Jul 2, 2018

Scoop: The numbers behind Juul's investor appeal

Illustration: Lazaro Gamio/Axios

Juul, the maker of vaping devices and nicotine flavor pods that dominate college and (yes) high school campuses, is raising $1.2 billion at a valuation of around $15 billion.

Bloomberg was first with the news on Friday, and Axios has learned that it's basically a done deal that could be announced within just a week or two. We've also obtained some company financials, which helps explain the investor appeal.

The following numbers come from late last year, and word is that Juul is blasting through its 2018 projections:

  • 2017 revenue was around $245 million, with a 54/46 split between product (devices) and subscription (pods). This is up from around $60 million in 2016, and projected 2018 revenue was $940 million.
  • Gross margins are 70%
  • 2018 EBITDA projection is approximately $250 million.

Such numbers would normally make Juul a no-brainer for venture capital and growth equity types, particularly given that the San Francisco-based company hasn't yet tapped overseas markets other than Israel. But this one is complicated:

  • Ethical con: Juul contains a ton of nicotine. Specifically, each Juul pod is the nicotine equivalent of an entire pack of regular cigarettes. This can make it very addictive, and also may create cardiovascular issues for older users and brain development issues for younger ones. Moreover, there has been academic research showing that young people using e-cigs are more likely to begin smoking regular cigarettes than are those who don't use e-cigs. That research isn't specific to Juul, but Juul's design and flavoring makes it the e-cig of choice for those who aren't legally allowed to have them.
  • Ethical pro: Juul is used by some regular cigarette smokers as a cessation tool, and there is some Juul-funded research that points to its efficacy. It also has taken steps to reduce its visibility among young people, including via social media, and says it has online ordering limits to prevent black market sales to underage users.

Bottom line: As we said, this deal is getting done because the growth almost demands it. But don't be surprised if it doesn't include traditional VC or growth equity investors.

  • Some funds are knocked out because of tobacco restrictions, while others won't think the possible risks — both ethical and regulatory — are worth the reward at such a high valuation.
  • I don't have any inside info on the actual investors, but would guess there would be some non-U.S. names (particularly because of the int'l expansion plans). Also could be interesting to see if TPG becomes involved, given that Juul CEO Kevin Burns is a former TPG exec who previously helped lead portfolio company Chobani.

Go deeper

Centrist Democrats beseech 2020 candidates: "Stand up to Bernie" or Trump wins

Bernie Sanders rallies in Las Vegas, Nevada on Feb. 21. Photo: Mario Tama/Getty Images

Center-left think tank Third Way urgently called on the Democratic front-runners of the 2020 presidential election to challenge Sen. Bernie Sanders on the South Carolina debate stage on Feb. 25, in a memo provided to Axios' Mike Allen on Saturday.

What they're saying: "At the Las Vegas debate ... you declined to really challenge Senator Sanders. If you repeat this strategy at the South Carolina debate this week, you could hand the nomination to Sanders, likely dooming the Democratic Party — and the nation — to Trump and sweeping down-ballot Republican victories in November."

Situational awareness

Warren Buffett. Photo: Daniel Zuchnik/WireImage

Catch up on today's biggest news:

  1. Warren Buffett releases annual letter, reassures investors about future of Berkshire Hathaway
  2. Greyhound bars immigration sweeps
  3. U.S. military officially stops offensive operations in Afghanistan
  4. America's future looks a lot like Nevada
  5. Centrist Democrats beseech 2020 candidates: "Stand up to Bernie" or Trump wins

America's future looks a lot like Nevada

Illustration: Sarah Grillo/Axios

Today's Nevada caucus will foreshadow the future of American politics well beyond 2020.

Why it matters: The U.S. is in the midst of a demographic transformation, and the country's future looks a lot like Nevada's present. Today's results, in addition to shaping the 2020 race, will help tell us where politics is headed in a rapidly changing country.