Is Winc Stock Undervalued?

Is Winc Publicly Traded? Winc Inc (NYSE:WBEV) is Los Angeles, California-based wine club that went public to very little fanfare in November 2021. This was after postponing an October IPO which originally was slated to raise $80 million; it ended up with just $22.1 million. Winc share price proceeded to lose over half of its value by year end.

WBEV share price is still trading well below its IPO price, so is Winc stock undervalued now?

The company essentially acts as a branding factory that continuously releases new wine brands to its customers, who according to Nielsen Corp (NYSE:NLSN) bought in spades over the past year – a 234 percent year-over-year increase in online alcohol sales.

The Winc Challenge: How To Ship Alcohol

Although wine is typically seen as a beverage of sophisticated alcohol consumers, it remains on the vice list. The vice industry is highly regulated by the U.S. Department of the Treasury’s Alcohol and Tobacco Tax and Trade Bureau. Perhaps surprisingly, lockdowns hurt the overall industry, but $66.8 billion worth of wine was still sold in the U.S. in 2020 – about $40 billion of which came from California alone.

Napa Valley in Northern California is world-renowned for its grapes, vineyards and wineries, and Southern California has its own agricultural highlights.

In 2020, U.S. wineries generated $1.28 billion in revenue, while exporting 99.1 million gallons of wine. Shipping wine isn’t easy, and American laws in transporting alcohol are as varied state-to-state as they are for more contentious products, like cannabis. Alcohol delivery is a hurdle even for ecommerce giant (NASDAQ:AMZN).

You can’t ship alochol via the United States Postal Service, which does not accept packages containing alcohol. Shipping requires the same liquor licensing as selling alcohol via brick-and-mortar stores does.

Despite this minefield of obstacles, Winc carved a niche in California’s crowded marketplace.  

How Winc Got Started

Winc was founded in 2011 by Xander Oxman, Geoff McFarlane, Brian Smith, and Mark Lynn and was originally called Club W. The subscription-based business aimed to make wine more accessible to the average person who’s not a sommelier (although even the legitimacy of sommeliers is questionable). By 2016, it rebranded to Winc to attract a younger, hipper user base.

In doing so, the company attracted over 500,000 customers and stands out as a unique brand in the wine industry. It presents customers with a quiz on taste profiles to determine what you prefer between citrus, chocolate, salt, and other flavors. This creates a flavor profile that matches you to wines within the company’s vault. The company’s best-selling in-house brands include Wonderful Wine Co, Cherries & Rainbows, and Summer Water.

Using its palate data, Winc can tailor its wine releases to the tastes of most its customers. Essentially it has customers paying to research the best tasting wines. This personalization was unique in the wine industry, which helped the company to grow organically while reimagining the traditional wine supply chain.

And these efforts are paying off, even as it supplements its revenues with retail sales through stores like Trader Joe’s, Target (NYSE:TGT), Whole Foods, and Walmart (NYSE:WMT).

Winc Is Growing But Losing Money

While the wine industry declined in 2020, Winc’s case sales climbed 80 percent from 2018 to 2020, with over 430,000 cases sold. Its $30-per-month subscription model is a big part of its direct-to-consumer (DTC) revenue, but it’s also increasing its wholesale revenues to supplement any market changes.

Winc 2021 results are outperforming the prior year, with $22.96 million in gross profit in the first nine months of the year. That’s well ahead of the $18.48 million it earned in the same timeframe the year before.

Still, it’s operating at a loss while with its share price trades at less than half of its IPO price. The drop in DTC revenue has investors worried about the rocky waters ahead for this wine and technology company.

Will The Recovery Hurt Winc Share Price?

The market has been tepid on Winc since its public launch, and it has little to do with the company receiving a scathing review from Wirecutter at the New York Times (NYSE:NYT). That is important to note though, because customers are at risk of fleeing the service when they spend less time cooped up at home.

Although Winc was among a small group of wine shipping pioneers, many suppliers have a shipping solution these days. There are dozens of wine subscription services online, like Bright Cellars, Naked Wines, VINEBOX, and Tasting Room.

It’s hard for Winc to dominate in such a crowded market. It will need to spend more on marketing, and potentially increase customer acquisition costs. That’s not even accounting for the fact that local wineries in every state outside of California can provide a similar service while sticking to the popular “buy local” trend.

All that boils down to the market’s conclusion: Winc is valued appropriately now.

Is Winc Stock Undervalued: The Bottom Line

Winc pioneered the wine delivery model with its personalized options and wine-as-a-service business model. It has a great customer research platform to introduce new successful brands, and it’s now on the shelves of the largest retailers in the country. Still, the company has to prove it can grow its customer base and eventually turn a profit. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.