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Oatly (NASDAQ:OTLY), the Swedish oat drink company which went public last week, is riding high. The shares which were valued at $17 a share, are now trading at around $25 and climbing. With Oatly’s sales increasing year on year, perhaps valuing the firm at around $2 billion may not be quite so frothy.

Last year, Oatly reported revenue of $421.4 million, a 106.5% increase from $204.0 million in 2019. And this year alone, as of 31 March 2021, the firm reported a 66.2% revenue increase of $140.1 million compared to $84.2 million for the same period in 2020.

High sales but even higher costs

Yet despite this strong sales momentum, the company is yet to make a profit. While OTLY generated a gross profit in 2020 of $129.2 million – a 94.1% increase on 2019 – Oatly spent $167.8 million on selling, general and administration expenses leaving an operating loss of around $47 million.

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Similarly, in the first three months of this year, the firm generated a gross profit of $41.9 million (a margin of 29.9%), with sales expenses accounting for 45% of revenue. Oatly made a loss for this period of $32.4 million. Compared to the same period last year it is a 116% increase. However, the company attributes this to higher branding and marketing costs including the cost of a Super Bowl commercial.

But a sizeable marketing budget is essential in this sector. The battle for supermarket shelf space is fierce and in such a crowded category – Arla, Danone and Galbani are just a few of Oatly’s competitors – and it does not look like these types of advertising and marketing costs will be going down any time soon.

While this could ultimately hamper profitability – 71% of Oatly’s sales are in retail – the marketing spend appears to be paying off. For now at least. According to Nielsen, Oatly is the highest selling brand in the oat category by retail sales value in the US, UK, Germany and Sweden. It is also the largest category within dairy alternatives in the UK and Germany and is the fastest-growing category within the US.

New Oatly factory in the UK

Nevertheless, with $1 billion in the coffers, Oatly can continue with its plans to build three new sustainable plant-based dairy factories. The firm already has four factories. Oatly plans to build its first UK factory in Peterborough and launch in Q1 2023. The firm is aiming to use 100% renewable energy, and decrease its energy consumption, water consumption and waste by 75% each at the factory, by 2029 compared to Oatly’s environmental footprint in 2019.

The new factory in the UK will be able to produce 300 million litres of oat drink per year at launch, with the capacity to grow to 450 million litres – making it one of the largest plant-based dairy factories in the world.


Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Philippa Aylmer

Philippa Aylmer

Philippa Aylmer is a freelance writer within the investment management sector.

She began her career in the late 90s writing about emerging markets for the Euromoney titles while based in Pakistan. Since then, she has covered hedge funds, ETFs, wealth management and fintech.

As well as news, on the client side, Philippa advises on media relations and editorial strategy, writing about the topical and technical issues of investment management

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