*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. I am neither a licensed nor registered financial expert. Please see a financial advisor before making investment decisions.

*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. I am neither a licensed nor registered financial expert. Please see a financial advisor before making investment decisions.

Casper, the bed-in-the-box pioneer, has been seen as a sexy startup during its private days as they had wide-spread advertising, celebrities as their investors, and tons of media coverage. All those factors led to the company exhibiting aggressive growth for its investors. 

What makes Casper different from most mattress companies is that they cut out the middleman and pass on the savings to customers. To keep themselves lean, they rely on Facebook and Google ads to acquire customers. For growth, they are looking at opening more retail locations and to expand their product offering.

When Casper filed their S-1 to go public, the public learned that the company has been struggling behind the scenes. Issues with profitability hurt people's prospects of the company being a viable business. 

Diving deeper into the S-1, it's interesting to find that most of the cash burn did not come from selling $1 for $0.80, it came from spending too much on marketing and gaining little from it. The mattress space was already crowded and because of it, Casper's marketing dollars will receive a lower ROI compared to the average marketing campaign's ROI in other industries. 

Because the company loses more money from its marketing every year, the business isn't sustainable. Their customer acquisition costs are high and they aren't able to reap enough profit from every customer. This is what makes Casper deeply unprofitable. They need to continue spending money on advertising if they are to gain more customers, but that still doesn't solve the problem. 

The company is deeply unprofitable. Casper only makes money from their customers by selling products. They have no service offering that can give them recurring revenue. Plus, their products are things that people don't frequently buy. This is what makes Casper's industry very brutal. The ups and downs are more volatile and gut-wrenching than in other industries.

To give you perspective on the mattress industry, Casper is one in 175 online mattress brands in the US. Comparing it to the world, they're just a fish in an ocean. That's how fierce Casper's market is. Since it can't maintain profitability, there is strong doubt that they'll survive for long. 

But, there is a bull thesis that many should consider before thinking about shorting the company's shares. The bull thesis to Casper is a bet on the Sleep Economy. We're talking about:

• Sleep
• Sound
• Temperature
• Humidity
• Mattresses
• Bedding
• Bedtime
• Wake-up rituals

And management does see the Sleep Economy rising 6% annually as more and more realize how important it is to invest in quality sleep. Part of the Sleep Economy pitch is to convince consumers to change their mattresses more frequently for better health, which can make the ups and downs of the mattress industry less severe. 

For investors looking to invest in the Sleep Economy, many will point out one of Casper's competitors as a better investment: Purple Innovation. What makes Purple Innovation better is that they're growing faster than Casper and they're actually making profits when selling mattresses. 

While Casper likes to emphasize its 100-day trial, making it the longest trial from any mattress company, the industry is brutal, and being lenient doesn't help the company dominate the market. 

Months after the IPO, Casper has been accused of deceiving investors. 

An investor named Robert Lehmatta is suing Casper because the company failed to disclose that their margins were narrowing and that they were selling old and outdated inventory for a much lower price while saying that their margins are improving. 

Because Casper has been experiencing accelerating losses, Lehmatta wants Casper's CFO to resign. While management says that they're expanding, the investor notes that they've been laying off many employees because their financial situation was becoming direr. 

These issues are making investors skeptical about many of the direct-to-consumer (DTC) brands that are unprofitable. Since many of these DTC brands rely on social media ads for advertising, customer acquisition costs have been a lot costlier. Having celebrities as their investors haven't been enough to help the company lower its customer acquisition costs. 

Overall

There are many things to consider when investing in Casper. I chose not to jump the gun and say that it was an automatic bankruptcy target because there was a chance that this company could become profitable and go on to lead the Sleep Economy. While I am not a Casper customer, I do find their products to serve their own purpose. 

I would like for Casper to have a business offering that gave them recurring revenue. Something like a mattress subscription where people will pay monthly to have a mattress for a few years and get a new mattress after a few years without needing to pay a lump sum. Plus, the subscription plan can come with discounts to their pillows, blankets, sheets, and other products and that can help the company monetize its subscribers even more. 

So overall, if I were an investor looking into this company, I would treat an investment in Casper as a very speculative investment. This unicorn does look enticing to invest in and has a plan to get itself out of a dire situation but hopefully, they'll be able to live to see better days.