In recent years, plant-based food products have become mainstream due to their alleged benefits that far outweigh those of normal meat. With this growing hype, several plant-meat producers capitalized on this interest by making their public market debuts, including Beyond Meat, Inc. (NASDAQ: BYND). However, the tides are changing, and interest in plant-based food is starting to fade due to a combination of poor taste, health implications, as well as a higher price than normal meat.
This changing environment has led Beyond Meat to suffer from declining revenues and mounting losses. With that in mind, the company appears to be in a similar position to another plant-based food producer – Tattooed Chef – that filed for bankruptcy last June. As such, there is a possibility that the company may go bankrupt by 2025 if it doesn’t show material improvements in its financial performance, which is why investors could find taking a short position in BYND stock a profitable decision.
BYND Fundamentals
The Fall of Veganism?
From burgers to turkey, imitation meats are everywhere. While these products were extremely hyped, especially at the onset of the pandemic, fake meat popularity has been trending downwards. As a result, fake meat producers like Beyond Meat have been suffering from low demand for their products, negatively impacting their realized revenues and margins. This suffering was exacerbated by the Fed’s policy of hiking interest rates to curb inflation which had a major impact on consumer spending.
Fake meat is priced as a premium product. According to Nielsen data, fake meat is 2 times as expensive as beef, 4 times as expensive as chicken, and 3 times as expensive as pork. Therefore, it’s no wonder that Beyond Meat’s revenues have been in a free fall since last year.
But that’s not the only reason for the low demand for plant-based food. The number of vegans and vegetarians is actually declining in the US. A recent Gallup consumption habits poll demonstrated that 4% of Americans identify as vegetarian and 1% as vegan. These figures are down from 5% and 3%, respectively, from the last poll in 2018.
A reason behind this decline in veganism and vegetarianism could be the current macro conditions. As is, the Gallup poll found that the majority of vegans and vegetarians are lower-income adults as they are 7% more likely to be vegetarian compared to 4% of the middle class and 3% of the upper class. This means that Beyond Meat has a very small addressable market.
Fake Meat Won’t Substitute Real Meat
Not only that, but vegans and vegetarians don’t like to eat meat which makes the concept of fake meat not appealing to them. In fact, studies suggest that the greater the number of consumers familiar with plant-based products, the fewer the individuals who will seek products that are similar to meat from a sensory point of view. This means that vegetarians and vegans aren’t seeking meat sensory properties in plant-based products, deeming them unattractive to this population.
Meanwhile, for omnivore consumers, fake meat lacks the taste and flavor of real meat. To quote senior analyst at Insider Intelligence, Rachel Wolff, “Consumers in the U.S. haven’t fully warmed up to plant-based protein alternatives like Beyond Meat… because the products … don’t live up to shoppers’ standards for taste and flavor.”
With that in mind, there is a reason why fake meat doesn’t have the same taste or texture meat eaters are looking for. Few plant products have the same chewy texture as meat, and when cooked plant and animal proteins react differently. The Maillard reaction is what gives cooked foods their smell, flavor, and brown color.
When heated to a high temperature, amino acids and sugars on the surface of food rearrange themselves, releasing flavor and aroma compounds in the process. The higher the concentration of protein, the more flavor compounds are released, and the higher the sugar concentration, the more aroma compounds there will be.
The meaty aroma comes from the release of compounds like thiazoles or thiophenes during high-temperature dry cooking. While these compounds can be found in plants, the plant aroma substitutes are harder to find. Therefore, it is very unlikely for a plant-based meat substitute to replicate the same experience as eating real meat for omnivorous individuals, which is why Beyond Meat’s focus on attracting the omnivore population to its products is head scratching.
Marketing Woes
Given the declining vegan and vegetarian population, as well as meat substitutes not providing the same experience to omnivorous consumers, Beyond Meat resorted to a solution to stimulate demand. Steeper discounts. Despite that, its Q3 revenues came at $75.3 million only, representing an 8.7% YoY decline and a 26.2% sequential decline.
