PRPL – Projecting Production capacity – $$ 2 MILLION still in play – Can they break 1B in 2021?
For those of you that are still long on purple: I thought I would share some little snippets of information from the reports and todays call.
- Purple DTC grew 95% from last year.
- Wholesale remained at similar levels, likely due to covid. Wholesale is picking up.
- Gross Margins increases by ~200 BP to 47%
- Gross revenue increased by ~59% YOY from 117M to ~187M
- Purple is starting to see small impairments for cloth that wraps their coils.
- Purple estimated that their revenue growth for Q4 would be similar to Q3.
- Q4 2019 Revenue was 124.3M, Q4 2020 projected would be somewhere around 197M.
- Gross Margin would likely drop due to more wholesale Mix.
- Purple launched in Canada and did a complete fleet rollout with sleep country. Wholesale doors are now at ~2100+ in North America
- Purple continues to be capacity constrained and the new plant is being aggressively built out.
- New Plant can support 6 Max machines with each max machine creating ~90M in net revenue.
- Purple will likely end the year with 7 machines and will rollout 2 in Q1 and 2 More later in 2021.
- Max 8/9 will create ~25% more capacity starting sometime in mid Q1.
- Purple continues to launch wholesale stores and will likely rollout 3-5 a quarter
- Each wholesale store is expected to do somewhere in excess of 2.5M and could achieve as much as 5M. this was mentioned on previous earnings calls.
- Purple will aggressively pursue more wholesale once they have more capacity
- Every Mattress produced is sold.
- Purple said 1000 More doors in 2021 is possible.
- Purple indicated they would temper their growth so their inventory could be better managed as they want to have buffers to allow for maintenance. They are currently very strained and they would like to have more cushion in the future.
- Purple is working on more premium offerings.
- Purple launched a premium foam mattress in Canada and Canada is just now receiving floor models.
What to expect going forward
- Those damn warrants are finally going to be gone next quarter, with exception to sponsor warrants, which aren't accrued as a liability.
- Based on purple's filings, we can assume they will hit 660-680M in revenue for the year, which is significantly higher than the 550-575 they guided to originally at the beginning of the year.
- These warrants have added about 7M shares to the float and there is potential for about 4M more shares that are dilutive. As long as there are no offerings, we can expect the float to settle in the 64M range (correct me if I'm wrong).
- Purple will likely experience a large paper gain in Q4 when the warrant liabilities reverse.
- According to the 10Q, they've accrued more than 40M in paper losses, that will show as GAAP earning if they are reversed.
- Going forward, earnings will be more clear as the warrant accruals will be gone.
- Purple will likely have 900M worth of production capacity for 2021 with their proposed schedule and 1B if they bring on Max 9/10 before mid year.
- I don't expect PRPL will guide to this, but they will likely guide in the 800-850M range and continue to outperform. I believe PRPL will exceed 900M in revenue.
- Purple is hiring more than 100 people with careers specializing in non domestic markets
- fundamentally purple is performing well, it's relieving to get the warrants out of the way.
- The chart isn't looking pretty as we just moved below our 50 SMA.
- I believe we will bounce, as evidence of todays price movement.
- We ended green and there were nearly 1M shares shorted during todays trading.
- Purple has indicated they plant to Achieve 12.5-15% Ebitda beginning in 2021 and going forward.
- With DTC trending higher due to covid, I expect we will be closer to the 15% range.
- If purple can achieve 15% EBITDA on 850M in revenue, we can expect EBITDA to come in ~130M for 2021. I expect they will achieve 16-17%.
- If purple achieves the same EBITDA in 2022 with all 13 Machines running, then we can expect EBITDA approaching 200M. Going forward, you can see why purple is going to be a cash cow. I believe this growth should command 3.0x price to sales ratio or a 20X P/E.
- I expect the tip ranks price targets fairly value purple, but we could see large target increases if purple guides in the 900M-1B range for 2021.
- Current consensus price target is 34.00 (30% upside).
TL:DR, sell 25 puts or 30 puts, if you're ballsy Buy 25/40 and 25/35 leap debit spreads for 2022 and 2023. If you want flexibility and liquidity, buy April 30 calls and play the run up to earnings. Don't be stupid and buy OTM lottos. Don't buy warrants as they have been redeemed, and if you own, exercise them. Do your own research, this is my opinion.
Submitted November 12, 2020 at 08:47AM by dhsmatt2
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