Category: IPO

by Brenon Daly

With Medallia’s paperwork closing out tech IPO activity for the first half of 2019, it’s worth taking a look back at the new listings so far this year. 451 Research will have a full report next week on the unusual flow in the IPO market, but our quick take is that Wall Street got back to business (as it were) with tech IPOs, and that the focus has been on quality, not necessarily quantity.

Not a single B2B tech company went public in Q1, a rare quarterly shutout for startups in a segment that typically finds a warm welcome on Wall Street. The slow start to this year for enterprise tech IPOs left the total number of completed offerings at just six for the first half of 2019, down from 10 offerings in the first half of 2018.

To be clear, we are tallying only B2B tech vendors listing on the two major US exchanges, so our count excludes this year’s IPOs by Pinterest and Uber, for instance. We would note, however, that these consumer tech names, unlike their enterprise brethren, received a rather bearish reception on Wall Street. The high-profile offerings of both Lyft and Uber are currently underwater.

More significant than the number of enterprise tech startups coming public this year, however, is the stunning market value they are creating. Collectively, the six B2B companies that debuted in 2019 are valued at over $60bn, as of the end of Q2. For comparison, the 10 enterprise tech vendors that went public in the first half of 2018 created slightly more than $40bn of market value at the end of Q2 2018.

451 Research will have an in-depth report early next week on the stunningly rich valautions being awarded across the board to IPOs so far this year, as well as which startups from our coverage areas might be looking to cash in on Wall Street’s lucrative interest in enterprise tech right now.

by Scott Denne

Medallia is looking to become the latest software vendor to test Wall Street’s appetite for new enterprise tech offerings as it unveils its IPO prospectus. The experience management software provider, however, lacks the growth of recent debutants and isn’t likely to come to market with the kind of extravagant multiple that many of the year’s offerings have fetched.

The customer and employee experience software developer’s sales rose 20% to $314m in its most recent fiscal year. Its topline expansion accelerated to 32% in the last quarter, yet that’s still behind the numbers put up by many other enterprise companies to enter the public markets this year. CrowdStrike, PagerDuty, Slack and Zoom Video, for example, are all growing around or above 50% annually and boast valuations ranging from 20-70x trailing revenue.

Medallia isn’t likely to garner a price in that range when it comes public. Still, the offering will likely push its valuation well past the $2.4bn it commanded in a February fundraising. Its main competitor, Qualtrics, sold to SAP for $8bn – or 21.5x – on the eve of its own IPO. Medallia is likely to fall short of that multiple when it begins trading on the NYSE, although it could fetch a premium if it follows Qualtrics’ lead and sells the whole business.

As we’ve noted in the past, there are many potential acquirers, such as Adobe or Salesforce, of customer experience management vendors and a paucity of potential targets with Medallia’s scale. Would-be buyers may have difficultly finding other targets with the breadth of Medallia’s experience management and analytics software. Wall Street investors, on the other hand, have many options for investing in faster-growing software providers.

by Scott Denne

An unusual route to the public markets didn’t stop Slack from capitalizing on soaring prices for new offerings. In its direct listing on the NYSE, Slack, like recent enterprise IPOs, commanded a scorching valuation, catapulting it well past what it fetched as a private company.

The workplace communications vendor’s stock quickly ran up to $41 per share, more than 3x the price of its series H round less than a year ago. The company currently trades above 50x trailing revenue, with a market cap that’s just north of $20bn. Still, that valuation falls a bit shy of fellow workplace tech provider Zoom Video, which fetches over 70x trailing revenue. Although both valuations are exorbitant, Zoom doubled revenue last quarter, while Slack rose 86%. Both are roughly the same size, but only Zoom is profitable. Slack still puts half its revenue toward sales and marketing.

Slack’s multiple matches what infosec vendor CrowdStrike garnered in its IPO last week. And PagerDuty, a firm that’s one-quarter of Slack’s size, with a topline that’s expanding at less than 50% annually, boasts a 35x multiple following its April IPO. The premium valuations for enterprise companies come as confidence in the stock market is leveling out after a turbulent end to 2018. In each of the last four months of 451 Research’s VoCUL: Consumer Spending survey, 20% or more of all respondents have claimed to be more confident in the stock market than they were 90 days ago, the highest level since last summer.

by Brenon Daly

Even as other VC-backed unicorns have stumbled recently in ‘down round’ IPOs, Fastly more than doubled its private-market valuation as it came public Friday. The CDN startup priced its offering at the top end of the expected range and then surged some 50% in aftermarket trading.

Fastly’s strong debut continued the recent bull run of enterprise tech IPOs, a sharp contrast to several high-profile consumer tech offerings that have sunk underwater. It also sets up a rather rich valuation for the company compared with its primary rival, which went public two decades ago.

With its newly issued shares changing hands on the NYSE at about $24 each, Fastly is valued at more than $2bn. That’s a significant step up in value from its final venture funding, which came last summer. Although a bit deep in the alphabet, the series F round had Fastly’s investors paying slightly more than $10 per share.

