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It was already a great year for IPOs, but this past week took things to an entirely new level.
DoorDash (ticker: DASH) and Airbnb (ABNB) started the week as private companies last valued at a combined $34 billion. They ended the week as public companies together worth nearly $170 billion. The initial public offerings capture how Covid-19 has fundamentally shifted the economy—and the financial markets.
Here’s what we learned from the historic week.
Growth Is the New Value: Investors are desperate for growth, and they don’t care what it costs. Snowflake (SNOW) is growing 100% a year, a level it can’t possibly sustain. The data warehousing stock has tripled since its own IPO in September, and it’s trading at 100 times next year’s projected revenue, a figure that’s tough to justify.
I recently asked Snowflake CEO Frank Slootman about the inflated valuation. “A stock is worth exactly what somebody wants to pay for it,” he said. “Everything else is just entertainment and conjecture.”
It’s All Guesswork: Wall Street still has no great ability—or desire—to price new issues, which means that IPOs remain a wealth transfer from issuers to institutions. For DoorDash, the original price talk was pegged at $75 to $85 a share. The IPO priced at $102 and opened at $182. That gave DoorDash a value of $70 billion, generating $30 billion for IPO investors—not bad for an overnight gain.
For Airbnb, the original range was $44 to $50 a share. The stock priced at $68 and opened at $142. Airbnb finished its first trading day at $144.71, valuing the company at $100 billion—this time generating more than $50 billion in insta-profits for the IPO buyers.
Smaller, but no less remarkable was the IPO for C3.ai (AI), an artificial-intelligence software company built by Tom Siebel, famous for Siebel Systems, which Oracle acquired in 2006 for $5.6 billion. C3.ai initially expected to price its IPO around $30 to $34. Instead, the stock priced at $42, opened at $100, and closed the week around $120, giving the AI firm a market value of $13 billion. That’s like selling your house for $1 million, and discovering that the buyer flipped it one day later for $3 million.
DoorDash and Airbnb used a new modified auction process intended to eliminate big first-day stock pops. It failed. Jay Ritter, a University of Florida professor who studies the IPO market, says that DoorDash and Airbnb rank among the top five IPOs in terms of dollars left on the table. Also in the top five: the recent IPO for Snowflake.
A Good Week for SoftBank… The SoftBank Vision Fund invested $2 billion in DoorDash, a stake now worth $12 billion; parent SoftBank Group (SFTBY) is trading at a 20-year high. Just over a year ago, SoftBank was reeling from its role as the lead investor in WeWork, which pulled its IPO after a disastrous set of public disclosures. The WeWork moment all but shut down the IPO market in 2019. What a difference a year makes.
...and for Sequoia: Sequoia Capital is the largest investor in Airbnb—with a stake now worth $11.7 billion—and the second-largest investor in DoorDash, with a $9.6 billion stake. Sequoia partner Alfred Lin sits on the boards of both companies. In an interview with Barron’s, Lin said that Sequoia actually passed on a seed investment in DoorDash in 2013. “But we stayed in touch” with CEO Tony Xu, he adds. Sequoia invested in the DoorDash Series A round, and every round after. For now, Sequoia is holding on to all that stock.
The Bulls Don’t Care About Valuation: “I don’t think about valuation on any given day,” Lin told me. “I don’t think the founders of these companies think about valuation…We think about, where are the vectors of growth. How do we continue to win, how do we continue to build increasing advantages for our customers...”
The Case for DoorDash: “Yes, DoorDash is a dominant leader, with 50% market share in food delivery,” Lin says, “but they have only a small fraction of what is spent on restaurant services....And then if they achieve their vision, which is to empower local economies and local merchants, that’s an amazing potential [addressable market].”
The Case for Airbnb: “The travel industry is huge,” Lin says. “There’s travel, and experiences, or you can look at it as unlocking real estate, which is another huge total addressable market. The notion that we can now work from anywhere, study from anywhere. I complain about the small office in my house, and I’m tired of being in front of the same screen, [so] maybe I want to move to a different location....And as I get comfortable with the model, maybe I’ll let someone else rent my house when I’m gone.”
And the Case for C3.ai: “The investment community recognizes there is a huge market in commercial and industrial AI applications,” CEO Tom Siebel told me about his stock’s debut: “We’re looking at a $250 billion addressable software market—that’s bigger than a breadbox.”
There’s More to Come: Even after this year’s IPO wave, there are still more than 500 unicorns—venture-backed companies worth at least $1 billion—in the private market, according to CB Insights. That list includes potential blockbusters like payment platform Stripe, grocery delivery service Instacart, Korean e-commerce giant Coupang, and stock trading platform Robinhood, which has reportedly hired Goldman Sachs to lead its IPO. “We’re in the golden age of venture-capital exits,” says Sandy Miller, general partner at Institutional Venture Partners. “We have a very healthy IPO market and a massive M&A market...there is big supply, and big demand, because the deals have been working.”
But even a big week for IPO’s can’t change one reality: DoorDash and Airbnb were pricey before their IPOs. Now, price isn’t even part of the equation. As we wrote last week: buyers beware.
(Bloomberg) -- C3.ai Inc., the software maker founded by former Oracle Corp. executive Tom Siebel, has priced its initial public offering above the marketed range to to raise $651 million, according to a people familiar with the matter.
The Redwood City, California-based company sold 15.5 million shares Tuesday for $42 apiece after marketing them for $36 to $38, said the people, who asked not to be identified because the information wasn’t public yet. Based on the outstanding shares listed in its filings, the company will have a market value of about $4 billion at $42 a share.
A representative for C3.ai didn’t immediately respond to a request for comment.
C3.ai has said that big name backers including one of its partners, Microsoft Corp., would acquire shares in a private placement as part of the listing.
Spring Creek Capital, an affiliate of Koch Industries, planned to buy $100 million in common stock while Microsoft would buy $50 million of them at the IPO price, according to an earlier filing.
Earlier this year, C3.ai formed a partnership with Microsoft and Adobe Inc. for a new customer-relationship management software seeking to combat Salesforce.com Inc.
C3.ai’s offering is being led by Morgan Stanley, JPMorgan Chase & Co. and Bank of America Corp. The company’s shares are expected to begin trading Wednesday on the the New York Stock Exchange under the symbol AI.
Home > Boards > US Listed > Food - Beverages > DoorDash IPO (DASHIPO) After opening pop from $102 to $120, short Public Reply | Private Reply | Keep | Last Read Post New Msg Edit Msg (15 min left) | Previous | Next DASHIPO Current Price Volume: Bid Ask Day's Range DASHIPO Detailed Quote
JohnCM Member Level Wednesday, 12/09/20 12:09:03 AM Re: None Post # 1 of 1 After opening pop from $102 to $120, short down to $97
>>> C3.ai - >>> In 2009, Siebel founded C3.ai, originally to provide enterprise software for energy management.[21] C3.ai currently provides an enterprise AI software platform and applications for multiple commercial uses, including energy management, predictive maintenance, fraud detection, anti-money laundering, inventory optimization, and predictive CRM.[22] Its customers include 3M, Royal Dutch Shell, the US Air Force, and New York Power Authority.[23][24] C3.ai was included in the 2019 “CNBC Disruptor 50” list, with a valuation of $2.1 billion.[25]
Enterprise AI software applies artificial intelligence methods, such as machine learning and neural networks, to solve complex analytical problems in commerce, industry, and government.[26] Organizations use enterprise AI software to increase efficiencies, reduce costs, and improve operations.[27] The US Air Force, for example, uses AI to predict engine failure in aircraft before a failure occurs in order to improve maintenance and increase aircraft readiness.[24]
Airbnb valuation may hit $42 billion after pandemic bounceback
Record-setting end to 2020 with U.S. IPOs at December high
Airbnb, DoorDash Headline a Week and Month of Big IPOs
December is set to be the busiest year-end on record for initial public offerings in the U.S., with DoorDash Inc. and Airbnb Inc. ready to start trading this week in long-awaited listings.
The two startups, which are aiming to raise a combined $6.2 billion at the top of their price ranges, will propel the month’s IPO volume to all-time high, surpassing the $8.3 billion mark set in December of both 2001 and 2003, according to data compiled by Bloomberg. IPOs on U.S. exchanges have already raised a record $156 billion this year, the data show.
Both listings got an additional boost as the companies headed into the final stretch of marketing their shares. Airbnb increased the price range of its IPO in an updated prospectus on Monday, after DoorDash upped its own price range in a Friday filing. Airbnb will be valued at as much as $42 billion at the top end of the revised range. The elevated price targets put both companies among the five biggest U.S. IPOs of 2020.
Increasing the price range usually implies that the offering is being well-received among investors and demand is high. Companies are allowed to price their IPO shares up to 20% above the revised range without having to refile with the Securities and Exchange Commission.
Private companies that sat out the market chaos in the early days of the Covid-19 pandemic -- and were awaiting a final outcome in the U.S. election -- are now rushing to go public. Airbnb and DoorDash will quickly be followed by three other mega-listings that could add billions of dollars to the IPO tally.
Also on deck to go public this month are Affirm Holdings Inc., which lets online shoppers pay for purchases such as Peloton bikes in installments and online video-game company Roblox Corp. Both are likely to attain a valuation of tens of billions of dollars in its listing.
ContextLogic Inc., the parent of online retailer Wish, launched its share sale on Monday. It’s aiming to raise as much as $1.1 billion at a fully diluted valuation of $17 billion, its amended prospectus shows.
“This group of companies that you have coming out now maybe weren’t thought of initially as benefiting, but they’ve been able to show very strong results despite the coronavirus,” said Karen Snow, head of East Coast listings at Nasdaq Inc.
Airbnb is aiming to be valued at as much as $42 billion in its IPO, while DoorDash could hit a valuation of about $35 billion, based on their updated price ranges. For DoorDash, that’s more than double the private valuation it hit in a June fundraising round, after it seized on the pandemic-fueled boom in demand for meals brought to your door. Airbnb had been valued at $18 billion in April after raising additional debt to shore up its finances. The company, which was initially hit hard by global travel restrictions, has more recently seen a boom in customers seeking longer-term, domestic rentals.
COMPANY FUNDRAISING AT TOP END IPO VALUATION STATUS
DoorDash $3.1 billion $35 billion at top of range Pricing Dec. 8,
Trading Dec. 9
Airbnb $3.1 billion $42 billion at top of range Pricing Dec. 9,
Trading Dec. 10
C3.ai $527 million $3.29 billion (appx.) Pricing Dec. 8,
Trading Dec. 9
ContextLogic (Wish) $1.1 billion $17 billion at top of range Pricing Dec. 15,
Trading Dec 16,
Affirm TBD TBD Filed publicly
Roblox TBD TBD Filed publicly
Airbnb’s IPO will also be a lucrative event for many of its employees. The company has offered billions of dollars worth of stock compensation to staff, similar to Uber Technologies Inc. and other large venture-backed companies that have gone public. The IPO will make some of its longtime employees millionaires on paper.
Time and Cash
Earlier this year, technology IPOs were dominated by enterprise software companies such as Snowflake Inc., which has soared more than 200% since its listing to a $110 billion public market valuation. This month’s cluster of soon-to-be public entities -- all based in the San Francisco Bay Area -- cater to consumers stuck at home with extra time and cash on their hands.
