Brilliant Earth IPO: 3 things investors should know

It’s been a record year for IPOs—and more companies are giving everyday investors a way to get in on them.

Brilliant Earth, a direct-to-consumer jewelry company based in San Francisco, is among several companies setting aside up to 2%—more than 330,000—of its IPO shares for Robinhood retail investors, according to a disclosure document the company filed with the Securities Exchange Commission Sep. 14. Brilliant Earth, which is expected to list on Nasdaq later this week, could raise up to $267 million.

Investing in IPOs can be risky for investors: There’s no definitive track record for performance, and it can be hard to predict how the public market will react to new entrants. Should an IPO do well, it can be lucrative—particularly if that company continues to grow over time. Duolingo, which went public in late July, is up more than 37% since its debut on the Nasdaq exchange. Robinhood is up more than 21%. Other IPO offerings that Robinhood made available to its retail investors haven’t done as well. Outbrain, for example, is down more than 17% since it went public in July.

The case for getting a cut of shares pre-IPO is the chance to be part of a subsequent pop: The chance that the value of a new stock sometimes will spike on its first day of trading, giving those who got in early (primarily institutional investors) better returns.

Here are some of the key business metrics and potential risks that investors should keep in mind before investing.

Millennials and Gen Z are driving growth

Brilliant Earth says its focus on sustainability and technology is resonating with younger clientele, and it’s showing. Brilliant Earth posted $251.8 million in net sales in 2020—a 25% increase from 2019—and $21.6 million in net income before tax, according to documents. Its average order generates more than $3,000 in sales.

The company, which co-founders Beth Gerstein and Eric Grossberg launched out of Gerstein’s apartment in 2005, has quickly grown into a multi-million international business with 345 U.S. employees that sells diamond engagement, wedding, and anniversary rings, as well as other gemstone rings and fine jewelry. It has 14 showrooms and serves more than 370,000 customers internationally.

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Part of the appeal is its technology: Brilliant Earth’s virtual reality features allow buyers to try on rings via their smartphone. The company strives to be mobile-first, but also allows customers to set up appointments at one of its in-person locations. It also uses blockchain technology to offer insight into its supply chain, helping customers trace a diamond’s origins and past ownership.

It’s an ESG-focused company

A key aspect of Brilliant Earth’s mission is improving working conditions for miners and making the jewelry supply chain more sustainable. Some of the company’s initiatives have included funding a primary school in the Democratic Republic of Congo and backing mercury-free mining training for gold miners in Peru.

The company says it uses 100% recycled precious metals to reduce its carbon footprint and post-consumer recycled content for its shipping packages. Ring boxes are made from wood from Forest Stewardship Council-certified forests. Brilliant Earth is carbon neutral, offsetting its emissions via its contributions to rainforest conservation in Brazil, according to the company.

In terms of social impact, the company has begun issuing rings and sizes that are more inclusive to all its customers. In 2020, it launched a gender-fluid line, which it named the “Mx Collection,” that feature gender neutral styles and sizes. Plus, the majority of employees, senior executives, and board members are women, according to Brilliant Earth. The company also reports that 31% of its leadership team and 38% of its employees are people of color.

Supply chain issues could present risks

Because the company is focused on sustainability, its diamond supply is more limited than a traditional jewelers, making it more prone to supply shortage risk and long lead times. COVID, in particular, has already disrupted Brilliant Earth’s supply chain and could lead to additional cost increases and delay fulfillment times, according to the company. The government shutdown in 2020 led to production issues, and importing and exporting has become more risky since 2018, as there’s discussions over tariffs against foreign imports. The jewelry industry is also hyper-competitive and saturated with well-known brands and retailers like Cartier or Kay Jewelers.

Whether the fast-growing company can meet its forecasts may be contingent on how well it can overcome widespread global supply chain headaches to source the sustainable materials that have made it a hit with younger customers.