Pitmasters of the universe
The equity markets are serving up red meat for outdoor-dining enthusiasts. Traeger and Weber, makers of backyard grilling machines, have both filed for initial public offerings. One is more hip, while the other is bigger. Both sport the requisite IPO buzzwords about technology and recurring revenue streams. What one has in market penetration and variety, the other makes up for in brand cachet – suggesting they could end up with a similar valuation.
Salt Lake City-based Traeger specializes in grills powered by wood pellets. The company run by Jeremy Andrus sold 2 million grills in the United States between 2016 and 2020. Weber, based in Palatine, Illinois, and led by Chris Scherzinger, has sold 50 million grills globally, about two-thirds of that in the United States, where it has a 23% market share. Weber’s grills appeal to a broader market: They run on gas, charcoal, wood pellets or electricity.
Both brands command pricing power. Take their gross margin – effectively their markup on the products they make. Traeger’s was 41% and Weber’s 44% in the six months to March 31. After that, their finances look quite different. Traeger’s revenue almost doubled to $369 million in the six months ended March 31, and swung from a loss to a small profit. Weber’s revenue increased 62% to $963 million and its earnings tripled. Weber gets more than one-quarter of its revenue from add-ons like fuel and utensils, versus one-fifth at Traeger.
In the overall cook-off, Weber looks like a winner. Outdoor brands Yeti, Newell Brands and Thor Industries trade at an average 3 times this year’s forecast sales, according to Refinitiv. If Weber’s pandemic-powered growth fades to half of its most recent 62% rate, it might make $2.5 billion of revenue in the 12 months ending next March, making it worth $7.5 billion. Trager, by the same token, would only be worth $3 billion, unless it can argue its luxury deserves a big premium.
Wall Street has already picked its winner. Weber’s latest filing has three of the top five underwriters for U.S. IPOs this year, namely JPMorgan, Goldman Sachs and Bank of America. Traeger owner TGPX Holding I has one: Morgan Stanley. There’s room in the market for both grill makers, but being the bigger and more established of the two, it’s perhaps no surprise Weber has brought more fee-hungry banks to the yard.