Should the listings go well, it could signal investors are optimistic about an economic rebound after the dark days of the pandemic.
“There’s a lot of support and interest from institutional investors for companies that are impacted by Covid because the feeling is that they will recover,” said Neil Kell, Bank of America Corp.’s vice chairman of global equity capital markets.
“The mindset is not that we’re in December of 2020,” he said. “The mindset is how is it going to look a year from now.”
One enterprise software listing is also planned for this week. C3.ai Inc., founded by former Oracle Corp. executive Tom Siebel, is expected to raise as much as $527 million in its IPO.
Gauging Demand
Bankers are using new methods to execute these large share sales, incorporating technology under development for years that was well-timed for use during the pandemic, when potential buyers can’t meet the company executives and advisers in person.
Airbnb, DoorDash and Roblox have asked prospective IPO investors to fill in their deal orders via an online portal, indicating their level of interest at any desired price, according to people with knowledge of the matter, who asked not to be identified because the details are private.
The new process is aimed at helping issuers and their advisers gauge demand, especially for high-growth companies subject to wide differences in valuation among investors, the people said. The final price and share allocation are still determined by the seller.
Representatives for the companies declined to comment.
Unity Software Inc., used the same system in its September IPO. Unity sold its shares for $52 each and ended its first day of trading at $68.35. The shares closed Friday at $150.94 apiece.
Shanghai exchange cites ‘major issues’ when suspending debut
Ma was called into a meeting with top regulators on Monday
China Stops Jack Ma’s $35 Billion Ant IPO From Going Forward
It was heralded as China’s answer to JPMorgan -- a homegrown financial giant on the cusp of the biggest stock-market debut the world has ever seen.
Instead, with billions on the line and an initial public offering all but sealed, Chinese authorities have abruptly thrown into doubt the future of Ant Group Co. and its celebrated founder, the billionaire Jack Ma.
Only days before the financial-technology juggernaut was to go public in Shanghai and Hong Kong -- a coup for China’s financial markets that once would have been unimaginable -- the $35 billion IPO was halted on Tuesday after Ma, China’s richest man, was summoned by regulators. In an extraordinary turn of events, authorities announced that they had belatedly discovered an array of shortcomings that, by some accounts, might require the sprawling Ant to be overhauled.
The move upends what had been one of China’s biggest business success stories, as well as what was to be a pivotal step in the development of the nation’s fast-growing capital markets.
“It’s definitely surprising,” said Mike Bailey, director of research at FBB Capital Partners. “If there is something strange going on on the macro side for China’s financial markets or in the company, that would be worrisome.”
In just a decade, Ant, an affiliate of Ma’s Alibaba Group Holding Ltd., has exploded into the world’s largest financial technology company, reshaping the lives of many ordinary Chinese. But its ascendance -- and Ma’s growing global reputation -- has also posed a threat to China’s state-run lenders and their political benefactors.
Tuesday’s developments left bankers and global investors groping for answers. The immediate fate of the many billions already tied up in the IPO is for now uncertain. Reaction in the financial market was swift, with Alibaba’s U.S.-listed shares falling and futures on Hong Kong’s benchmark also declining.
Changes Needed
Chinese authorities didn’t give much detail about the issues behind the suspension, beyond saying that the much-anticipated debut couldn’t go ahead because there had been “significant change” in the regulatory environment.
The company will have to make changes that include capital increases at its lucrative micro-lending units, according to people familiar with the matter. It will also have to reapply for licenses for the units to operate nationwide, the people added, asking not to be identified discussing a private matter.
Ant, which spun out of Alibaba in 2010, has long been seen as a champion of China’s economy and an example of how the Communist Party has allowed entrepreneurs -- especially in the technology sector -- to flourish within its top-down political system. Tuesday’s setback may cast a pall over the country’s financial markets, even as President Xi Jinping tries to create stock exchanges that can rival the U.S.
“Ant Group sincerely apologizes to you for any inconvenience caused by this development,” the company said in a message to investors. “We will properly handle the follow-up matters in accordance with applicable regulations of the two stock exchanges.”
There were warning signs on Monday when Ma was summoned to a rare joint meeting with the People’s Bank of China and three other top financial regulators and told his firm would face increased scrutiny and be subject to the same restrictions on capital and leverage similar to banks.
“This further reinforces the regulatory pressures building on tech giants,” said Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd. in Sydney. “It’s good news for banks, bad news for Jack Ma,” he said, referring to the competitive threat Ant poses for traditional lenders.
The company’s debut was expected for Thursday. Alibaba, which owns about a third of Ant and is listed in the U.S., tumbled 6.8% at 12:44 p.m. in New York.
Record IPO
The IPO was on pace to break records. It had attracted at least $3 trillion of orders from individual investors for its dual listing in Hong Kong and Shanghai, and in the preliminary price consultation of its Shanghai IPO, institutional investors subscribed for over 76 billion shares, more than 284 times the initial offering tranche.
Chinese fintech giant could have set IPO record
The fintech company’s IPO would have given it a market value of about $315 billion based on filings, bigger than JPMorgan Chase & Co. and four times larger than Goldman Sachs Group Inc.
But Ant has faced scrutiny in Chinese state media in recent days after Ma criticized local and global regulators for stifling innovation and not paying sufficient heed to development and opportunities for the young. At a Shanghai conference late last month, he compared the Basel Accords, which set out capital requirements for banks, to a club for the elderly.
And over the weekend, at a meeting of the Financial Stability and Development Committee led by Vice Premier Liu He, officials stressed the need for fintech firms to be regulated.
Ant dominates China’s payments market via the Alipay app. It also runs the giant Yu’ebao money-market fund and the country’s largest online consumer-lending platform. Other businesses include a credit-scoring unit and an insurance marketplace.
Datto provides business-continuity software, including backup and disaster recovery.
Shares of Datto Holding rose as much as 20% in its first day of trading.
The stock opened at $32 Wednesday and hit a high of $32.36. Shares recently changed hands at $28.05, up 3.9%, in afternoon trading.
Datto’s (ticker: MSP) decent performance comes after the backup-software company collected roughly $550 million late Tuesday. The company sold 22 million shares at $27 each, the top of its $24-$27 price range.
Morgan Stanley, BofA Securities, Barclays, and Credit Suisse are underwriters on the deal.
Datto is the latest software company to go public. Both Asana (ASAN), which offers cloud-based project-management software, and Snowflake (SNOW), a cloud software company, made their debuts in late September. McAfee, the cybersecurity company, is expected to price its offering Wednesday night and begin trading on Thursday.
Founded in 2007, Datto provides business-continuity software, including backup and disaster recovery, that helps companies secure their data. Datto’s software is delivered through a managed-service-provider, or MSP, channel to small and medium-size businesses. The company had 17,000 MSP partners as of June 30, according to its prospectus. Datto said it helped restore more than 200 million software as a service objects in 2020, the prospectus said.
The company reported $10.1 million in profit for the six months ended June 30 on $249.1 million in revenue. This compares with $25.7 million in losses a year earlier on $215 million in revenue. Long-term debt stood at $577 million as of June 30. It has 1,653 employees as of June 30.
With 157,548,740 shares outstanding, Datto has a roughly $4.3 billion market cap, at $27 a share.
Vista Equity Partners acquired Datto in 2017 for $1.3 billion and merged the company with Autotask. Vista will own 70.7% of Datto after the IPO, while Austin McChord, Datto’s founder, will have 13%.
The Datto IPO comes just days since Robert Smith, Vista’s CEO, reached a $140 million settlement with the Justice Department, The Wall Street Journal reported. The nonprosecution agreement ends a yearslong U.S. tax investigation and calls for Smith to admit tax fraud as well as not properly filing foreign bank account reports, according to the Journal.
No Vista entity is part of Smith’s settlement with the DOJ, which is considered a personal tax matter, Barron’s has learned. Neither Vista, nor any of its funds or portfolio companies, were involved or of interest or under investigation by the DOJ, Barron’s has learned.
Brian Sheth, Vista’s president and co-founder, is now looking to leave the firm, Barron’s has learned. The executive has been with Vista since he was 23 years old. Sheth has wanted to retire for some time but had to wait until Smith signed the nonprosecution agreement with the DOJ, Barron’s has learned. The timing of Sheth’s departure is unclear. He has noncompete and nonsolicitation agreements with Vista and with Dyal Capital Partners, which owns a minority of Vista, Barron’s has learned.
Investors have seen time and again how some platforms can turn small businesses into big profits. Shopify (NYSE:SHOP) was a pioneer in helping small businesses establish themselves online, and its stock has soared more than 3,000% over the last five years. Square (NYSE:SQ) cut its teeth by empowering small business with payment systems and services. Now meet Datto (NYSE:MSP), which went public on Oct. 21 with a mission to bring big IT solutions to small and medium businesses (SMBs). Unlike many recent IPOs, the company just turned profitable . Here are three key indicators that could give investors confidence that Datto's story and stock has a bright future.
1. Landing more MSPs
Datto's ticker, MSP, is an homage to its unique strategy. SMBs often can't manage their own information technology needs. Imagine you own a local chain of bakeries, or a dentistry practice. You want to access and protect your and your customers' data easily, but you didn't acquire networking and cybersecurity skills at culinary or dental school. Additionally, your business may not be big enough to invest in your own IT department, with multiple contracts from multiple vendors.
For these reasons, many small businesses turn to "managed service providers," or MSPs, essentially one-stop shops that provide IT solutions. The total addressable market here is very big and growing. According to Datto's S-1 filing, SMBs spend $159 billion on IT annually. We can reasonably expect that figure to keep growing, since all businesses need software, data storage, and security. 125,000 MSPs currently manage about 10% of that market .
Datto offers a data storage and security platform to MSPs, which they in turn can offer their customers. This model allows Datto's customers more efficiency, since they can consolidate much of their work onto Datto's platform. It also allows MSPs to focus more of their time on growing their business relationships, rather than getting bogged down troubleshooting: They have Datto for that. Essentially, Datto is the MSP for MSPs.
This strategy seems to be paying off. Datto currently has 17,000 MSP customers. That's a nice diverse customer base and healthy 14% of the market. A growing market also invites growing competition. If Datto is going to be a multibagger from its current $4.4 billion market cap, it needs to not only keep market share, but also grow its market share
2. Expanding with MSPs
Datto has shown its ability to grow relationships so far. Its S-1 filing shows a dollar-based net retention rate of 115% for the 12 months ending June 30, 2020 and 119% in the previous fiscal year. For comparison, the more enterprise-focused cloud storage company, Box, recently reported a 106% net retention rate for the year ending July 31, 2020. . Datto has a three-pronged approach to growing revenues with existing MSP partners.
The first involves helping MSPs get Datto services to even more SMB customers. Datto invests heavily into this initiative. If offers a wide variety of tools, from books to videos, that help MSPs with marketing, pricing, customer service, and even hiring. Datto prices its technology to MSPs in tiers, and as the MSPs expand or bring new business into the Datto ecosystem, it can push them into higher pricing tiers . More on this later.
The second opportunity is to offer more solutions to the MSP business. One key product here is Datto's "Autotask Professional Services Automation," (PSA) -- essentially, software that helps MSPs triage, assign, and track workflow. There is plenty of competition in this arena as well. Datto has a bit of network effect going for it: If an MSP is already tied into the Datto platform for its customers, it might be more likely to use Datto's PSA software as well.
