The Rise Of Investable Public Benefit Corporations
A Growing Trend Outside of ESG
Public Benefit Corporations are a new range of corporate entities that are for-profit companies that can be publicly traded, but differ from other corporations in that shareholders are not the only recipients of “best interest” practices. Now, business goals can also include the health and wellness of the environment, workers, and the broader community. Often, shareholders revolt against the management of publicly listed companies when performance is poor and can cite poor shareholder returns as a reason to sue.
B-corps are shielded in a way from these impacts, as management can be invested in charity work or sustainability. Imagine current ESG standards, but to a much higher degree. This is useful in that management can now focus on building a healthy, future-focused company without having as much worry about short-term performance. As you will see later in this article, strong share price performance is not the norm in this current market, but hints at strong fundamentals remain.
The corporate entity has been instrumental in harnessing the profit motive to allow business enterprises to have a tremendous impact, both negative and positive, upon contemporary society. The proliferation of these entities also led to a tension in our society and our jurisprudence with respect to their purpose and impact on society. On the one hand, the corporate form’s success led to a greater availability of products and services that increased our standard of living and quality of life. On the other hand, many believe the corporate form owes even more to society. Throughout American history there has been a continuous call for businesses to wield their power and influence in such a way as to not only create economic value for shareholders, but also to create value in an ethical manner that benefits society as a whole.
However, benefit status should not be an excuse for poor performance, and in fact, could be a tool to drive growth for a B-corp. Since the establishment of this class of business entity across the US in the late 2000s, there are now thirteen publicly listed B-corps, and an additional 20+ companies with B-corp subsidiaries. There are certainly positives and negatives to the business structure as a result of a lack of transparent results and conflicting interests (although most negative opinions come from lawyers rather than economists). Also, as the format remains new, we still do not have enough data to suggest under or overperformance. I will use this article to introduce the current B-corp companies to begin tracking performance over time.
Although the underlying idea of the benefit corporation is well-meaning, Delaware’s departure from the MBCL’s language in key respects, in addition to the MBCL’s creation of a lax enforcement system possibly to promote widespread adoption, detracts from the intentions of the drafters. Benefit corporation legislation, as it currently exists, is nothing more than the result of riding the wave of the corporate social responsibility movement.
Pure-play PBCs by Market Cap
Veeva Systems (VEEV)
One of the first tradable corporations to transition to B-corp status is this pioneering healthcare cloud-based SaaS provider. Veeva was one of the strongest performers of the last decade, although the valuation has fallen in-line with the market in the past year. However, look for growth to remain above 20% per year for the foreseeable future with the chance for upside as the R&D side of the healthcare market recovers from a slow FDA.
United Therapeutics (UTHR)
This commercial-stage biotech company focuses on rare disease therapeutics and has multiple approvals. The current pipeline has multiple trials across all phases and some catalysts within the next few months may boost the current low valuation, even as the company recently earned an FDA approval. Certainly worth a deep dive for those who enjoy the biotech industry (they are even attempting to grow lungs!).
Coursera is one of the largest providers of online education in the world thanks to partnerships with entities such as Google (GOOGL) (GOOG), Stanford Uni, and IBM (IBM). Look for the company to thrive as students look for cheaper and more flexible alternatives to traditional higher education. As a recent IPO, continue to be wary of the downward share price trend and high valuation (a pattern you will see emerging for B-corps).
Warby Parker (WRBY)
Warby Parker is a relatively new eyeglass retailer attempting to use e-commerce marketing strategies, such as home try-on periods, virtual try-on, and even home prescription renewal. The company sells a wide range of proprietary frames and lenses, along with ACUVUE (JNJ), Alcon (ALC), and CooperVision (COO) contacts. Revenues are expected to grow in the mid-20% range, but the current valuation remains high.
Planet Labs (PL)
Planet Labs is a satellite image database provider. With a range of satellites in orbit and a variety of data insights, the company is leveraging a data subscription service for growth. Look to the company to provide slow, but profitable growth into the future thanks to their relatively niche platform. Although, main competitors Maxar (MAXR) and BlackSky (BKSY) are quite similar in offerings, and this limits the tremendous growth potential of the peer group. Dedicated investors should take the time to research each.
Lemonade is a new entrant in consumer insurance coverage. The platform offers a range of insurance services from home, renters, car, pet, and life coverage. With a focus on younger, urban customers, the company certainly has suffered in front of investors. With time, however, I feel the company will find their niche thanks to a streamlined platform and higher quality customer relations. The added benefit of consumers seeking out a B-Corp insurance company may be another slight tailwind to consider.
Allbirds is by no means an innovative company. However, this sustainable clothing company is following in the successful footsteps of names such as Nike (NKE), Supreme (VFC), and Patagonia: limited edition products, a focus towards high-income activewear fans, and a sustainable-focused platform. While BIRD needs some more time on the market before we can determine the long-term outlook, I do believe positive reviews on the website indicate potential.
Amalgamated Financial Corp. (AMAL)
This union, PE, and shareholder owned financial institution focuses on providing financial services to unions and non-profit institutions. The company is a leading provider of accounts receivable solutions and this has led to stable, but slow, growth over the years. The company is certainly a welcome low-risk asset when compared to the many SPAC listing peers of the past year.
GreenLight Biosciences, Vital Farms, and AppHarvest
<$500 million market cap each.
Enter the innovative agricultural stocks. GreenLight (GRNA) is a biotech company with applications in crop science, predominantly non-toxic pest control, thanks to their RNA-based technologies. Vital Farms (VITL) is a small family farm collective that sells pasture-raised chicken and dairy products. AppHarvest (APPH) is developing indoor farming techniques that reduce the risks associated with weather, along with reducing consumption and waste. While remaining small-scale, pre-commercial, and/or speculative, these companies address unique areas of research for our ever-necessary agricultural industry.
While the companies are diverse in terms of business types, performance is quite similar due to the fact that most companies IPOed within the past few years. Further, due to the small sizes and growth orientation, most companies are not yet profitable. This has led the overall performance of the group to be negative so far this year, and only AMAL and UTHR are up YTD. However, this also means that the group may have the chance to outperform the market in the long run, as growth outpaces the market average.
- Median Price to Sales (TTM): 5.83x
- Median YoY Revenue Growth: 24.9%
- Median YTD Return: -45%
Growth certainly is the name of the game with these assets. I find the most enticing asset as an individual holding would be Veeva, and no other name really comes close in terms of quality. As a leader in cloud software for the healthcare industry, no other company on this list comes close in terms of having a moat, rock solid balance sheet, and profitability. However, as I mentioned before, there are other major companies that have subsidiaries that are B-corps, and adding these names to the group increases the safety of this “portfolio”. These names include Procter & Gamble (PG), Nestle (OTCPK:NSRGY), Coca-Cola (KO), Unilever (UL), and Anheuser-Busch (BUD). Notice how most are consumer goods companies as more consumers prefer “beneficial” brands (whether through sustainable products, charity work, etc.). See the full list of companies, here.
I find that when considering part B-corp investments, the entire group is an intriguing take on the market. The large consumer product conglomerates offer stability, while the pure-play B-corps offer speculative growth opportunities. Therefore, I wonder if ETF issuers will soon begin offering ETFs covering the growing B-corp market. Until then, I will be tracking the performance of the group and provide periodic updates. I will even look for the group to outperform traditional indexes such as the S&P 500 (SPY) (VOO) or the Nasdaq 100 (QQQ). Every B-corp I discussed certainly looks worthy of further research, so I hope I sparked your interest in Public Benefit Corporations.
Thanks for reading.