FIGS IPO Marks New Era For Retail Traders

Date: 5/24/2021
Author: Mr. X


FIGS provides clothing and apparel for healthcare workers via a direct to consumer model. That isn’t so unusual. However, FIGS is also a “lifestyle company.” It’s about to go public, and the timing couldn’t be better.

FIGS is highly significant because healthcare workers, or “frontline workers” as we’ve taken to calling them, have developed a strong group identity. Countless signs all over America call them “our real superheroes.” The job has a certain panache that was lacking just two years ago.

Thus, FIGS isn’t giving these workers mass produced “scrubs” but comfortable, fashionable clothes that are designed to look good while still being functional. The co-founders explicitly compared the situation of healthcare workers to that of athletes, who enjoy “cutting edge materials” and “purpose driven designs.”

One might argue this could have sounded presumptuous in 2019, but it doesn’t now.

Still, what is most impressive about FIGS is that it is already profitable. The company that comes to mind is Zoom [ZM]. Zoom was already profitable in 2019, before the pandemic. It truly took off after COVID-19 hit.

Similarly, FIGS looks like it will turn a profit this year. The IPO is thus an opportunity for aggressive expansion, not an uncertain bet that a vague concept will catch fire.

The medical apparel industry is expected to grow to more than $140 billion by 2020. As the American population continues to age, there will also be additional demand for caregivers. In our social media driven culture, medical workers will want to present their role as not only heroic, but stylish. FIGS meets this psychological demand.

Instagram is an important part of the company’s marketing strategy. #wearfigs is a popular hashtag and the primary source of customers is the critical female 18-35 age group. There’s also the kind of “brand as religion” ethos that today’s successfully companies have been promoting, with repeat customers representing a major share of company earnings.

One major trend over the last year was the de facto requirement that major companies must have an ESG (Environmental, Social, and Governance) strategy. Here again, FIGS is ahead of the game, preparing an “impact report” and using its influencers (“awesome humans”) to make wearing its clothes a kind of moral statement, not just a fashion choice.

FIGS has successfully capitalized on everything that happened over the last year, roughly doubling its customer base.

On the surface, there’s nothing too unusual about this promising IPO. Underwriters reportedly include the decidedly conventional Goldman Sachs, Morgan Stanley, Credit Suisse, and BofA Securities. However, what’s different this time is that a certain number of the IPO shares will be reserved for users of commission-free trading platform Robinhood. Claiming to “democratize” the IPO process, Robinhood’s IPO Access product will supposedly allow Main Street retail traders to buy shares at the IPO price, before it potentially skyrockets.

This is important because a number of IPOs this year have looked great on paper but were practically impossible for normal investors to take advantage of. For example, the reference price for Coinbase [COIN] before its IPO was $245. However, when it actually became available to the public in April, it opened at $381.

As retail trading becomes increasingly popular, we’re also seeing a trend of a stock’s expected price rising in the days just before it goes public. The expected price for FIGS is between $16-$19, but the final price has yet to be determined. As a result, those who want to want to request these shares simply must wait.

The singular opportunity represented here suggests that FIGS could have a monster opening. Yet access will be crucial. “Requesting” shares doesn’t mean the same thing as obtaining them. Only about 1% of the class A stocks that will be made available that day will be offered to retail investors via Robinhood. It’s not really the “democratization” of the IPO process, but merely an expansion of the franchise.

Long term, the company looks promising. Yet unless investors can get in at the beginning, they should be cautious. First, companies that live by social media also die by social media, and any political or media scandals could be extremely damaging to the company. The company already shot itself in the foot with an ad that featured a woman in pink apparel reading a medical book upside down. It had to apologize.

Second, the company faces a lawsuit from Careismatic Brands, which has its own medical apparel. FIGS counters that the lawsuit, alleging misleading marketing, is simply a fishing expedition. One can never know what the courts will do.

However, the biggest danger is simply the third. Direct-to-consumer medical apparel could be a highly competitive market. While FIGS is capturing this niche, it’s doubtful it can monopolize it.

That said, FIGS has three critical things going for it – social media credibility, deliberately cultivated brand loyalty, and a unique pitch to retail investors. I think it has real potential. Short term or long term, FIGS is something traders will want to investigate when it goes public on May 27.

Is it worth a buy? That’s a separate question because we still don’t know the final price. With the trend of “expected prices” suddenly rising in the hours before an IPO, even getting in before the opening bell may not be enough. We’ll just have to wait and see… but only for a few more days.

 

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