The third growth driver lies in expanding Datto's solutions for SMBs. The company's current focus is backup and recovery service, helping that imaginary dental office access your records even when their systems crash. That's a smart place to start, since different businesses all share that same need. For Datto to grow into a megacap cloud king, investors should look for new successful products and services for SMBs, additional business solutions for MSPs, and that net retention rate to stay above 100% for the foreseeable future.
3. Top line, bottom line
Since 94% of Datto's revenue comes from subscriptions, the company tends to highlight its annual run-rate revenue, the yearly value of all its current subscriptions . Whether investors chose to use that metric or the slightly more inclusive net revenue, they should hope for some acceleration in top-line growth. Datto grew its year-over-year subscription revenue nearly 20% for the six months ending June 30.
That kind of revenue growth is great ... unless you're a cloud software company. Other companies in the broader industry are posting revenue growth rates of 65% and even 121% . Granted, those companies, JFrog and Snowflake, come at much higher premiums. Nonetheless, if Datto is going to grow to be the dominant cloud services provider for SMBs through their network of MSPs, it may need get those network effects compounding and grow revenue above 19%.
Datto has not garnered as much media attention as other IPOs. That might work in investors' favor. Small companies will continue to need more and more technology solutions to compete. Most small businesses will look to their local MSP partners. If Datto emerges as the top dog in this space in the long term, its potential could easily turn this $4 billion company into a 10-bagger.
>>> Datto Holding Corp. (MSP) provides cloud-based software and technology solutions for delivery through the managed service provider (MSP) channel to small and medium businesses in the United States and internationally. Its Unified Continuity products include Business Continuity and Disaster Recovery that protects servers and workstations, and minimize downtime; Cloud Continuity, an image-based continuity solution for Windows-based laptops and desktops; SaaS Protection, an automated and secure backup and restoration product; Workplace, a cloud-hosted file sync and share solution, which enable end-users to synchronize files across platforms, including mobile devices; and File Protection, an MSP-managed secure and scalable backup product that enables MSPs to protect and recover files and folders on workstations and laptops. The company's networking Products comprise access points, switches, edge routers, and managed power devices. Its business management products that consists of Autotask Professional Services Automation, an IT business management product; and remote monitoring and management. The company was formerly known as Merritt Topco, Inc. and changed its name to Datto Holding Corp. in January 2020. Datto Holding Corp. was incorporated on 2017 and is headquartered in Norwalk, Connecticut.
For the six months ended June 30, the company recorded net income of $76.1 million on revenue of $552.6 million, after a net loss of $5.2 million on revenue of $255.4 million in the same period a year ago.
Shares of Array Technologies Inc. ARRY, 7.26% charged out of the gate, as the first trade was 34% above where the upsized initial public offering priced. A total of 47.5 million shares were sold in the IPO, as the New Mexico-based maker of ground-mounting systems used in solar energy projects sold 7 million shares to raise $154 million and a selling shareholder sold 40.5 million shares. The IPO priced at $22, above the top of the expected range of $19 to $21. With about 127.0 million shares outstanding, the IPO pricing valued the company at about $2.79 billion. The selling shareholder, a parent entity of the company controlled by Oaktree Capital, has increased the amount it planned to sell a number of times, starting at 26.75 million shares on Oct. 7, to 38.00 million shares on Oct. 13 and to 40.50 million shares late Wednesday. For the six months ended June 30, the company recorded net income of $76.1 million on revenue of $552.6 million, after a net loss of $5.2 million on revenue of $255.4 million in the same period a year ago. Goldman Sachs, J.P. Morgan, Guggenheim Securities and Morgan Stanley were the lead underwriters. The company went public at a time of good demand for IPOs, as the Renaissance IPO ETF IPO, 0.61% has rallied 28.7% over the past three months while the S&P 500 SPX, 0.55% has gained 7.3%.
<<<
>>> Array Technologies, Inc. (ARRY) provides solar tracking solutions and services for utility-scale projects. Its products include DuraTrack HZ v3, a single-axis solar tracking system; and SmarTrack, a machine learning software that automatically adjusts module angles in response to weather and site conditions. The company was founded in 1989 and is based in Albuquerque, New Mexico with additional offices in Europe, Central America, and Australia. <<<
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Quote: The Forest Road Company's SPAC Forest Road Acquisition files for a $250 million IPO
Shaquille O'Neal, former Disney executives, and Martin Luther King Jr.'s son target $250 million SPAC launch
October 8, 2020 FRX.U
Forest Road Acquisition, a blank check company formed by Forest Road targeting TMT businesses, filed on Thursday with the SEC to raise up to $250 million in an initial public offering.
The New York, NY-based company plans to raise $250 million by offering 25 million units at $10. Each unit consists of one share of common stock and one-third of a warrant, exercisable $11.50. At the proposed price, Forest Road Acquisition would command a market value of $313 million.
The company is led by CEO and Director Keith Horn, founder and managing member of investment advisory firm Loring Capital Advisors, and Chairman and CIO Zachary Tarica, founder and CEO of specialty financing firm Forest Road. Forest Road Acquisition plans to target the TMT industry, with specific focus on the new audience aggregation platforms transforming the TMT landscape, premium intellectual property driving significant value expansion, and other broad themes.
Forest Road Acquisition was founded in 2020 and plans to list on the NYSE under the symbol FRX.U. Cantor Fitzgerald is the sole bookrunner on the deal.
Forest Road Acquisition Filed Terms, NYSE: FRX.U Blank check company formed by Forest Road targeting TMT businesses.
Industry: SPAC FRX.U
We are a blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination. We currently intend to concentrate our efforts on identifying businesses in the technology, media, and telecommunications (“TMT”) space that align with the following macro themes: new audience aggregation platforms transforming the TMT landscape; premium intellectual property (“IP”) driving significant value expansion; consumer behavior fundamentally changing; cutting-edge technologies facilitating new offerings; evolving ecosystem reshaping traditional business models; and companies in need of capital due to idiosyncratic market conditions. We will seek to capitalize on the significant experience, relationships, and contacts of our officers and directors, The Forest Road Company, the managing member of our Sponsor (“Forest Road”), and strategic advisors to complete our initial business combination. We believe that our team’s distinguished and long-term track record of sourcing, acquiring, and building next-generation media and entertainment platforms, along with other investments and operational experience in consumer-facing industries, will provide us with differentiated consumer insights and sourcing opportunities.
IPO News for Forest Road Acquisition The Forest Road Company's SPAC Forest Road Acquisition files for a $250 million IPO 10/08/20
IPO Data IPO File Date 10/08/2020 Price Range $10.00 - $10.00 Offer Shares (mm) 25.0 Deal Size $mm) $250 Lock-Up Date IPO Pro Only Street Research IPO Pro Only Underwriters Cantor Fitzgerald Guggenheim Securities Company Data Headquarters New York, NY Founded 2020 Employees 4 Websitewww.forestroadco.com IPO Market Benchmark (IPOUSA)
SPACs give emerging companies both flexibility and control, while investors finally have open access to some of the biggest investment deals in the market. Expanding on this concept, Defiance ETFs has announced the launch of the first SPAC ETF, the Defiance Next Gen SPAC Derived ETF (SPAK), which is now available for trading. SPAK tracks the Indxx SPAC & NextGen IPO Index.
SPACs are companies with no commercial operations that are established solely to raise capital from investors for the purpose of acquiring one or more operating businesses. SPAK joins Defiance’s growing suite of first-mover thematic ETFs, including (FIVG) (5G ETF) and (IBBJ) (Junior Biotech ETF).
“The Defiance team is excited to bring to market the first SPAC ETF (NYSE: SPAK). Picking the winners of individual SPACs can be very difficult, however, the ETF structure allows investors to access the most liquid SPAC IPOs in a diversified basket. SPAK allows both financial advisors and retail investors to participate in an IPO private equity style of investing, which until now, was only available to large financial institutions,” a statement issued by Defiance ETFs earlier this morning.
Regarding the index, the Indxx SPAC & NextGen IPO Index is a passive rules-based index that tracks the performance of the common stock of newly listed Special Purpose Acquisitions Corporations (“SPACs”), ex-warrants, and initial public offerings (“IPOs”) derived from Special Purpose Acquisitions Corporations.
Why Invest in SPACS?
Elaborating more on why investors can look to SPACS, the IPO process is institutionalized, cumbersome, and inflexible, especially in adapting to the Covid-19 reality where virtual roadshows are less effective, and uncertainty is rife. With SPAC, there’s an alternative route for a company to go public, which can be cheaper, quicker, more transparent, and involves agreements and processes more within the purview and control of the company.
SPACs have grown in popularity as they increasingly attract high-worth, credible sponsors. As the quality of their founders and the success of their merger companies grow, so does their integrity in the wider investment community. So far in 2020, SPACs have raised $22.5 billion to spend on deals, exceeding the record $13.6 billion raised in 2019.
Delving deeper into the SPAK ETF, picking the winners of individual SPACs can be very difficult, however, the ETF structure allows investors to access the most liquid SPAC IPOs in a diversified basket. SPAK allows both financial advisors and retail investors to participate in an IPO private equity style of investing which is usually only available to large financial institutions. The ETF currently has 29 holdings, rebalanced on a quarterly basis. An 80% weighting is applied to IPO companies derived from SPACs and 20% is allocated to common stock of newly listed Special Purpose Acquisition Companies (“SPACs”), ex-warrants. Newly IPO companies derived from SPACs will be screened monthly and SPACs quarterly.
Snowflake shares are in bubble territory and at risk of a sharp reversal, the first analyst to pick up coverage of the newly public cloud data analytics company warned on Monday.
Snowflake (ticker: SNOW) made a spectacular debut in the public market last week, setting an initial offering price of $120 a share, then more than doubling on the first day trading to $253.93, after briefly trading as high as $319. But as we noted in this weekend’s Tech Trader column, the huge run has pushed the company’s valuation to unsustainable heights.
Srini Nandury, an analyst with the small investment research firm Summit Insights Group, this morning picked up coverage of the stock with a Sell rating and $175 price target.
Nandury confirms what we said in the column: Snowflake is “the most expensive name in all tech.” He also contends that Snowflake’s software offers “limited differentiation” from competing products like Amazon Redshift, Google Big Query, and Azure SQL Database. He also notes that there are many legacy data warehouse vendors, including IBM Netezza, Oracle (ORCL), SAP (SAP), and Teradata (TDC), all of which offer cloud products of their own.
“With the uncertain macro environment, Snowflake is at risk of a violent selloff,” he writes. “We believe multiple compression is inevitable.” He estimates the stock is trading at 76 times next 12 months sales, compared with 41 times for Zoom Video Communications (ZM), 32 times for Datadog (DDOG), and 31 times for Shopify (SHOP).
The analyst projects revenue growth of 117% for the January 2021 fiscal year to $574 million, with growth slowing to 40% by fiscal 2025.
He also notes that the first lockup expiration on the stock is Dec. 15, when 11.3 million more shares will be eligible for sale. He thinks a secondary offering is likely.
“For the stock to work from the current levels, Snowflake needs to execute flawlessly quarter after quarter, and has to live up to lofty expectations and grow into its valuation,” Nandury writes. “While Snowflake’s management is stellar and is known for its execution, the odds of Snowflake’s stock faltering are high.”
