Allbirds shares nearly doubled in their first day of trading, making the sneakers start-up the latest brand to find a warm reception on Wall Street.

The company raised about $300 million in its initial public offering, which was priced at $15, above its target range, then surged over 90 percent to end the day at $28.89, for a market capitalisation of more than $4 billion.

This stellar performance signals the enduring appetite among investors for new brands that may be small today but could represent the next generation of retail giants.

“Whether it’s Allbirds or On Running, there’s a frenzy of these clean-and-green next-gen companies that are getting favourable market acceptance,” said Dean DeBiase, faculty member at Northwestern University’s Kellogg School of Management.

On Running, a Swiss footwear brand, saw its shares spike following its September IPO; it now has a nearly $13 billion market capitalisation. The eyewear retailer Warby Parker has followed a similar trajectory since its late-September public debut.

A strong opening on the Nasdaq or New York Stock Exchange doesn’t guarantee success down the line. Shareholders will expect newly public brands to grow into their valuations, which, in the case of Allbirds, is nearly 19 times its 2020 revenue of $219.3 million. Nike posted total sales of $44.5 billion in its most recent fiscal year. Its current market capitalisation is $266 billion — or six times its revenue.

Investors will also be looking for Allbirds and its cohort to take steps toward profitability while continuing to grow. Allbirds reported $25.9 million in net losses last year, while Warby Parker posted net losses of $55.9 million in 2020. (On turned a profit of 3.8 million Swiss Francs in net income in the first half of 2021, after seeing a 27.5 Swiss Francs million loss in 2020).

The DTC Ceiling

One of Allbirds’ greatest strengths is its loyal customers. According to its prospectus, over half of its revenue last year came from repeat buyers. But to justify its heady valuation, Allbirds needs to expand its fan base, said Simeon Siegel, retail analyst at BMO Capital Markets. Allbirds said in the filing it has a brand awareness rate of about 11 percent in the US.

“The best thing a brand can have are customers who evangelise for them, but a business looking for growth needs to make sure they can scale up and bring in new customers too,” Siegel said.

Allbirds plans to expand into new categories and open more stores. The brand has already ventured beyond its hero product — the Wool Runners, a $98 pair of lightweight sneakers designed for all-day wear — to a handful of new shoe styles such as slippers and flats and performance apparel too. As for stores, it operates 27 locations as of June 30, 2021 and plans to open hundreds more.

Warby Parker is following a similar retail strategy, and both it and Allbirds started out by defining themselves in opposition to brands that sell through wholesale at marked up prices. Some brands, including Lululemon, have reached billions of dollars in annual sales primarily through their own stores and websites.

But in a crowded category like footwear, some experts say Allbirds may need to take a page from On, which operates its own stores but also sells through multi-brand retailers.

Brands from Gucci to Canada Goose to Nike have steered more sales to their own channels in recent years. But many labels still find wholesale an attractive route. For brands going it alone, the cost of direct-to-consumer operations, including finding customers and fulfilling orders, often exceeds the cut they would have paid a middleman, Siegel said.

A Marketing Clutch

Allbirds is also going public as its status as the “it” shoe for tech and finance types has begun to fade. That may help the brand reach a wider audience, but at the risk of losing some of the cachet that made the shoes a hit in the first place.

Allbirds’ other main brand hallmark is its emphasis on sustainability, backing up its environmental bona fides with its certification as a B Corp. As a public company, Allbirds will have to confront additional scrutiny, however. The company currently faces a class action lawsuit that accuses it of misleading consumers about its environmental impact. Allbirds has filed a motion to dismiss the case. The brand also amended its IPO filing to remove some references to adopting a sustainable framework for going public.

Green marketing isn’t as potent as it once was, now that so many other companies tout their sustainability efforts, Siegel said.

Andrew Gluck, general partner at the venture firm IrrvrntVC, purchased his first pair of Allbirds four years ago, and said he wishes he’d invested in the company. But he added he’s not sure what the brand stands for anymore.

“If you cover up the Allbirds logo in their ad, it doesn’t feel like there’s any perspective, any point of view,” he said. “It’s bland, it’s vanilla, it’s tofu.”

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