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Honest Company Stock Jumps 40% on First Day of Trading Despite Questions About its Prospects

Honest Company IPO
The Honest Company Co-Founder Jessica Alba and CEO Nick Vlahos
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Actress Jessica Alba’s baby and home goods brand The Honest Company made its long-awaited NASDAQ debut on May 5, 2021. The initial public offering of 25.8 million shares were priced at $16 and surged more than 40% throughout the day to close at $23.  

Co-founded by Alba in 2012, the company has carved out a niche for itself among the growing contingent of “conscious consumers” with its line of hypoallergenic, ethically sourced products in the baby, beauty and home cleaning categories. Begun as an online-only DTC operation, the company’s products are now sold at 32,000 retail locations worldwide, including Costco and Target in North America, Shoppers Drug Mart in Canada and Douglas and Boots in Europe.

The Honest Company’s path to IPO hasn’t been without its bumps, including a number of class-action lawsuits and product recalls. The company also has not yet marked a profitable year since its founding, with a net loss of $14.5 million in 2020, and faces increasing competition, leading some to believe that it’s currently overvalued.

“A valuation at $15/share implies the company’s profits will be three times greater than Revlon, and we think the chances of that happening are very low because the incumbent consumer companies that compete with The Honest Company already own all the shelf space and dominate the industry,” David Trainer, CEO of investment research firm New Constructs told Markets Insider.  

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Despite that, the company raised $413 million on its first day of trading, a large bulk of which will go to Alba, who owns 5.6 million shares. In fact, Alba may be The Honest Company’s defining competitive edge. In its IPO prospectus, the company told potential investors: “We believe that the success of our brand depends in part on our ongoing affiliation with Jessica Alba.” The company also said that it depends on Alba’s social media “reach and influence” to connect with consumers and get insights into current trends.

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