He concludes: “The stock is clearly in the bubble territory.”
Snowflake shares on Monday were down 4.3%, to $229.63. Other recent IPOs, including JFrog (FROG), Unity Software (U), and Sumo Logic (SUMO) were all showing more modest losses. <<<
>>> Snowflake Inc. (SNOW) provides cloud-based data platform in the United States and internationally. The company's platform enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data. Its platform is used by various organizations of various sizes in a range of industries. The company was founded in 2012 and is headquartered in San Mateo, California.
Compass Pathways (CMPS) jumped in its first day of trading on Friday, making it the first psychedelic drug company to go public on a big U.S. exchange.
Shares surged 42% to 24.09 in the stock market today, giving the company a market cap of more than $800 million. The debut comes a day after the company announced an upsized pricing for its IPO.
The London-based company, which is researching a therapy using the main ingredient in hallucinogenic mushrooms, said in a release late Thursday that its IPO priced at $17 a share, up from initial expectations for $14-$16 announced earlier in the week.
Compass said it sold 7.5 million American Depositary Shares in the offering, for total proceeds of $127.5 million. That was also above the 6.7 million planned. Each of the 7.5 million American Depositary Shares represented 7.5 ordinary shares in the offering.
The company has also granted the underwriters of its IPO a 30-day option to buy an additional 1,125,000 American Depositary Shares, up from 1,005,000 initially.
Compass Pathways filed for the IPO late last month. Cowen, Evercore ISI and Berenberg were the joint book-running managers for the Compass Pathways IPO. Canaccord Genuity, already an active deal maker in the cannabis industry, is the lead manager.
The psychedelic drugs industry has been put into the spotlight over the past year, as more investors pour their money into startups promising treatments for a range of mental illnesses.
With that trend have come concerns about a repeat of the cannabis industry's boom and bust. Most existing drugs in the industry — like LSD, MDMA and psilocybin — aren't yet legal or patentable.
Compass Pathways' COMP360 Therapy
The company, in a filing on Monday, said would have around 34 million shares outstanding after the offering, or 35 million if the underwriters fully exercise the option. That could give the company a valuation of nearly $600 million.
Compass Pathways has developed a crystalline form of psilocybin, called COMP360, for which it has a U.S. patent. Psychedelic drug developers, if they want to be profitable, will likely have to develop novel drug compounds and drug-delivery methods, a path similar to the legal pharmaceutical industry.
The drug developer plans to use COMP360 in conjunction with therapy for treatment-resistant depression. If regulators approve, Compass plans to market it to clinics and health care providers in the U.S. and Europe.
The FDA in 2018 gave breakthrough status to COMP360. Last year, the agency also approved the Johnson & Johnson (JNJ) drug Spravato, which uses a derivative of ketamine, for treatment-resistant depression. This summer, the FDA approved Spravato for people who are actively suicidal.
Ketamine — perhaps best known as a party drug — is regularly used, legally, as an anesthetic. Therapists also use ketamine for psychedelic-assisted psychotherapy.
Direct Listings: An evolving pathway to the public capital markets.
Direct listings have increasingly been gaining attention as a means for a private company to go public. A direct listing refers to the listing of a privately held company’s stock for trading on a national stock exchange (either the NYSE or Nasdaq) without conducting an underwritten offering, spin-off or transfer quotation from another regulated stock exchange. Under current stock exchange rules, direct listings involve the registration of a secondary offering of a company’s shares on a registration statement on Form S-1 or other applicable registration form filed with, and declared effective by, the Securities and Exchange Commission, or the SEC.[1] Existing shareholders, such as employees and early-stage investors, whose shares are registered for resale are able to sell their shares on the applicable exchange, but are not obligated to do so, providing flexibility and value to such shareholders by creating a public market and liquidity for the company’s stock. Upon listing of the company’s stock, the company becomes subject to the reporting and governance requirements applicable to publicly traded companies, including periodic reporting requirements under the Securities Exchange Act of 1934, as amended, and governance requirements of the applicable exchange.
Companies may pursue a direct listing to provide liquidity and a broader trading market for its shareholders; however, the listing company can also benefit. Forecasting a direct listing may make the listing company’s equity more attractive to potential investors while the company is still private and provide greater process control to the company as it goes public. For instance, the traditional roadshow has been replaced in some direct listings by an investor day whereby the company invites investors to learn about the company one-to-many, such as via a webcast, which can be considered more democratic as all investors have access to the same educational materials at once. In addition, equity that will be publicly traded can serve as a more attractive acquisition currency, both before and after listing. Most significantly, listing provides a company with optionality to use the public capital markets to raise cash, typically lowering its cost of capital and increasing flexibility in capital planning.
Companies have not raised fresh capital as part of the direct listing process, but the NYSE recently proposed changes to its rules that would allow a primary offering along with, or in lieu of, a direct secondary listing.[2]
Advantages of a direct listing as compared to an IPO.
Immediate Benefits to Existing Shareholders.
All shareholders whose shares are registered on the resale shelf registration statement will have the opportunity to participate in the first day of trading of the company’s stock. Shareholders who choose to sell are able to do so at market trading prices, rather than only at the initial price to the public set in an IPO. The ability to sell at market prices on the first day of a listing can be a significant benefit to existing shareholders who elect to sell. However, this benefit assumes there is sufficient market demand for the shares offered for resale.
Potentially Wider Initial Market Participation.
The traditional IPO process includes a focused set of participants, and institutional buyers tend to feature prominently in the initial allocation of shares to be sold by the underwriting syndicate. In a direct listing, any prospective purchasers of shares are able to place orders with their broker-dealer of choice, at whatever price they believe is appropriate, and such orders become part of the initial reference price-setting process.
Flexibility in Timing of Public Announcement.
IPO marketing has become more flexible since the introduction of rules providing for “testing-the-waters” communications by Emerging Growth Companies and, starting December 3, 2019, all companies.[3] However, a direct listing allows a company to avoid the rigidity of the traditional roadshow conducted for a specified period of time following the publicly announced launch of an IPO and allows it to tailor marketing activities to the specific considerations underlying the direct listing. These marketing efforts may include one or more investor days and a roadshow-like presentation, conducted at times deemed most advantageous (although the applicable registration statement must still be publicly filed for at least 15 days in advance of any such marketing efforts). Although the approximate timing of the direct listing can be inferred from the status of the publicly filed registration statement, the company may have more flexibility as to the day its shares commence trading on the applicable stock exchange.
Brand Visibility.
As direct listings are still a novel concept in U.S. capital markets, any direct listing with moderate success will likely draw broad interest from market participants and relevant media. This effect is multiplied when the listing company has a well-recognized brand name.
No Underwriting Fees.
A direct listing can save money by allowing companies to avoid underwriting discounts and commissions on the shares sold in the IPO. However, the company will still incur significant fees to market makers or specialists, as applicable, independent valuation agents, auditors, legal counsel, and a financial advisor.
No Lock-up Agreements.
Existing management and significant shareholders are not typically subject to the restrictions imposed by 180-day lock-up agreements standard in IPOs. Notwithstanding, as practice evolves, investors may expect certain key players will be subject to lock-up arrangements, as was the case with Spotify’s largest non-management shareholder.
Certain issues to consider before choosing a direct listing.
Establishing a Price Range and Initial Reference Price.
No marketing efforts are permissible without a compliant preliminary prospectus on file with the SEC, and such prospectus must include an estimated price range. In a traditional IPO, the cover page of the preliminary prospectus contains a price range of the anticipated initial sale price of the shares. In a direct listing, the current market practice is to describe how the initial reference price is derived (e.g., by buy and sell orders collected by the applicable exchange from various broker-dealers). These buy and sell orders have in the past been largely determined with reference to high and low sales prices per share in recent private transactions of the subject company. In cases where a company does not have such transactions to reference, additional information will be necessary to educate and assist investors and help establish an initial bid price. In addition, the listing company may elect to increase the period between the effectiveness of its registration statement and its first day of trading, thereby allowing time for additional buy and sell orders to be placed. The financial advisor to the company will play an important role in this process, as discussed below.
Financial Advisors and their Independence.
The rules of both the NYSE and Nasdaq require that the listing company appoint a financial advisor to provide an independent valuation of the listing company’s “publicly held” shares and, in practice, assist the applicable exchange’s market maker or specialists, as applicable, in setting a reference price. In past direct listings, in particular those involving the NYSE, the financial advisor that served this role was not the financial advisor the listing company engaged to advise generally, including to assist the company define objectives for the listing, position the equity story of the company, advise on the registration statement, and assist in preparing presentations and other public communications. As reviewed in detail below, the financial advisor that values the “publicly held” shares and assists the applicable exchange’s market maker or specialists, as applicable, must be independent, which under the relevant rules disqualifies any broker-dealer that has provided investment banking services to the listing company within the 12 months preceding the date of the valuation.
Shares to be Registered.
In a direct listing, a company generally registers for resale all of its outstanding common equity which cannot then be sold pursuant to an applicable exemption from registration (such as Rule 144), including those subject to registration rights obligations. The company may register shares held by affiliates and non-affiliates who have held the shares for less than one year or otherwise did not meet the requirements for transactions without restriction under Rule 144.[4] Companies may also register shares held by employees to address any regulatory concerns that resales of shares by employees occurring around the time of the direct listing may not have been entitled to an exemption from registration under the Securities Act. All shares subject to registration may be freely resold pursuant to the registration statement only as long as the registration statement remains effective and current. The company will typically bear the related costs.
Direct Listing-specific Risks.
Traditional IPOs offer certain advantages that are not currently present in direct listings. Going public without the structure of an IPO process is not without risk, such as the need to obtain research coverage in the absence of an underwriting syndicate that has research analysts or the need to educate investors on the company’s business model. Any company considering a direct listing should contemplate whether its investor relations apparatus is capable of playing an outsized role in coordinating marketing efforts and outreach to potential investors. Notably, in a direct listing, the listing company’s management plays no role in setting the initial reference price, and certain market-making activities conducted by the underwriting syndicate may be unavailable. This may present unacceptable risks for companies that may otherwise be poised to undertake a direct listing.
The NYSE and Nasdaq rules applicable to a direct listing.
Background
The direct listing rules of both the NYSE[5] and Nasdaq Global Select Market[6] are substantially similar and are structured as an exception to each exchange’s requirement concerning the aggregate market value of the company to be listed. Prior to the direct listing rules, companies that did not previously have their common equity registered under the Exchange Act were required to show an aggregate market value of “publicly held” shares in excess of $100 million ($110 million for Nasdaq Global Select Market, under certain circumstances), such market value being established by both an independent third-party valuation and recent trading prices in a trading market for unregistered securities (commonly referred to as the Private Placement Market).
“Publicly held” shares include those held by persons other than directors, officers and presumed affiliates (shareholders holding in excess of 10%). The Private Placement Market includes trading platforms operated by any national securities exchange or registered broker-dealers. Generally, in a direct listing, the relevant company either (i) does not have its shares traded on a Private Placement Market prior its listing or (ii) underlying trading in the Private Placement Market is not sufficient to provide a reasonable basis for reaching conclusions about a company’s trading price.