Another marketing strategy Beyond Meat is implementing is combatting misinformation regarding the health implications of plant-based substitutes. In the Q3 earnings call, management stated that the percentage of US consumers who believe plant-based meat is healthy has possibly dropped this year from 38% in 2022 and 50% in 2020.
This is why the company’s focus on targeting omnivores may be irrelevant to future demand due to the aforementioned reasons why meat substitutes don’t provide the same experience as eating real meat. Instead, Beyond Meat should focus more on catering to the vegan and vegetarian populations.
That said, this is where Beyond Meat’s business is limited. The company’s products fall under the “ultra-processed” category which the majority of vegans and vegetarians avoid. As is, both populations are more focused on healthy food with simple ingredients, not ultra-processed food that is associated with weight gain and health problems.
Although the long-term implications of consuming industrially produced vegan products on a mass scale are still unclear, fear of the unknown may lead the health-conscious population, of which vegetarians are a majority, to avoid these products.
Beyond Bankruptcy
With demand in free fall and mounting losses, a Chapter 11 filing may not be a far reality for Beyond Meat. While the company generated free cash flow in Q3, management guided that positive free cash will not be sustained in the coming quarters. As such, the company would be burning cash to maintain its operations. With $217.5 million in cash on hand, it appears that the company may have to raise capital in 2024 to continue funding its operations going forward.
That said, Beyond Meat is currently taking cost reduction measures to help improve the losses, including 65 job eliminations to save up to $10.5 million in operating costs in 2024. However, this may not help the company financially. Beyond Meat’s main issue is that it’s losing money on each sale, an issue that could continue hampering its prospects with its discounting strategy. Therefore, reducing operating costs may only be kicking the can down the road.
But even if Beyond Meat manages to stay afloat in the coming years, it still has a $1.1 billion debt mountain maturing in 2027. These convertible notes have a conversion price of $206 per share, so it’s unlikely noteholders will convert their notes into shares considering its current share price of $6.4. This means that the company has only 2 options to deal with this upcoming debt which are generating more than $1.1 billion in cash flow or refinancing.
However, it is unlikely Beyond Meat would be able to do that since generating $1.1 billion in cash flow over the next 3 years would require its margins to improve substantially from the negatives. This appears to be a long shot at this point since posting solid margins requires more production which would result from more demand for its products.
Meanwhile, refinancing may not be appealing to noteholders since the company’s failing business doesn’t instill confidence in its ability to exist beyond the debt maturity. Based on this, filing for bankruptcy may be the only relief for Beyond Meat which was the case with another plant-based food producer – Tattooed Chef – earlier this year. In that case, Beyond Meat’s shareholders would be left with nothing since its $1.2 billion in liabilities far outweigh its $929.2 million in assets, meaning that noteholders will assume control of the company.
Risks
The only risk to this bearish thesis is Beyond Meat’s short squeeze potential. Currently, the stock’s short interest is high at 42.88% which makes it prone to unjustifiable runs similar to its 15% run on its disappointing Q3 earnings.
Technical Analysis
BYND stock is in a neutral trend as it is trading in a sideways channel between $6.36 and $7.81. Looking at the indicators, the stock is below the 200, 50, and 21 MAs which is a bearish sign. Meanwhile, the RSI is neutral at 41 and the MACD is bearish.
As for the fundamentals, there is a strong possibility that BYND stock could file for bankruptcy given that management expects the company to continue burning cash in the coming quarters. With dwindling demand for its products, the company is expected to continue operating at negative margins, and with $1.1 billion in debt maturing in 2027, its chances of being able to pay off this debt appear to be slim to none. In light of this, investors could wait for the stock to test the $8 level, which could occur due to a potential short squeeze, in order to enter a short position in the stock.
BYND Forecast
Plant-based foods are no longer the trend they were in recent years. With interest rates at multi-decade highs and their premium pricing, there is simply not enough demand for them. With that in mind, it is unlikely that demand for these products will rebound to pandemic levels due to the declining vegan and vegetarian populations. In this way, Beyond Meat’s financial woes may continue in the coming quarters, and with its dwindling cash balance, it may join Tattooed Chef in the ranks of bankrupt plant-based food producers. It is for this reason that I’m giving Beyond Meat a strong sell rating.
