Investors appear excited to buy shares in impending public companies Oscar Health and Coupang. TechCrunch covered both extensively during their ramp toward the public markets, and more recently regarding their IPO march. And now, with a combined valuation well above $50 billion, both public offerings should make a splash.
And in good news for their respective investors, recent pricing points to an IPO market that remains enthusiastic about new listings, despite some recent chop among public technology equities.
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The valuation news from Coupang and Oscar Health bodes well for other impending offerings, including a host of SPAC-led flotations and the coming direct-listing of cryptocurrency giant Coinbase.
This morning, let’s collect pricing news on both Coupang and Oscar Health, eat some modest crow in the case of the latter and prep ourselves for the next two unicorn public offerings.
These companies will soon convert tens of billions of dollars of illiquid private shares into public currency. As such, their offerings may reveal investors’ sentiments regarding e-commerce and insurance companies backed by venture capital.
Oscar Health and Coupang’s IPO pricing
As TechCrunch reported this morning, South Korean e-commerce player Coupang could be worth as much as $51 billion in its IPO if its first debut price range of $27 to $30 per share holds up; the price range matches earlier expectations for the company, which recorded revenues of $11.97 billion in 2020, up more than 90% from its year-ago results.
Oscar Health’s new IPO price range is even more interesting than Coupang’s first. The insurance startup’s first IPO pricing interval of $32 to $34 per share valued the company at a midpoint, full-diluted price of around $7.7 billion. Its range is now $36 to $38 per share, more than modestly higher than its prior target price range.
At a midpoint of $37 per share, Oscar Health would be worth 12% more than before; now its simple IPO valuation could reach as much as $7.7 billion, while its diluted worth could surpass the $8 billion mark, leaning on the initial pricing mark from Renaissance Capital.
Color me surprised, but perhaps stupidly so.
After reviewing the Oscar Health filing and stacking the numbers up against its first IPO valuation range, I didn’t get it. I still don’t. But there is something in Oscar Health that investors are obviously enthusiastic about. Having made the bear case, what can we make of a bull argument?
Growth, for one. Despite recent net revenue declines and rising operating costs, the company’s membership expanded from 229,818 in 2019 to 402,044 in 2020. Its direct policy premiums rose from $1.33 billion to $2.29 billion over the same period. Oscar Health also reported in its S-1 that its membership grew to around 529,000 as of January 31, 2021, perhaps indicating a surge in signups.
Investors who believe Oscar Health has a path to profitability with its current model may find those figures exciting. And, yes, the company’s “InsuranceCo Combined Ratio,” a metric that tracks what portion of policy premiums the company pays out, has improved in the last year. The Combined Ratio sums the company’s “MLR and InsuranceCo Administrative Expense Ratio,” or Oscar Health’s “Medical Loss Ratio” and the “the costs associated with running our combined insurance companies.” Added together, if the number is less than 100%, the company would generate a margin from its insurance activities. The figure fell from 113.1% in 2019 to 110.8% in 2020.
So, Oscar Health has seen big growth in membership and the amount of insurance it underwrites. And there is some progress in the economics of its insurance activities. Last year’s operating results aside, that appears enough for the company to target a higher price interval in its IPO.
It’s good news for neoinsurance providers in particular and insurtech more generally. And for IPOs writ large.
I don’t say that to take away from Coupang’s impressive IPO pricing, but the optimism around Oscar Health points to strong demand for shares that investors consider growth-oriented. That’s a mantle that Coupang can claim, alongside Oscar Health’s non-GAAP insurance membership metrics.
So, a little crow for this columnist who found the first IPO interval for Oscar Health higher than reasonable. All our thinking about revenue multiples was quickly defeated by market enthusiasm. Fair enough; let’s see where both companies finally price and how they debut.
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