The A2 Milk Company Ltd (ASX: A2M) share price just can't seem to catch a break of late, tumbling on downgrade after downgrade. Without the A2 protein milk seller's growth engine in China, positive investor sentiment has waned in a big way.
While it has been a bleak time for the Australian milk company, things are looking brighter further afield. In the United States, there is a newly listed alternative milk producer on the block. Swedish plant-based milk company Oatly Group (NASDAQ: OTLY) successfully listed on the NASDAQ last week, with its shares now sitting almost 22% above their initial public offering (IPO) price.
Let's take a moment to compare the two.
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ASX-listed A2 Milk's Achilles' heel
Firstly, A2 Milk and Oatly are both traditional cow's milk alternatives, though there's still a significant difference between the two. While A2 Milk offers an easier to digest product that lacks the A1 protein, Oatly goes a step further and cuts the cows out completely.
Oatly is the world's largest oat milk company. Being made from oats, it is a vegan-friendly alternative to cow's milk for those who are lactose intolerant.
Although the company is new to public markets, Oatly was founded in 1994. Today, its products are sold in 60,000 shops and more than 32,000 coffee shops across 20 countries.
This points out a recent area of weakness for the ASX-listed milk company. While only 13% of Oatly's revenue is derived from Asia, over 48% of A2 Milk's FY21 first-half sales were from China and other Asian geographies. That leaves A2 heavily exposed to geopolitical risks associated with China.
Oatly is truly lactose free
A2 Milk acts an alternative for those who may have difficulty digesting standard cow's milk. Without getting into the nitty-gritty details, the company's milk still contains lactose. However, Oatly's oat milk is completely dairy-free, lactose-free, and milk protein-free. Therefore, it is arguably an option for a wider audience of people with allergies or significant intolerances.
The plant-based food and beverage market is a high-growth industry. An expected growth in the vegan population and an increasing intolerance to animal protein is set to provide strong tailwinds. Already, Oatly estimates its total addressable market is in the realm of US$600 billion.
How the numbers stack up
Looking at the financials, Oatly achieved approximately A$617.5 million in revenue for the full year ending 31 December 2020. For comparison, A2 Milk's revenue for the trailing twelve months ending 31 December 2020 came in at A$1,490 million.
Additionally, the US-listed Oatly is currently loss-making on the bottom line. Meanwhile, A2 Milk remains profitable despite challenging conditions.
Although A2 Milk generated more than double the revenue of Oatly in FY20, its freshly listed foe commands a market capitalisation of around A$13 billion – which is more than triple the valuation of ASX-listed A2 Milk, based on its current share price.