This changing environment has led Beyond Meat to suffer from declining revenues and mounting losses. With that in mind, the company appears to be in a similar position to another plant-based food producer – Tattooed Chef – that filed for bankruptcy last June. As such, there is a possibility that the company may go bankrupt by 2025 if it doesn’t show material improvements in its financial performance, which is why investors could find taking a short position in BYND stock a profitable decision.
BYND Fundamentals
The Fall of Veganism?
From burgers to turkey, imitation meats are everywhere. While these products were extremely hyped, especially at the onset of the pandemic, fake meat popularity has been trending downwards. As a result, fake meat producers like Beyond Meat have been suffering from low demand for their products, negatively impacting their realized revenues and margins. This suffering was exacerbated by the Fed’s policy of hiking interest rates to curb inflation which had a major impact on consumer spending.
Fake meat is priced as a premium product. According to Nielsen data, fake meat is 2 times as expensive as beef, 4 times as expensive as chicken, and 3 times as expensive as pork. Therefore, it’s no wonder that Beyond Meat’s revenues have been in a free fall since last year.
But that’s not the only reason for the low demand for plant-based food. The number of vegans and vegetarians is actually declining in the US. A recent Gallup consumption habits poll demonstrated that 4% of Americans identify as vegetarian and 1% as vegan. These figures are down from 5% and 3%, respectively, from the last poll in 2018.
A reason behind this decline in veganism and vegetarianism could be the current macro conditions. As is, the Gallup poll found that the majority of vegans and vegetarians are lower-income adults as they are 7% more likely to be vegetarian compared to 4% of the middle class and 3% of the upper class. This means that Beyond Meat has a very small addressable market.
Fake Meat Won’t Substitute Real Meat
Not only that, but vegans and vegetarians don’t like to eat meat which makes the concept of fake meat not appealing to them. In fact, studies suggest that the greater the number of consumers familiar with plant-based products, the fewer the individuals who will seek products that are similar to meat from a sensory point of view. This means that vegetarians and vegans aren’t seeking meat sensory properties in plant-based products, deeming them unattractive to this population.
Meanwhile, for omnivore consumers, fake meat lacks the taste and flavor of real meat. To quote senior analyst at Insider Intelligence, Rachel Wolff, “Consumers in the U.S. haven’t fully warmed up to plant-based protein alternatives like Beyond Meat… because the products … don’t live up to shoppers’ standards for taste and flavor.”
With that in mind, there is a reason why fake meat doesn’t have the same taste or texture meat eaters are looking for. Few plant products have the same chewy texture as meat, and when cooked plant and animal proteins react differently. The Maillard reaction is what gives cooked foods their smell, flavor, and brown color.
When heated to a high temperature, amino acids and sugars on the surface of food rearrange themselves, releasing flavor and aroma compounds in the process. The higher the concentration of protein, the more flavor compounds are released, and the higher the sugar concentration, the more aroma compounds there will be.
The meaty aroma comes from the release of compounds like thiazoles or thiophenes during high-temperature dry cooking. While these compounds can be found in plants, the plant aroma substitutes are harder to find. Therefore, it is very unlikely for a plant-based meat substitute to replicate the same experience as eating real meat for omnivorous individuals, which is why Beyond Meat’s focus on attracting the omnivore population to its products is head scratching.
Marketing Woes
Given the declining vegan and vegetarian population, as well as meat substitutes not providing the same experience to omnivorous consumers, Beyond Meat resorted to a solution to stimulate demand. Steeper discounts. Despite that, its Q3 revenues came at $75.3 million only, representing an 8.7% YoY decline and a 26.2% sequential decline.
Another marketing strategy Beyond Meat is implementing is combatting misinformation regarding the health implications of plant-based substitutes. In the Q3 earnings call, management stated that the percentage of US consumers who believe plant-based meat is healthy has possibly dropped this year from 38% in 2022 and 50% in 2020.