Recent Expansion of Markets
On August 15, 2019, Nasdaq submitted to the SEC proposed rule changes related to direct listings on the Nasdaq Global Market and Nasdaq Capital Market, the second- and third-tier Nasdaq markets, respectively.[7] On December 3, 2019, subsequent to an amendment of its proposal by Nasdaq filed on November 26, 2019, the SEC approved Nasdaq’s proposed rule changes.[8] The effect of the rule changes is that if the company to be listed does not have recent sustained trading activity in a Private Placement Market, and thereby must rely on an independent third-party valuation consistent with the rules described above, such calculation must reflect a (i) tentative initial bid price, (ii) market value of listed securities and (iii) market value of publicly held shares that each exceed 200 percent of the otherwise applicable requirements.
Requirements for a Direct Listing
The direct listing rules discussed above were intended to provide relief for privately-held “unicorns,” or companies that are otherwise sufficiently capitalized and which do not need to raise money. Each exchange’s listing standards applicable to direct listings by U.S. companies are summarized, by relevant exchange, in the table that follows:
OVERVIEW OF LISTING STANDARDS APPLICABLE TO DIRECT LISTINGS
NYSE
NASDAQ GLOBAL SELECT MARKET
NASDAQ GLOBAL MARKET
NASDAQ CAPITAL MARKET
Market Value of Publicly Held Shares (i.e., held by persons other than directors, officers and presumed affiliates)
The listing company must have a recent valuation from an independent third party indicating at least $250 million in aggregate market value of publicly held shares. (Rule 102.01A(E))[9]
The listing company must have a recent valuation from an independent third party indicating at least $250 million in aggregate market value of publicly held shares. (Rule IM-5315-1(b))[9]
The listing company must have a recent valuation[10] from an independent third party indicating in excess of $16 million to $40 million in aggregate market value of publicly held shares, depending on the financial standard met below. (Rule 5405)
The listing company must have a recent valuation10 from an independent third party indicating in excess of $10 million to $30 million in aggregate market value of publicly held shares, depending on the financial standard met below. (Rule 5505)
Financial Standards The listing company is required to meet one of the following applicable financial standards:
(i) Each of (a) aggregate adjusted pre-tax income for the last three fiscal years in excess of $10 million, (b) with at least $2 million in each of the two most recent fiscal years and (c) positive income in each of the last three fiscal years (the “NYSE Earnings Test”).
(ii) Global market capitalization of $200 million (the “Global Market Capitalization Test”).
The listing company is required to meet one of the following applicable financial standards:
(i) Each of (a) aggregate adjusted pre-tax income for the last three fiscal years in excess of $11 million, (b) with at least $2.2 million in each of the two most recent fiscal years and (c) positive income in each of the last three fiscal years (the “Nasdaq Earnings Standard”).
(ii) Each of (a) average market capitalization in excess of $550 million over the prior 12 months, (b) $110 million in revenue for the previous fiscal year and (c) aggregate cash flows for the last three fiscal years in excess of $27.5 million and positive cash flows for each of the last three fiscal years (the “Capitalization with Cash Flow Standard”).
(iii) Each of (a) average market capitalization in excess of $850 million over the prior 12 months and (b) $90 million in revenue for the previous fiscal year (the “Capitalization with Revenue Standard”).
(iv) Each of (a) market capitalization in excess of $160 million, (b) total assets in excess of $80 million, and (c) stockholders’ equity in excess of $55 million (the “Assets with Equity Standard”).
The listing company is required to meet one of the following applicable financial standards:
(i) Each of (a) aggregate adjusted pre-tax income in excess of $1 million in the latest fiscal year or in two of the last three fiscal years and (b) Stockholders’ equity in excess of $15 million.
(ii) Each of (a) Stockholders’ equity in excess of $30 million and (b) two years of operating history.
(iii) Market value of listed securities in excess of $150 million.
(iv) Total assets and total revenue in excess of $75 million in the latest fiscal year or in two of the last three fiscal years.
The listing company is required to meet one of the following applicable financial standards:
(i) Each of (a) Stockholders’ equity in excess of $15 million and (b) two years of operating history.
(ii) Each of (a) Stockholders’ equity in excess of $4 million and (b) market value of listed securities in excess of $100 million.
(iii) Total assets and total revenue in excess of $75 million in the latest fiscal year or in two of the last three fiscal years.
Distribution Standards
The listing company must meet all of the following distribution standards:
(i) 400 round lot shareholders;
(ii) 1.1 million publicly held shares; and
(iii) Minimum initial reference price of $4.00.
The listing company must meet all of the following liquidity requirements:
(i) 450 round lot shareholders or 2,200 total shareholders;
(ii) 1.25 million publicly held shares; and
(iii) Minimum initial reference price of $4.00.
The listing company must meet all of the following distribution standards:
(i) 400 round lot shareholders;
(ii) 1.1 million publicly held shares; and
(iii) Minimum initial reference price of $8.00.
The listing company must meet all of the following liquidity requirements:
(i) 300 round lot shareholders;
(ii) 1 million publicly held shares; and
(iii) Minimum initial reference price of $8.00.
Engagement of Financial Advisor
Any valuation used in connection with a direct listing must be provided by an entity that has significant experience and demonstrable competence in the provision of such valuations. (Rule 102.01A(E))
A valuation agent will not be deemed to be independent if (Rule 102.01A(E)):
(i) At the time it provides such valuation, the valuation agent or any affiliated person or persons beneficially own in the aggregate, as of the date of the valuation, more than 5% of the class of securities to be listed, including any right to receive any such securities exercisable within 60 days.
(ii) The valuation agent or any affiliated entity has provided any investment banking services to the listing applicant within the 12 months preceding the date of the valuation. For purposes of this provision, “investment banking services” includes, without limitation, acting as an underwriter in an offering for the issuer; acting as a financial adviser in a merger or acquisition; providing venture capital, equity lines of credit, PIPEs (private investment, public equity transactions), or similar investments; serving as placement agent for the issuer; or acting as a member of a selling group in a securities underwriting.
(iii) The valuation agent or any affiliated entity has been engaged to provide investment banking services to the listing applicant in connection with the proposed listing or any related financings or other related transactions.
Any valuation used in connection with a direct listing must be provided by an entity that has significant experience and demonstrable competence in the provision of such valuations. (Rule IM-5315-1(e))
A valuation agent shall not be considered independent if (Rule IM-5315-1(f)):
(i) At the time it provides such valuation, the valuation agent or any affiliated person or persons beneficially own in the aggregate, as of the date of the valuation, more than 5% of the class of securities to be listed, including any right to receive any such securities exercisable within 60 days.
(ii) The valuation agent or any affiliated entity has provided any investment banking services to the listing applicant within the 12 months preceding the date of the valuation. For purposes of this provision, “investment banking services” includes, without limitation, acting as an underwriter in an offering for the issuer; acting as a financial adviser in a merger or acquisition; providing venture capital, equity lines of credit, PIPEs (private investment, public equity transactions), or similar investments; serving as placement agent for the issuer; or acting as a member of a selling group in a securities underwriting.
(iii) The valuation agent or any affiliated entity has been engaged to provide investment banking services to the listing applicant in connection with the proposed listing or any related financings or other related transactions.
Same as the Nasdaq Global Select Market
Upon satisfaction of the above requirements of the applicable exchange, the exchange will generally file a certification with the SEC, confirming that its requirements have been met by the listing company. After such filing, the company’s registration statement may be declared effective by the SEC (assuming the SEC review has run its course). In practice, the SEC has reviewed registration statements that contemplate a direct listing in substantially the same manner it reviews traditional IPO registration statements, with some additional focus on process as direct listing practice and the related rules evolve. After the registration statement is declared effective by the SEC, the company becomes subject to the governance requirements of the applicable exchange (subject to compliance periods) and the reporting requirements under the Exchange Act. The company may then establish the day its equity will commence trading in consultation with the applicable exchange, which could be the same day as the SEC declares the registration statement effective, assuming the exchange’s market maker or specialists, as applicable, and the financial advisor appointed by the company are able to determine an initial reference price.
NYSE’s proposed rule changes: Primary capital raise via direct listing
Allowing companies to conduct their initial public offering outside of the traditional IPO format (i.e., an underwritten firm commitment) could potentially revolutionize the way in which companies go public. Historically, companies have not raised fresh capital as part of the direct listing process. On December 12, 2019, the NYSE filed a revised proposal with the SEC that seek to allow companies to publicly raise capital through a direct listing – called a “Primary Direct Floor Listing.” The NYSE’s proposal would allow a company to sell shares on its own behalf, without underwriters, in addition to or in place of a secondary offering by shareholders. .
Under the NYSE’s proposal, companies hoping to conduct a primary offering while listing pursuant to the NYSE’s proposed rules would have been required to either:
sell at least $100 million in the opening auction on the first day of listing, thereby ensuring that there will be at least $100 million in public float after the first trade; or the aggregate market value of publicly held shares immediately prior to listing and the market value of shares sold by the company in the opening auction is at least $250 million. In addition, the NYSE’s proposal would create a new 90-day grace period for a listed company to meet the requirement for 400 round lot shareholders – called a “Distribution Standard Compliance Period.” To benefit from the NYSE’s proposed “Distribution Standard Compliance Period,” a company would have been required to:
conduct a primary offering in which the company sells at least $250 million in market value of shares in the opening auction on the initial listing date; conduct a secondary offering that demonstrates $350 million in market value of publicly held shares; or conduct a primary offering in which the aggregate of the market value of publicly held shares immediately prior to listing and the market value of shares sold by the company in the opening auction is at least $350 million.
Pursuant to Section 19(b)(2) of the Securities Act, the SEC has 45 days to either approve or disapprove the proposed rule change or institute proceedings to determine whether the proposed rule change should be disapproved. The SEC could also extend the 45-day period by an additional 45 days if it determines that a longer period is appropriate and publishes the reasons for such determination, as it did with the recently approved Nasdaq rules.
Nasdaq has not to date introduced a proposed rule change that would allow primary registered offerings concurrently with a direct listing. However, Nasdaq is expected to introduce a similar proposal in order to allow it to best compete with the NYSE as the direct listing practice evolves.
Conclusion
Direct listings are a sign of the times. As U.S. companies raise increasingly large amounts of capital in the private markets, the public capital markets need to provide a wider variety of means for a private company to enter the public capital markets and provide liquidity to existing shareholders. Although direct listings will undoubtedly provide new opportunities for entrepreneurial companies with a well-recognized brand name or easily understood business model, we do not expect direct listings to replace IPOs any time soon. Direct listing practice is evolving and involves new risks and speedbumps. Any company considering an entry to the public capital markets through a direct listing is encouraged to carefully consider the risks and benefits in consultation with counsel and financial advisors. Members of the Gibson Dunn Capital Markets team are available to discuss strategy, options and considerations as the rules and practice concerning direct listings evolve.
Palantir Technologies Inc. is planning to go public through a direct listing of its shares in late September, according to people familiar with the matter.
The company, which sells data analysis software used by governments and large companies worldwide, might still change its plans, said the people, who asked not to be identified because the information wasn’t public.
A company spokeswoman declined to comment.
A direct listing would allow the company’s current investors to sell their shares on the first day of trading rather than having to wait for a lock-up period to expire, as would be required in a traditional initial public offering. Unlike an IPO, though, the company doesn’t raise capital in a direct listing.
