What happened
Shares of Bark (BARK -3.11%) tumbled 19.1% in May, according to data from S&P Global Market Intelligence, and that decline can't even be blamed on its fiscal fourth-quarter earnings report, which it released after the market closed on the last day of the month.
The stock fell almost 13% the next day. But it had been declining for most of the month, and is now down by more than 85% over the past year.
Image source: Getty Images.
So what
In theory, Bark should be growing. It offers a subscription service to dog owners, providing them with curated monthly "BarkBoxes" of toys and treats for their four-legged friends. U.S. consumers spent $123.6 billion on their pets last year, up 20% from the year before, with most of it going toward dogs, since 69% of U.S. households own one compared to 45% that own cats. Moreover, pet owners' online shopping also increased by almost 20% compared to 2020 as the pandemic seems to have changed people's shopping habits permanently.
For a subscription-based service like Bark, those trends all work in its favor. And the business is growing.
As of the end of its fiscal 2022 on March 31, Bark's number of subscribers was up 24% year over year, while subscription shipments jumped 28%. But customer acquisition costs were also growing as the average lifetime value realized from those subscribers decreased and churn increased.
Now what
Certainly, Bark is suffering in part due to unusually high inflation and supply chain issues -- just like the rest of the retail industry and its customers are. Still, that's just going to make it all that much more difficult for it to turn a profit.
Losses more than doubled in fiscal 2022, in line with a trend most direct-to-consumer companies are experiencing. It's not a healthy one, and doesn't bode well for the vertical as this market is littered with profitless subscription-based businesses.
There's also a real concern over how much Bark can grow, as there are limits to how many pet toys any dog owner is going to want in their house. But particularly in an economy that many are worried is heading toward recession, a consumer discretionary business like this one is going to run up against people's diminished purchasing power. Pet owners are still willing to spend on their four-legged friends during tough times, but they're more likely to be focused on necessities like food and vet care.
Bark has described pet food as an "underserved" market that it wants to attack, but doing so would just put it up against bigger, better-financed rivals, making it that much more difficult for it to operate profitably.
