The problem for Casper is there is no shortage of competitors © AP

Sweet dreams or another nightmare on Wall Street? Casper, the buzzy online mattress start-up has filed for its long-awaited initial public offering. The five-year-old company pioneered the bed-in-a-box business. Rapid revenue growth helped it secure a $1.1bn valuation in the private market last year. But the numbers revealed in its IPO prospectus should make potential investors lose sleep.

The bedding industry has long been ripe for disruption. Shopping for a mattress can be a soul-crushing experience. Dated showrooms are filled with similar looking products sold at an inflated price. Hapless customers rest on top of plastic-covered beds while unhelpful sales clerks look on.

The advent of compression technology changed everything. Foam mattress could now be rolled to fit into a box. This solved a key logistic issue and created an opening for digital-savvy entrepreneurs to cut out the middleman.

The problem for Casper though is there is no shortage of competitors flipping 85lbs of memory foam mattresses directly to consumers. Purple, Leesa, Nectar and Tuft & Needle are among the estimated 175 online companies all vying for a piece of the so-called “sleep economy”.

A mattress is also an infrequent purchase that gets replaced only about every 10 years or so. To stand out in a crowded field, Casper needs to spend heavily on marketing and advertising. The bill for this came to $126.2m in 2018. This meant that while net revenue grew nearly 43 per cent to $358m that year, losses also ballooned from $73.4m to $92.1m during the period. Customers making good use of the company’s free return policy did not help. The $80.7m Casper dished out in “refunds, returns, and discounts” worked out at more than 18 per cent of 2018 revenue.

One may be tempted to look at the performance of some of Casper’s publicly traded competitors as a reason to invest. Purple, which merged with a publicly traded investment shell company at an enterprise value of $1.1bn in 2017, returned nearly 50 per cent last year. Yet despite the gain, Purple trades at just under two times trailing revenue. Casper’s last valuation puts it at more than three times. At this premium, investors can afford to stay in bed a little longer.

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