Palantir is in the process of raising $961 million, $550 million of which it has already secured, according to a July filing with the U.S. Securities and Exchange Commission. That includes a $500 million investment from Sompo Japan Nipponkoa Holdings Inc. and $50 million from Fujitsu Ltd.
Those sums make listing the stock directly a more accessible path for Palantir, following in the footsteps of Spotify Technology SA and Slack Technologies Inc.
Billionaire Peter Thiel founded Palantir in 2003 with a group of business partners including Alex Karp, the chief executive officer. In 2015, Palantir reached a valuation of $20 billion, though in recent years stockholders have sold blocks of shares for much less.
The company told investors this year that it expects to break even in 2020 on revenue of about $1 billion.
In June, Palantir added three directors including the first woman to serve on its board, former Wall Street Journal reporter Alexandra Wolfe Schiff.
Dozens of law enforcement and government agencies around the world use Palantir to compile and search for data on citizens with the intent of combating crime, hunting terrorists and, in recent months, tracking the spread of Covid-19. The pandemic has boosted business as companies use its products to help determine how to reopen.
Palantir is controversial for the way its tools have been used by some to enable surveillance and compromise privacy. Its use by police and immigration officials, in particular, has sparked numerous protests.
The Palo Alto, California-based company had long resisted a public offering to avoid getting valued as a consultancy, and to stay out of the public eye while it reduced its dependence on engineers customizing software for each client and worked toward profitability, people familiar with the matter have said.
The company said in a statement in July that it had filed with the SEC for a “public listing” of its stock, wording that has been used by other companies planning to pursue a direct listing instead of an IPO.
Palantir’s funders include Founders Fund, the venture capital firm started by Thiel. Other investors include Morgan Stanley, BlackRock Inc. and Tiger Global Management.
SAN FRANCISCO — Palantir Technologies, a Silicon Valley data start-up, said on Monday that it had filed to go public, setting up one of the largest public listings of a technology start-up since Uber made its debut last year.
Palantir is one of the tech industry’s most valuable private companies, with a valuation of $20 billion. Founded in 2003 by Peter Thiel, Joe Lonsdale, Nathan Gettings, Stephen Cohen and Alex Karp, who is its chief executive, the company began working with governments, law enforcement and the defense industry to analyze and process their data, but has expanded into other areas.
Palantir has attracted more than $3 billion in venture capital funding from investors including In-Q-Tel, the investment arm of the Central Intelligence Agency; Founders Fund, Mr. Thiel’s investment firm; Fidelity; and Tiger Global Management.
Despite persistent speculation about its prospects as a public company, Palantir had avoided listing its shares, in part because of the secretive nature of its business. A public listing would reveal a fuller picture of Palantir’s work, particularly with government agencies, for the first time.
“The minute companies go public, they are less competitive,” Mr. Karp said in 2014.
More recently, Palantir has taken steps to prepare for a listing. California requires companies to have one woman on their boards in order to go public, and in June, Palantir added its first, Alexandra Wolfe Schiff, a former Wall Street Journal reporter. Spencer Rascoff, a tech executive, and Alexander Moore, an early Palantir employee, joined the board as well.
If completed, the listing will be part of a wave of tech initial public offerings. New offerings had dried up in recent months because of volatility caused by the coronavirus pandemic. But in June, with the stock market booming again and some companies in a position to benefit from changes in consumer behavior, the I.P.O.s came back in full force.
Shares of recent listings have soared. Last week, shares of Lemonade, an insurance start-up, more than doubled on their first day of trading. Investors also embraced the I.P.O.s of the car sales start-up Vroom and the sales software company ZoomInfo.
Airbnb, the $31 billion home rental platform, whose business has been pummeled by the lack of travel during the pandemic, has also not ruled out going public this year.
After a pause during the COVID-19 lockdowns, the IPO market is heating up again, and a smashing debut from Vroom (NASDAQ:VRM) Tuesday proved investors are hungry for new issues.
Shares of the online used car seller skyrocketed on opening day, more than doubling from its $22 IPO price, reaching a valuation around $5 billion. After seeing shares of fellow online car dealer Carvana (NYSE:CVNA) soar in recent years, investors are clearly excited for Vroom to hit the market. Should you take a ride with the used car debutante? Keep reading to see five things you need to know about the company before you decide whether to buy.
1. Vroom has a massive opportunity
The used car market is the single largest consumer product category in the U.S., making up $841 billion in annual sales last year, ahead of $683 billion in grocery sales and $636 billion in new car sales. In 2019, Americans bought about 40 million used cars.
The industry is also highly fragmented, making it ripe for disruption. Today, there are more than 42,000 dealers, millions of peer-to-peer transactions, and no single party owns more than 2% of the market. Brick-and-mortar chain Carmax is considered the market leader with nearly 2%. Consumers also dislike the traditional used car-buying experience, as 81% of respondents expressed dissatisfaction with the process in a survey from Dealersocket.
That sets up a great opportunity for online disruptors like Vroom, as the online used car market its expected to grow from just a 0.9% share of the total market currently, which is one of the lowest e-commerce penetration rate in a consumer category, to as much as 50% by 2030. If that forecast comes to fruition, Vroom will be looking at a $400 billion addressable market in just a decade, an appealing opportunity for a company that generated less than $1.2 billion in revenue in 2019.
2. Its core business is seeing triple-digit growth
Vroom's business is made up of three separate segments: e-commerce, Texas Direct Auto (TDA), and wholesale. TDA came to the business through a strategic acquisition in 2015 that gave the company its first vehicle recondition center as well as its only retail location. The wholesale business, meanwhile, is a byproduct of the e-commerce operations, as the company sells vehicles that aren't up to its standards to wholesale auction dealers.
The e-commerce business, built on its online marketplace of used car buyers and sellers, is the growth story. Though it made up slightly less than 50% of revenue last year, the e-commerce business will be the company's growth engine and should be 100% of investors' focus, since that's how the company is looking at the business' future.
In an interview, CFO Dave Jones explained that the company ramped up its marketing spending last April as it had the necessary inventory and technology in place to drive an acceleration in the business. Units sold on the e-commerce platform have more than doubled since then, and jumped 145% from April 2019 to April 2020. In the first quarter, average monthly visitors to the site jumped about 130% to 947,014, driving revenue in the first quarter up 159% to $233.2 million.
Considering the market opportunity and the strong demand, investors should expect the skyrocketing growth to continue.
3. There are some differences from Carvana
Jones said that Vroom has a lot of respect for Carvana, its larger e-commerce peer, and said from the customer perspective, the two businesses are similar, as both offer a streamlined process for buyers and sellers to handle used car transactions online. However, from an investor perspective, there are some key differences between Vroom and Carvana.
Vroom's business is centered around being asset-light, meaning the company owns relatively little property. That helps it keep fixed costs down and allows it to be financially flexible. Vroom only owns one of its vehicle reconditioning centers (VRC), which it acquired in the Texas Direct Auto deal, and has 13 third-party VRCs spread across the country. That allows Vroom to pass on some of the risks and costs to the operators who run those facilities. At the end of 2019, Vroom had just $7.8 million in property and equipment and generated nearly $1.2 billion in revenue.
By contrast, Carvana owns its reconditioning centers as well as the logistics network that brings cars to and from customers and its reconditioning centers, and its trademark vending machines. Carvana had $543.5 million in property and equipment at the end of 2019, and the company generated $3.4 billion in revenue.
Similarly, Vroom outsources financing for car buyers to partner banks and lenders, while Carvana provides loans itself and sells the loans to financing partners.
Being asset-light isn't necessarily an advantage, since doing so means Vroom may lose the potential to generate profits from the parts of the business it outsources. However, it does make the company more financially flexible and avoids some of the risk in owning hundreds of millions of dollars worth of support systems as well as the responsibility for the fixed costs that go along with them.
4. COVID-19 has been a tailwind
Like other e-commerce businesses, Vroom has seen a surge of interest during the pandemic and lockdown period, and third-party data backs up that trend. According to a survey from CarGurus, 61% of respondents would now consider shopping for a vehicle online. Before the crisis, that figure was just 32%.
If that pattern persists even when the pandemic is over, it could be a huge driver of Vroom's growth, because one of the biggest obstacles the company faces is simply getting consumers to consider buying or selling a car online. The impact of the pandemic, shutdown orders, and social distancing that have ensued is doing that work, marketing the idea of online car buying and selling, by itself.
Jones said Vroom's sales continued to surge in April and May, which were record months for the company as the desire to own a vehicle also seems to have increased due to fears of the virus. Those fears have led Americans to avoid public transit, airplanes, and ridesharing vehicles.
Finally, the pandemic could also provide a boost on the supply side -- which has historically been short of demand at Vroom -- as rental car companies are likely to accelerate fleet sales given that demand for rental cars has plunged during the pandemic.
5. Vroom has an eye on profitability
Like Carvana, Vroom isn't profitable. In 2019, the company had a generally accepted accounting principles (GAAP) net loss of $143 million.
Vehicles sold through its e-commerce business increased from 10,006 in 2018 to 18,945. Growth was even stronger in the first quarter, rising from 3,187 vehicles sold in the first three months of 2019 to 7,930 in the first quarter this year.
Jones said the business model was scalable, and that the company believes it will be profitable once it reaches 200,000 vehicles sold annually. If unit sales continue to roughly double, the company could reach that target in as soon as three to five years.
Still, top-line growth is the key figure to watch here. Vroom is tackling a massive market opportunity, and the company is just getting started with its e-commerce business, firing up the marketing to support demand and awareness only a year ago.
With a huge market awaiting it and triple-digit growth, it's clear why investors are excited about this e-commerce disruptor.
Nikola Corporation, the manufacturer of an electric version of the heavy-truck, is apparently hitting the road running following its merger with VectoIQ and a smashing debut on the NASDAQ index last week. As per the details revealed today, the reservations for the company’s much-anticipated Badger electric pickup truck will open on the 29th of June.
The founder and CEO of Nikola Motors, Trevor Milton, made the momentous announcement via a tweet:
As a refresher, Nikola unveiled the Badger electric pickup truck back in February 2020 to compete with Tesla’s much-anticipated Cybertruck. According to the details revealed by the company, the Badger will retail in two power configurations: a FCEV (Fuel-Cell Electric) or BEV (Battery-Electric). Though it sports a much more conventional design as opposed to the Cybertruck’s sharp corners and the futuristic vibe, the Badger offers impressive specs. As an illustration, the electric truck will offer a headline range of 600 miles through either of the two power configurations. Moreover, it will offer an acceleration from 0 to 60 mph in 2.9 seconds, a torque of up to 980 pounds-feet, and a peak horsepower of 906.
Nikola’s press release notes:
“The Badger will be outfitted with a 15-kilowatt power outlet for tools, lights and compressors, which is enough power to assist a construction site for approximately 12 hours without a generator.”
Nikola also claims that:
“With a fully loaded trailer and combined vehicle weight of 18,000 lbs., the Badger will be able to launch from a standstill on a 30% grade without motor stall.”
As we reported recently, the shareholders of VectoIQ – a Special Purpose Acquisition Company (SPAC) headed by the former General Motors (NYSE: GM) Vice Chairman Steve Girsky – approved the much-anticipated merger of the company with Nikola Motors last week, with the transaction achieving a formal closure on the 3rd of June. Nikola Motors has now become a wholly-owned subsidiary of VectoIQ, with the combined entity adopting the name Nikola Corporation.
