BYRNA TECHNOLOGIES: A SHOT IN THE DARK THAT HIT THE MARK (BYRN – NASDAQ)

The financial numbers don’t always tell the whole story for a stock.

Case in point: If you only looked at Byrna Technologies (BYRN – NASDAQ) Q3 numbers, you have would conclude that the stock was in for a rough go.

Facebook/META and Google had just banned them from advertising their less-than-lethal pistols—Byrna calls them “launchers” on their platforms. (These launchers shoot pellets or a peppery spray at only 300 feet per second (fps), compared to a regular pistol at well over 1000 fps. You only need a license for a firearm that shoots over 500 fps.)

As a result, Byrna’s Q3 revenue came in at $7.1 million – a big decline from $12.4 million in Q3 of 2022. All in, Byrna burned through $3.7 million in cash in the quarter. Their cash position fell from $20 million to $13.5 million in the last 9 months.

What did the stock price do? The opposite of what you would have expected! It jumped up!

Source: Stockcharts.com

When I see a surprising move like this, I want to know why?

It turns out that while Byrna had an extremely poor quarter, they rather remarkably righted the ship in the last couple of months. They are projecting much better results going forward.

A new marketing program that is using high profile personalities–the first one is Fox News anchor and national radio host Sean Hannity–is showing some early success–and big success. If this keeps up, sales, and the stock, could do very well.

Few of you would recall that TASER (symbol now AXON-NYSE) went from $3 – $59 in under a year back in 2003-2004 as it got popular. Taser is arguably a little different, as police forces bought A LOT of them back then. This is now being sold to retail.

But then, Byrna just announced THIS MORNING a US$6 million order to a police force in Argentina–their largest single contract ever! So maybe this isn’t so different.

A (LESS THAN) LETHAL WEAPON

A bit of background. Byrna is in the business of selling guns. But NOT the kind of gun that will kill you. Byrna sells guns that will just in-capacitate you and hurt a lot!

Byrna doesn’t call their products guns. They call them “launchers”. They are part of a category known as “less-than-lethal weapons”. Byrna has an assortment of products in the less-than-lethal category: pistols, rifles and even a grenade!

Source: Byrna 2021 Investor Presentation

Byrna also sells ammunition, making their business somewhat of a razor/razor blade model.

Law Enforcement

The DTC channel drives revenue. Historically that meant Byrna buying advertising on Facebook and GoogleAds, driving traffic to their site, and converting it into sales.

GUN ADS DON’T KILL PEOPLE

BUT META KILLS GUN ADS

This changed in Q2. In late March both Meta and Google banned Byrna from advertising on their platforms.  Byrna was deemed a “contraband product”.  While Google has subsequently backed off a bit and allowed YouTube advertising, Meta has kept the ban across the board.

This wasn’t the first time Byrna has been banned. What was a first was that Meta cut-off communication entirely, not even responding to Byrna’s requests.

The ban led to a BIG drop in web traffic in Q2 and Q3. Byrna had averaged 26,000 sessions a day in Q1 before the ban. In Q2 sessions fell to 12,000 per day. FQ3 was no better. Amazon sessions also declined by 10% in Q2 and 25% in FQ3.

This led to a decline in the stock price, which fell all the way from $10 in mid-February to $2.25 in September.

That’s the bad. And it was very, very bad. Now for the good. What drove the stock back up since the release of Q3 results?

A SHOT IN THE DARK

I don’t know the inner dealings of Byrna’s C-suite back in March but I can tell you one thing: they were scrambling.

Byrna had to find a new advertising channel, and fast.

In August Byrna took the dollars they spent on Meta and GoogleAds and directed them in another direction – talk radio.  They also started advertising online outside of social media. They began targeting boaters, RVers, runners, realtors, veterans, and convenience store owners. CEO Bryan Ganz said they “threw everything at the wall [to] see what would stick.”

Stuff started to stick. In August, Byrna saw their Return-On-Advertising-Spend (ROAS) at 2.5x, which is OK but truly, nothing to write home about. It was a step in the right direction and actually above where they were with social media advertising.

In September Byrna began to refine that spend, adding to the “sticky” areas where the returns were best. Almost immediately they saw a big increase in A. website sessions and B. sales.

CEO Bryan Ganz gave us all the details on the Q3 call. In September “average daily sessions increased by 89% from Q3 to 22,400, nearly matching the levels we saw before the advertising ban on social media. This led to average daily sales in September of approximately $77,500, a 76% increase from Q3 and a 40% increase from the period prior to being kicked off of Facebook, Instagram, Google and Twitter.”

In October sales were even better. In the first 11 days of October sales “were up a staggering 161% from Q3, averaging $114,902, and our new customer rate climbed to 65.2%.

What’s more, Bryna was generating a lot of new customers, but these customers were seeing a better conversion rate than the past. In other words, Byrna was finding the right new customers.

Conversions climbed to 0.91% compared to 0.75% prior to the advertising ban.

Amazon sales ticked up as well. In the 30 days prior to their Q3 earnings release, Byrna sold more on Amazon than in any prior 30-day period, including the holidays.

HITTING THE MARK

On the Q3 call Ganz was very open about how well Byrna was doing with the new strategy. He gave enough detail to pull together a picture of how the DTC business is faring.

Below I extrapolated the numbers Ganz gave us. I took the average of the September and October sales over the rest of the quarter to come up with a guess for total website sales in Q4.

Source: Byrna disclosures, my estimates

In Q3, website + Amazon sales were $4.8 million. In Q3 2022 they were $8.1 million. Today, sales so far this quarter are running far above both of those numbers.

What does that mean for the stock? Well, we’ve already seen a big move up – the stock has nearly doubled since the beginning of October. But it remains way off the pre-ban highs of $10.

Can it get back there? I think there is a chance. The market just needs to see that this new trend is sustainable, and not just a one (or two) month wonder.

Prior to the large contract announcement this morning I would have said: this stock lives or dies on how much this celebrity online marketing goes.

But this huge new police contract changes that thought–it’s clear they are making headway in law enforcement.

If Byrna can show that their new online marketing is working really well when they release their Q4 results early next year, they will be shooting the lights out. And now the Street can think about how big the law enforcement market could be for Byrna.

DISCLOSURE: I’m long 8000 shares at $4.12.

PS–On Sept 20, I wrote you about LifeMD–LFMD-NASD. Since then the stock has moved from $4.40 -$7+–in a very tough tape. Niche stories that catch fire with investors–on a single catalyst–can really move. Watch for my next small cap story here at InvestingWhisperer.com