SmileDirectClub Shares Go Down 28% below Their IPO Price

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Teeth-straightening provider SmileDirectClub late Wednesday announced that its class A shares were priced at $23 a share, slightly above the $19- to $22-a-share range it had said it would be targeting. But yesterday its shares went down.

Online dentistry company SmileDirectClub shares fell by huge 28% yesterday and it was pretty much the worst market debut for one unicorn start-up so far this year.

The company’s shares closed at $16.67 after they have opened at $20.55. SmileDirectClub classifies as the fifth-worst debut of the 109 companies that went public this year. Just for comparison, shares of Uber, another unicorn or start-up valued at $1 billion or more went down by 7.6% on that stock’s first day on the public markets.

The company priced its initial public offering at $23 per share on Wednesday this week and it was pretty much more than the expected range of $19 to $22. SmileDirectClub sold 58.5 million shares and raised $1.3 billion and that valued this online dentistry company at $8.9 billion. Yesterday’s move, however, values the company at around $6.4 billion.

SmileDirectClub CFO Kyle Wailes said they are focused on long term shareholder value – the next 12, 24, 36 months and beyond.

He said:

“Today’s IPO allows us to reinvest in innovation in product, process, international growth and customer experience. We are just getting started but our commitment to our mission, our 5,500+ team members, our customers and now our shareholders is stronger than ever.”

The stock is trading on the Nasdaq under the ticker symbol SDC.

SmileDirectClub co-founder Alex Fenkell said:

“You know, we’re here to build long-term value with the stock. How the stock priced today I don’t think is going to dictate what we’re doing here.”

The start-up, is founded back in 2014 and it distributes teeth aligners directly to consumers on their website and in their “SmileShops” starts at $1,895 for a two-year plan.

The company’s founders Fenkell and Jordan Katzman are aiming to distort the orthodontics industry with some kind of cheaper teeth-straightening treatments, benefit, and not-so-cheap TV and social media advertisements.

According to their prospectus filed last month, last year was pretty successful for the company that reported $423.2 million in sales and huge 190% increase from the $146 million it reported in 2017.

SmileDirectClub called out those issues in its S-1 as potential risk factors by saying:

“A number of dental and orthodontic professionals believe that clear aligners are appropriate for only a limited percentage of their patients. National and state dental associations have issued statements discouraging use of orthodontics using a teledentistry platform. Increased market acceptance of our remote clear aligner treatment may depend, in part, upon the recommendations of dental and orthodontic professionals and associations, as well as other factors including effectiveness, safety, ease of use, reliability, aesthetics, and price compared to competing products.”

Also, as the S-1 says, a national dental association recently filed a petition with the U.S. Food and Drug Administration claiming that SmileDirectClub’s manufacturing violates “prescription only” requirements. When there is no regulations or laws that had been passed and that would affect SmileDirectClub to date, there is a possibility that it could really impact the company’s core business.

Nevertheless, the company also posted a net loss of $74.8 million last year that represents more than double the net loss of $32.78 million in 2017.

Be it as it may, getting new customers is pretty expensive. SmileDirectClub spent $289.3 million just on marketing and general expenses last year.

Jordan Katzman’s father, David Katzman, funded SmileDirectClub’s seed round through his venture fund, Camelot Venture Group, and is the company’s CEO. Camelot also invests in direct-to-consumer brands, such are 1-800-Contacts and Quicken Loans.

On the other hand, David Katzman’s brother, Steven Katzman, works as a chief operating officer of the company. The whole Katzman family, combined, will employ more than 65% of the voting power between the three men after the offering. CEO David Katzman will have nearly 30% of the vote with 87 million Class B shares, which control 10 votes for every 1 vote offered to a Class A share.

According to its initial prospectus filing, SmileDirectClub operates more than 300 locations. They also signed partnerships with Walgreens and CVS to open “SmileShops” inside their drugstores.



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