Nikola (NKLA) Investors Should Prepare for Pain and a Historic Bout of Volatility This Week
Nikola Motors has already generated waves with its Class 8 electric trucks, garnering significant interest from the trucking industry. As an illustration, the company has registered around 14,000 pre-orders for these trucks, translating to potential revenue of up to $10 billion. So why has the company’s offering generated such an elevated interest? The answer lies in the manner in which these trucks will be powered: a choice between a hydrogen fuel cell and a battery that carries high energy density. According to Nikola’s claims, its battery possesses around four times the energy density of a conventional lithium-ion cell. In theory, this feat should double the range of an EV vis-à-vis a comparable vehicle powered by the lithium-ion cells. The company is currently developing a network of hydrogen refueling stations where its trucks can be refueled in a matter of seconds, thereby, reducing journey times. Moreover, without the added heft of a full-scale battery, fuel cell-powered trucks can, in theory, transport a greater quantum of cargo.
Nikola’s stock is up 60 percent today, as of 11:16 a.m. ET. This corresponds to a market capitalization of more than $20 billion. For comparison, please note that Tesla has a market cap of $160.23 billion.
Vroom could thrive in a post-coronavirus world, but consumers may not be ready to give online car buying a try
Online used-car seller Vroom Inc. rose $468 million Tuesday in an initial public offering under the shadow of the coronavirus pandemic.
Vroom VRM, 100.95% shares more than double on their first day of trading, and were recently gaining 105% after trading as high as $47.50. Vroom priced the IPO late Monday at $22 a piece.
Vroom could benefit from the broader shift to online shopping accelerated by the pandemic. With the economic uncertainty and turmoil in the car industry, however, its business model could become more challenging. Vroom already has had to cut prices and its profit margins have shrunk.
“The market is placing a high value on next-generation companies that can thrive in a post-COVID economy," said Matthew Kennedy, a senior IPO market strategist with Renaissance Capital, which manages IPO-focused ETFs. “Vroom falls into that category.”
Car dealerships are under pressure as consumers both delay big-ticket purchases and limit non-essential travel, if the dealerships are open at all, Kennedy said.
“However, tech-focused used car platforms like Vroom proved more resilient. Consumers are increasingly interested in shopping online for cars, and the COVID-19 outbreak (has) accelerated that trend.”
Kennedy points to the success of Carvana Co. CVNA, 2.13% shares, which have rebounded since March, when most of the U.S. went under shelter-in-place, public-health orders to slow the spread of the virus. Shares of Carvana, Vroom’s main competitor, are trading more than 600% above the company’s 2017 IPO price.
“That alone could drive interest in Vroom,” he said.
The IPO market has shown more activity in recent weeks, with the biggest deal of the year pricing at the higher end of its price range. Warner Music Group Corp. returned to public markets on Wednesday after nine years as a private company, raising $1.93 billion.
According to Renaissance, 35 IPOs have priced in 2020, a 42% drop so far from last year.
Here are five things to know about Vroom.
IPO terms suggest valuation of nearly $2.5 billion
Vroom’s IPO price of at $22 a share was upped from a previous range of $18-$20. The company is offering about 21.25 million shares, for a market capitalization of around $2.48 billion.
Underwriters include Goldman Sachs, BofA Securities, and Allen & Co. The underwriters have a 30-day over-allotment option to buy up to 3.2 million additional Vroom shares.
Vroom is led by Paul Hennessy, who previously was Priceline.com chief executive and chief marketing officer of Booking.com, both owned by Booking Holdings Inc. BKNG, -3.44%. Hennessy was named Vroom’s CEO in 2016.
Coronavirus impact
Despite the focus on online sales, Vroom was not immune to pandemic-related declines in business.
“The COVID-19 pandemic has impacted us in a number of ways, including an adverse impact on our e-commerce operations,” Vroom said in its prospectus.
Between March 11 and March 31, as most U.S. residents were told to remain indoors and nonessential businesses closed, online sales fell 15% as compared to the 20 days before March 11, the company said.
Starting in late March, Vroom cut vehicle prices to drive sales and quickly reduce inventory bought before the pandemic, and it also halted all vehicle acquisitions other than trade-ins, it said.
The strategy has worked, the company claimed, saying it “significantly” reduced inventory and, due to the price cuts, “our demand returned to pre-COVID-19 levels, and we experienced robust e-commerce vehicle sales.”
That came at a price, however: “Those sales were at a greatly reduced gross profit per unit, the company said.
Vroom has since resumed buying cars from auctions and individuals, but is focusing on “high-demand models” to get better margins, it said. Vroom plans to build up inventory “in the near term to return to and ultimately exceed pre-COVID-19 levels.”
To protect its balance sheet amid the pandemic, Vroom said it had reduced costs and furloughed about a third of its workforce in early May.
About 60% of the furloughed employees returned to work by the end of May, the company said. As of late April, Vroom had $156.4 million in cash and cash equivalents and $280.8 million available under its credit facility.
It has not turned a profit yet
Vroom has not been profitable since its start in 2012 and deficits have piled on to about $616 million as of March 31, the company said. In addition, losses have widened this year and dividends are nowhere in sight.
Net losses hit $143 million in 2019 and $41.1 million in the first quarter, compared with losses of $85.2 million for 2018 and $27.1 million in the first quarter of 2019, Vroom said.
Revenue rose 39% to $1.2 billion in 2019. For the three months ended March 31, sales rose 60% to $375.8 million, Vroom said.
Its long list of potential pitfalls, or risk factors, include “inability to reduce costs, acquire and appropriately price vehicle inventory, attract customers or identify and respond to emerging trends in the used car industry; slowing demand for used vehicles and our related value-added products; weakness in the automotive retail industry generally,” as well as increasing competition.
Vroom expects “to continue to incur losses as we invest in and strive to grow our business,” it said. It has to ramp up expenses with advertising and marketing as it builds its brand, continues to invest in technology, and expands. Being public will also come at a higher cost, as it will have to face “significant” legal, accounting and other expenses that it did not incur as a private company.
E-commerce gross profit per vehicle declined 24% last year as compared with 2018, and by 0.4% for the first quarter as compared with first quarter of 2019. “To reduce our losses, we will need to increase our gross profit per unit by lowering our costs per unit by, among other things, increasing efficiencies in reconditioning and logistics, which we may be unable to do,” it said.
Vroom also has said it does not expect to pay any dividends “for the foreseeable future.”
People may not be ready to give online car-shopping a try The online market for used cars is a lot smaller than online markets for other consumer products.
One of the biggest hurdles is misgivings about buying a vehicle, usually a consumer’s largest one-time expense after buying a home or saving for a down payment, sight unseen.
Even often-derided interactions with car salespeople might be preferable for some, as is the ability to test-drive and examine the vehicles under consideration. Then there’s the inconvenience with returning or exchanging cars bought online.
“If the online market for vehicles does not continue to develop and grow, our business will not grow and our business, financial condition and results of operations could be materially and adversely affected,” Vroom said.
On the plus side, Vroom offers consumers access to thousands of vehicles, ready for perusal at any time, with pricing and financing information readily available, the company said. Vroom’s cars come from auctions, consumers, dealers, and rental-car companies.
The used-car industry “is highly fragmented with over 42,000 dealers and millions of peer-to-peer transactions ... it also is ripe for disruption as an industry that is notorious for consumer dissatisfaction and has one of the lowest levels of e-commerce penetration at only 0.9%,” Vroom said.
It relies on several third parties Vroom relies on several third-party companies to do the bulk of its job.
That include its customer-service team, which handles “the substantial majority” of inquiries, sales, purchases and financing of vehicles in Vroom’s business.
“Thus, the customer experience center is fundamental to the success of our business. As a result, the success of our business and our customer experience is partially dependent on a third party over which we have limited control,” the company said.
Some of its “reconditioning” business, or the sprucing up of vehicles before going on sale, is also handled by third parties in some cases, Vroom said.
IPOs are back in full swing after the biggest week for public listings year-to-date in this coronavirus era.
Warner Music Group (WMG) last week raised $1.9 billion during its debut, making it the biggest IPO of the year, while ZoomInfo (ZI), a cloud based platform for sales and marketing teams, raised almost $1 billion. Shares of ZoomInfo closed over 60% higher on its first day of trading.
Shift4 Payments (FOUR) also received a solid welcome on the public markets last week. The company, which processes payments for over 200,000 businesses, priced its IPO above its range, at $23 a share. Shares soared 45% on Friday.
Shift4’s founder and CEO Jared Isaacman told Yahoo Finance his company’s roadshow was postponed back in March due to COVID-19. But his company saw encouraging signs in the economy, with “a recovery happening” over the last several weeks.
“We have tons of data, and we started to see the recovery really in late March and through April, and then really accelerate in May,” said Isaacman. “That’s what gave us the confidence to kind of reignite the IPO process and get it going.”
“There was a time when there was no commerce going on outside supermarkets, Netflix (NFLX), or Amazon (AMZN),” said Isaacman.
He says during the darkest periods of declines amid the pandemic, payment volumes dropped 70-75% in late March.
“But right now we’re seeing a 120% recovery from that period. That sure looks like a V-recovery to us,” he said.
“There are several states around the country that have cities that have reached pre-Covid processing levels, which is just a really encouraging sign for everybody else as we move forward,” he added.
Isaacman wasn’t shocked by the May jobs report, which showed the economy added 2.5 million jobs, instead of shedding jobs as economists had expected.
“We weren’t surprised ... because it certainly coincides with what we’ve been seeing in the numbers for the last few weeks,” he added.
The recent IPOs come amid the biggest 50-day market rally in history following the March 23rd lows. Investors appear to have a renewed appetite for listings after the IPO market fizzled out last year following the WeWork debacle.
Another batch of companies are set to go public this week, including used-car marketplace Vroom. The company aims to sell 18.75 million shares when it debuts on the Nasdaq under the ticker “VRM,” and currently expects to price shares between $15-$17.
Warner Music Group is returning to public markets after a nine-year spell and could raise up to $1.82 billion
After a few months of slim pickings, the U.S. initial public offering market is expected to reopen with a bang this week with the biggest deal of the year expected to price later Tuesday.
Warner Music Group Corp. is returning to public markets after nine years as a private entity and is expected to raise up to $1.82 billion by selling 70 million shares priced at $23 to $26 each.
“It’s going to be the busiest week in quite a while,” said Kathleen Smith, principal at Renaissance Capital, a provider of institutional research and IPO-related exchange-traded funds.
Warner Music, one of three large companies that dominate the recorded-music industry, is the parent company for prominent record labels including Atlantic Records, Warner Records and Elektra Records, and mentions artists Ed Sheeran, Bruno Mars, Cardi B, Twenty One Pilots, Lizzo and Katy Perry in its filing.
In its most recently completed fiscal year, which ended Sept. 30, 2019, the company had a profit of $258 million on revenue of $4.48 billion. In the two previous fiscal years, Warner Music had net income of $312 million and $149 million, and revenue of $4.01 billion and $3.58 billion, according to the filing.
After going public in 2005, Warner Music was taken private by Access Industries Inc. in 2011 for $3.3 billion. Rival Universal Music Group was valued at roughly $34 billion last year in investments from around the globe. Access will still have control of Warner Music once the public share sale is complete.