This is why the company’s focus on targeting omnivores may be irrelevant to future demand due to the aforementioned reasons why meat substitutes don’t provide the same experience as eating real meat. Instead, Beyond Meat should focus more on catering to the vegan and vegetarian populations.
That said, this is where Beyond Meat’s business is limited. The company’s products fall under the “ultra-processed” category which the majority of vegans and vegetarians avoid. As is, both populations are more focused on healthy food with simple ingredients, not ultra-processed food that is associated with weight gain and health problems.
Although the long-term implications of consuming industrially produced vegan products on a mass scale are still unclear, fear of the unknown may lead the health-conscious population, of which vegetarians are a majority, to avoid these products.
Beyond Bankruptcy
With demand in free fall and mounting losses, a Chapter 11 filing may not be a far reality for Beyond Meat. While the company generated free cash flow in Q3, management guided that positive free cash will not be sustained in the coming quarters. As such, the company would be burning cash to maintain its operations. With $217.5 million in cash on hand, it appears that the company may have to raise capital in 2024 to continue funding its operations going forward.
That said, Beyond Meat is currently taking cost reduction measures to help improve the losses, including 65 job eliminations to save up to $10.5 million in operating costs in 2024. However, this may not help the company financially. Beyond Meat’s main issue is that it’s losing money on each sale, an issue that could continue hampering its prospects with its discounting strategy. Therefore, reducing operating costs may only be kicking the can down the road.
But even if Beyond Meat manages to stay afloat in the coming years, it still has a $1.1 billion debt mountain maturing in 2027. These convertible notes have a conversion price of $206 per share, so it’s unlikely noteholders will convert their notes into shares considering its current share price of $6.4. This means that the company has only 2 options to deal with this upcoming debt which are generating more than $1.1 billion in cash flow or refinancing.
However, it is unlikely Beyond Meat would be able to do that since generating $1.1 billion in cash flow over the next 3 years would require its margins to improve substantially from the negatives. This appears to be a long shot at this point since posting solid margins requires more production which would result from more demand for its products.
Meanwhile, refinancing may not be appealing to noteholders since the company’s failing business doesn’t instill confidence in its ability to exist beyond the debt maturity. Based on this, filing for bankruptcy may be the only relief for Beyond Meat which was the case with another plant-based food producer – Tattooed Chef – earlier this year. In that case, Beyond Meat’s shareholders would be left with nothing since its $1.2 billion in liabilities far outweigh its $929.2 million in assets, meaning that noteholders will assume control of the company.
Risks
The only risk to this bearish thesis is Beyond Meat’s short squeeze potential. Currently, the stock’s short interest is high at 42.88% which makes it prone to unjustifiable runs similar to its 15% run on its disappointing Q3 earnings.
Technical Analysis
BYND stock is in a neutral trend as it is trading in a sideways channel between $6.36 and $7.81. Looking at the indicators, the stock is below the 200, 50, and 21 MAs which is a bearish sign. Meanwhile, the RSI is neutral at 41 and the MACD is bearish.
As for the fundamentals, there is a strong possibility that BYND stock could file for bankruptcy given that management expects the company to continue burning cash in the coming quarters. With dwindling demand for its products, the company is expected to continue operating at negative margins, and with $1.1 billion in debt maturing in 2027, its chances of being able to pay off this debt appear to be slim to none. In light of this, investors could wait for the stock to test the $8 level, which could occur due to a potential short squeeze, in order to enter a short position in the stock.
BYND Forecast
Plant-based foods are no longer the trend they were in recent years. With interest rates at multi-decade highs and their premium pricing, there is simply not enough demand for them. With that in mind, it is unlikely that demand for these products will rebound to pandemic levels due to the declining vegan and vegetarian populations. In this way, Beyond Meat’s financial woes may continue in the coming quarters, and with its dwindling cash balance, it may join Tattooed Chef in the ranks of bankrupt plant-based food producers. It is for this reason that I’m giving Beyond Meat a strong sell rating.