the first six months, its operations generated $ 227.9 million, exceeding first-half 2020 sales of $ 150.8 million by 51.1%.

Spending also rose sharply in 2020, reducing the company’s bottom line and leading to a net profit of just $ 6.6 million in 2020, up from $ 28.5 million a year earlier. However, as the company points out in its prospectus, “the increase [in expenses] was primarily driven by increased headcount spending above stores to support aggressive future growth. to existing and proven franchisees is a crucial part of the company’s strategy, before adding: “Welcome aboard, fasten your seat belt – we are on a rocket and I wouldn’t want it any other way” .

3. The coffee market is mostly, but not entirely, favorable

In many ways, Dutch Bros. may have chosen the right time to go public. IPOs have appeared to be popular investment targets since the IPO craze began in late 2020, as the initial impact of COVID-19 began to wear off. Starbucks is expected to see sales increase as workers and students return to physical locations rather than remote workspaces, and the same trend will likely benefit Dutch Bros.

The coffee market is growing rapidly. Global coffee sales could increase at a CAGR of 5.1% from 2021 to 2028, according to a study by Growth Market Reports. This includes in particular all types of coffee, including coffee in sachets and pods sold in supermarkets. By focusing on the direct-to-consumer coffee market where Dutch Bros. is operating, global growth is expected to be much higher. Direct-to-consumer coffee is expected to soar at a CAGR of 15.3% between 2020 and 2027, according to research from Astute Analytica. Dutch Bros. will be one of the companies in a position to capitalize on this growth, which is expected to reach 139 kilotons of coffee sold and have an opportunity of $ 1.56 billion by 2027.

A potential warning note comes from soaring commodity prices for coffee. Frosts and other weather disturbances in Brazil, as well as shipment safeguards caused by political unrest in Colombia, pushed coffee prices to their highest level in seven years. While that could cut into Dutch Bros. ‘ Initially benefits, the problems are temporary and should not affect its long-term potential.

Who will brew the most success?

With Dutch Bros. Having just 477 locations in America compared to over 15,000 for Starbucks, the energetic newcomer is unlikely to make even a small dent in Starbucks sales in the foreseeable future. Investors in Starbucks can rest easy knowing that the competitive pressure of the upcoming IPO will not affect the price, sales or market share of their shares for many years to come.

However, Dutch Bros. still looks like a bullish investment on its own terms. For fools looking for a brave and growing outsider among restaurant stocks, this dynamic IPO in a rapidly growing market seems like a good choice.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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