The company posted $145m in sales in 2018 and is likely to bump that up to roughly $200m this year, assuming it holds its current high-30% growth rate. That means Wall Street is valuing it at a mid-teens price-to-sales multiple, on a trailing basis. Or another way to look at it: on a relative basis, Fastly is worth three times more than CDN industry stalwart Akamai, which trades at almost 5x trailing sales.

by Brenon Daly

After a brief but unprofitable dalliance with a popular consumer tech name, Wall Street is getting back to business. CDN startup Fastly is set to debut later this week, while business communications provider Slack and endpoint security specialist CrowdStrike have lined up expected offerings next month. All of those IPOs – which are built on more durable businesses than ride-sharing, for instance – should help put Uber‘s underwater offering in the rearview mirror.

Wall Street tends to run on a ‘what have you done for me lately?’ business. Uber’s offering didn’t do much for investors, except cost money to those who bought shares at the open. Of course, a week is a ridiculously short period to judge a company that will likely be public for years. But for now, with Uber shares still in the red, investors will shift their attention to where they can make money.

In IPOs, it’s been the offerings from tech vendors that sell to other companies that have generated returns. PagerDutystock is currently changing hands at twice where it priced its offering last month. Zoom Video Communications has also seen its shares double from their offer price, on a much larger scale. The firm has created an astonishing $19bn in market value.

Of the trio of enterprise-focused tech startups that are slated to come public soon, not one of them has figured out how to make money. But their losses are a fraction of the $3-4bn operating loss that Uber has posted in each of the past three years. When it comes to enterprise tech IPOs, companies don’t have to be profitable to be profitable bets for investors.

by Brenon Daly

by Scott Denne

Another enterprise startup plans to test Wall Street’s seemingly insatiable appetite for business technology vendors. Slack has unveiled its prospectus for a direct listing on the NYSE, forgoing an initial public offering. Like other recent enterprise tech companies to enter the public market, Slack, though heavily funded at premium valuations, still appears to have room to trade up in its debut.

The firm’s forthcoming listing follows closely on the IPO of fellow workplace communications software developer Zoom Video. The latter company fetched an astonishing 60x trailing revenue in its first day of trading – a level it retained in the week since. Slack would need only a fraction of that multiple to leap beyond the roughly $6bn valuation it boasted in its most recent fundraising. There’s every reason to think it could.

As we noted in our coverage of Zoom’s first day, enterprise companies (those selling technology to businesses) have gotten a bullish reception in the public markets, with many of the 2018 and 2019 crop of IPOs trading above 20x revenue. To match its private company valuation, Slack, which posted $401m in revenue in its recently closed fiscal year, would need to fetch a 15x multiple. Its shares have recently traded hands in private transactions at twice that level. And given the parallels between it and Zoom, investors could carry it even further.

Both vendors are roughly equal in size (Zoom generated $330m in trailing revenue), with a similar growth rate. Slack came up just a few percentage points shy of doubling its topline, while Zoom rose a bit above that. The two companies also play in separate corners of the workplace productivity market that are both expected to garner increasing enterprise investments in the coming year. According to 451 Research’s VoCUL: Corporate Mobility and Digital Transformation, 40% and 43% of respondents plan to invest in team collaboration (Slack’s purview) and online meetings (Zoom’s specialty), respectively, over the next 12 months.

by Scott Denne

Amid a short burst of high-profile tech IPOs, enterprise offerings are soaring, while consumer-focused companies are getting a less-bullish reception. In their public debuts, both Zoom Video and Pinterest priced above their range and traded up from there. The former, a video-conferencing specialist, reaped a hefty valuation increase in its debut. The social networking vendor, however, stayed just above its last private funding.

To be sure, Pinterest hardly received a bearish reception. It began trading at about $24 per share, for a 25% bump, bringing it slightly up from the price of its series H round in 2017. Currently, Pinterest is valued at $13bn, or nearly 16x trailing sales. Zoom, by comparison, jumped 75% from its IPO price when it entered the Nasdaq, garnering a $16.2bn market cap, or 60x trailing sales.

The discrepancy between enterprise- and consumer-tech offerings isn’t limited to these two. Last month, Lyft made a lackluster debut – its shares now trade 20% below its initial price. A few days later, PagerDuty, an IT ops provider, jumped 60% when it hit the public markets. The comparative reliability of enterprise-tech stocks accounts for some of the discrepancy.

As we noted in our coverage of PagerDuty’s IPO, many of last year’s enterprise IPOs still trade at or near 20x revenue. And many of the past consumer unicorns have faltered – Snap’s shares have fallen more than half from its 2017 IPO and Blue Apron is practically a penny stock. Perhaps more importantly, the recent enterprise debutants left room in their cap table for a first-day bump, while consumer companies extracted all they could from private investors, at the highest price they could, before turning to the public markets. Zoom raised $160m on the way to its IPO, while Pinterest took in almost 10x that amount.