A big story in the finance world this morning is that the Nasdaq composite index lost ground in pre-market trading while bond yields rose. The concern is that inflation could rise, which led to bonds selling off and falling valuations for expensive stocks. So, tech stocks were broadly lower this morning.
Unlike last night, when New York-based restaurant software company Olo priced its IPO at $25 per share, sharply above its raised IPO target price range.
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Today, we’re checking in on the price investors paid for a block of Olo shares before it began trading. The resulting valuation and its new revenue multiples will help us answer several questions.
First, how hot is the market for high-growth tech shares that also feature profitability? And, second, is Olo pricing ahead of, or behind, known comps? If the latter is true, it could point to a cooling enthusiasm among public investors for tech IPOs, even if the headline numbers coming from the Olo IPO are impressive.
Then we’re going to chat about Coinbase’s latest S-1/A filing, which helps provide a bit of guidance regarding how its direct listing is scooting along.
Ready to get caught up on the public-private divide that the most successful startups cross? Let’s get into it!
Is Olo’s IPO pricing aggressive, neutral or a letdown?
As a quick reminder, Olo initially targeted a $16 to $18 per-share IPO price interval. That was raised, as expected, to $20 to $22 per share. Pricing at $25, then, is a strong 56.25% greater per-share value than the low end of the company’s first estimate.
As Olo featured rapid growth (an acceleration in year-over-year revenue from 59.4% in 2019 to 94.2% in 2020), and GAAP profits (a 2019-era net loss of $8.3 million became 2020 net income of $3.1 million) in its IPO filings, the first price range it rolled out felt a bit light. The second, however, felt more appropriate.
At $25 per share, we have to do new math. Using a simple share count inclusive of the company’s underwriters’ option, Olo is worth $3.62 billion. That figure swells to $4.6 billion when a fully diluted valuation is calculated, per IPO watch group Renaissance Capital.
As we reported before, Olo “generated $30.5 million worth of revenue in Q4 2020. On a run-rate basis, that’s worth $122.2 million in total revenue.” That gives the company a simple run-rate multiple of about 29.6x and a fully diluted multiple of 37.6x. Those are getting up there!
Comps for the lower multiple include Atlassian and Okta, while the latter multiple fits near Datadog and Shopify’s own revenue/valuation metrics. So, the IPO transaction valued the company among two tranches of the upper decile of SaaS valuations. Surely it’s hard to argue that it is cheap at that price, though I could summon an argument why it could be worth a skosh more.
It’s growing more quickly than most of those companies, for example — and most of them lose money.
The opening trading price for Olo matters to the two of us. If Olo opens more than a little above its IPO price, we can read a little FOMO or growth hunger or whatever else you want to call it into its debut, even though it priced well. But if the company’s early trading is rather staid, we could argue that the market is taking a more cautious approach in the Olo debut, with coming changes to the economy post-COVID tempering interest in its pandemic-boosted results; if that’s the case, we might expect to see other companies that have benefited from the pandemic boom lose steam.
That’s akin to what the public markets are flashing this morning when it comes to the trading of different asset classes that we started with. More when Olo trades, but no matter what, it did a good job capturing value during its IPO pricing process.
Coinbase
Coinbase dropped a new S-1/A filing this morning, sharing a few new details about its impending direct listing. First, it appears that present-day owners are selling around 115 million shares. Second, the trading range for the price of Coinbase’s stock ran from “$200 and $375.01” during Q1 2020. As SeekingAlpha notes, a price of $350 per share values Coinbase at around $90 billion.
The prices are a comical repricing of the value of Coinbase. Per its own document, the company’s shares were trading hands for just under $29 apiece last year.
But don’t think that the $200 per-share number is more accurate than the company’s upper range. Per the filing, Coinbase’s “volume weighted-average price per share for the first quarter of 2021 [ … ] was $343.58.” So, just under the $90 billion mark, then, or just a bit less what Stripe is now worth on the private markets.
I don’t think that anyone knows how to price the revenue-variable Coinbase, which has shown sharp swings — both up and down — in its results over the last few years. And we don’t know when it will begin to trade, nor its reference price. So, more details today, but hardly the full picture. More to come.
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