‘The performance of the IPO ETF is what fans the flames and drives issuance. And the deals that have priced are trading well, which gives investors the confidence to look at new issues.’— Kathleen Smith, Renaissance Capital
Morgan Stanley, Credit Suisse and Goldman Sachs are lead underwriters, with BofA Securities, Citgroup and J.P. Morgan acting as joint bookrunners. Another 23 banks are acting as co-managers. The company has applied to list on Nasdaq under the ticker symbol “WMG.”
The IPO market has had a dry period during the coronavirus pandemic, with only a few small biotechs and blank-check companies, or special purpose acquisition companies (SPACs) venturing forth, according to Renaissance’s Smith. Blank-check companies have no set business until they acquire a company or companies with the money raised in an IPO.
While the secondary market has been on fire — May’s dollar volume of share offerings is the biggest since 2014, according to BTIG, as companies moved to bolster liquidity positions after the pandemic set in — new issuers have had to wait for an equity-market recovery from its pandemic lows, which looks to have arrived.
Proceeds from IPOs are down 64% so far in 2020, compared with the same period a year ago. The number of deals that have been completed is down 42% from a year ago, excluding SPACs, Smith said.
But the Renaissance IPO ETF has set fresh records in recent weeks, thanks to the inclusion in the fund of recently public digital companies and others that are benefiting from working-from-home products and services, such as Zoom Video Communications Inc. ZM, 1.54%, Slack Technologies Inc. WORK, 2.72% and biotech Moderna Inc. MRNA, -4.83%, which is developing a COVID-19 vaccine, she said.
The ETF has gained 26% in the past month and is up 21% on the year, easily outperforming the S&P 500’s SPX, 0.38% one-month gain of 8.4% and year-to-date decline of 5%.
“The performance of the IPO ETF IPO, 0.51% is what fans the flames and drives issuance,” she said. “And the deals that have priced are trading well, which gives investors the confidence to look at new issues.”
Warner Music and other private companies that come to market soon “will get the red-carpet treatment,” she said.
In a further sign of improved market sentiment, ZoomInfo Technologies Inc. ZI, , a platform that generates sales leads for businesses, raised the expected price range for its planned deal early Tuesday to $19 to $20 a share from a previous range of $16 to $18. The company is planning to sell 44.5 million shares to raise $890 million at the top of that range.
J.P. Morgan and Morgan Stanley are underwriting the deal. For the three months ended March 31, the company recorded a loss of $5.9 million, narrower than the loss of $40.2 million posted in the year-earlier period. Revenue roughly doubled to $102.2 million, from $54.6 million.
Two other pending deals will offer clues as to investor appetite for new paper: Chinese gaming company NetEase Inc. NTES, 2.57%, which is planning a secondary listing for its stock on the Hong Kong exchange on June 11, and online use-car seller Vroom Inc. VRM, , which is hoping to capture part of the market that rival Carvana Co. CVNA, 17.69% has enjoyed since it went public in 2017.
“NetEase will be a test of whether Chinese IPOs can get done, and Vroom will test appetite for money-losing but fast-growing companies,” said Smith.
NetEase’s move is seen as defensive as the U.S. cracks down on Chinese listings and seeks greater disclosures from issuers.
Vroom reported a first-quarter net loss of $27.1 million, narrowing from $41.1 million in the year-ago period. Vroom’s revenue rose to $375.8 million from $235.1 million a year ago. Vroom’s revenue is primarily from its retail vehicle sales, which accounted for $308.7 million in the first quarter.
After that, Smith is expecting a burst of activity in the summer, when the many venture-capital- and private-equity-backed companies currently on the sidelines come to market to raise much-needed capital.
The November presidential election is expected to prompt another pause in activity, if 2020 behaves like a typical election year, she said.
>>> CrowdStrike Holdings, Inc. (CRWD) provides cloud-delivered solutions for next-generation endpoint protection in the United States, Australia, Germany, India, Romania, and the United Kingdom. It offers 11 cloud modules on its Falcon platform through a software as a service subscription-based model that covers various security markets, such as endpoint security, security and IT operations, and threat intelligence to deliver comprehensive breach protection even against today's most sophisticated attacks. The company primarily sells its platform and cloud modules through its direct sales team. CrowdStrike Holdings, Inc. was founded in 2011 and is headquartered in Sunnyvale, California. <<<
DocuSign is one of the few stocks on this list that remain big winners for investors following their IPOs. The company pioneered the use of e-signing technology and claims hundreds of millions of users in more than 180 different countries. During its 2019 second quarter, DocuSign’s revenue grew 41% year-over-year, while billings climbed 47%. Analysts have a “strong buy” rating on DocuSign, with an average price target of $71.11. <<<
>>> DocuSign Inc. (DOCU) provides cloud based software in the United States. The company offers e-signature solution that enables businesses to digitally prepare, execute, and act on agreements. The company sells its products through direct, partner-assisted, and Web-based sales. It serves enterprise businesses, commercial businesses, and small businesses, such as professionals, sole proprietorships and individuals. The company was 2003 and is headquartered in San Francisco, California. <<<
>>> Tradeweb Markets Inc. (TW) builds and operates electronic marketplaces in the United States and internationally. The company's marketplaces facilitate trading in a range of asset classes, including rates, credit, money markets, and equities. It offers pre-trade data and analytics, trade execution, and trade processing, as well as post-trade data, analytics, and reporting services. The company provides flexible order and trading systems to institutional investors in 37 markets across 24 currencies. It also offers a range of electronic, voice, and hybrid platforms to approximately 300 dealers and financial institutions on electronic or hybrid markets with Dealerweb platform; and trading solutions for financial advisory companies and traders with Tradeweb Direct platform. The company serves a network of approximately 2,500 clients in the institutional, wholesale, and retail client sectors. Its customers include asset managers, hedge funds, insurance companies, central banks, banks and dealers, proprietary trading companies, retail brokerage and financial advisory companies, and regional dealers. The company was founded in 1996 and is headquartered in New York, New York. Tradeweb Markets Inc. is a subsidiary of BCP York Holdings. <<<
>>> Tradeweb Markets (TW): $1,552.96
Share price on April 3, 2019: $27 Share price on Oct. 22, 2019: $41.93
Tradeweb operates global marketplaces to facilitate the trading of fixed-income securities and derivatives, offering more than 40 products in over 60 countries around the world. The company’s IPO raised more than $1 billion and investors pushed the stock price up 27% from the IPO price the moment they started trading. After peaking in July 2019 at around $50 a share, the stock has fallen back about 20%. Unlike many other recent IPOs, however, Tradeweb is profitable, reporting quarterly net income of $24.8 million in its Aug. 8, 2019, earnings release.
It used to be that technology company initial public offerings (IPOs), were as exciting and potentially enriching an event as the markets had to offer, as investors fought to get in on the ground floor of a hot startup. Now there’s a different ground floor: the final private offering, or what some in technology circles are calling an FPO. These late-stage venture capital funding rounds are attracting increased interest from a wide range of other big investors. The demand comes as startups stay private longer, making an FPO a way to buy a stake in a more mature company before those companies enter public markets.
1. What happens during an FPO?
Like IPOs, FPOs also raise money by issuing new stock, but they do so on the private market. In addition to gaining the money companies need to fuel their growth, these private deals can also let insiders and other early investors sell some of their existing shares. (Confusingly, FPO is also an acronym for follow-on public offerings, a new issue of stock from a company that’s already held an IPO.)
2. How is this different from normal fundraising?
There’s no strict definition of an FPO versus a typical venture-capital financing round, and the finality of the fundraising is a promise or expectation, not a guarantee. But a key feature is they often go beyond the VC circle to bring in a broader group of investors. In the past, the job of an IPO was to make this transition from private to public market shareholders. Now FPOs start the process earlier, though with some of the same beat-the-rush allure.
3. What’s in it for investors?
Getting in on an FPO can make it easier for them to amass a large stake in a company than if they wait for the IPO. During the IPO process, a company sells a limited pool of stock, with investment banks deciding how it’s apportioned. Some FPO rounds can become so big that the investors that normally would have tried to get in on an IPO allocation stay on the sidelines because they already own stakes -- a factor that’s been cited in the lackluster responses when Uber Technologies Inc. and Lyft Inc. launched their IPOs. Peloton Interactive Inc. and SmileDirectClub Inc. also won big backers in private transactions, only to see their shares drop after public offerings. Overall, IPOs have lost a lot of their luster as instant cash machines: In the first 10 months of this year, only 13% of new offerings in the U.S. saw their share price rise by 50% or more in the first 30 days. In 1999, during the dot-com boom, almost half of U.S. IPOs met or exceeded that performance.
Fewer IPOs and Much Less Pop
Compared to the dot.com boom, only a handful of U.S. offerings this year saw their share price soar in the first month; 2019 data through Oct. 31
4. Who buys in?
Hedge funds, sovereign wealth funds and family offices are all among FPO investors. Engineers and executives in the tech industry have also been pooling their money into special purpose vehicles that buy stock from startup insiders. These opportunities even attract mutual fund companies that traditionally have focused on public markets, like Fidelity Investments Co. and T. Rowe Price Group Inc. So far this year, 27% of VC rounds that raised more than $100 million had at least one such “crossover” investor that normally deals in public markets. That’s up from 13% in 2017, according to Silicon Valley Bank.
5. Are there any downsides?
Private investments don’t always live up to their original promise. When an IPO planned by WeWork collapsed, the steep fall in the company’s fortunes showed the perils of private markets, where valuations can soar only to fall into a downward spiral when faced with the scrutiny of public markets. Airbnb Inc. has also raised billions of dollars, including from crossover investors, as a private company. But its private valuation of about $31 billion has barely budged since 2016, even as the company worked on plans to publicly trade its shares next year.
Richard Branson’s Virgin Galactic Holdings Inc. is getting off to a rocky start as the first publicly traded space-tourism company.
The shares have yet to post a daily gain since adopting the SPCE ticker on Oct. 28, following a merger with a shell investment company that was already trading. Virgin Galactic tumbled 11% to $9.41 at the close in New York, bringing this week’s decline to 20%.
Buying shares amounts to a bet on the company’s ambitious plans to fly its first passengers into space next year, including billionaire Branson. That’s a business with both potential and risk, and Virgin Galactic has no sales or income at the moment.
“Even compared to an Uber or Lyft or a Slack, this is a really early-stage business. Think of it as a startup that just happens to be listed,” said Alex King, founder of Cestrian Capital Research in Newport Beach, California. King personally owns Virgin Galactic shares. “I think this is going to happen a lot with this stock. It’s going to have some very red days and some very green days.”
Virgin Galactic faces questions about the ultimate size of the suborbital tourism market and the competitive challenges, said Steven Jorgenson, general partner at Starbridge Venture Capital. Two well-funded rivals, Jeff Bezos‘s Blue Origin and Elon Musk’s Space Exploration Technologies Corp., plan to offer orbital flights.
“You have a lot of uncertainties to juggle,” Jorgenson said in an email. “Virgin Galactic does seem to be a very competent company from a professional and engineering standpoint, but they still have a lot to prove as they have yet to actually fly their first customers.”
Virgin Galactic has a backlog of 600 customers who have placed deposits of as much as $250,000 each to ride into space. Executives have said they expect to raise the fare once the company begins service and resumes taking reservations.
“Just like with most space companies, there’s a lot of hype around Virgin Galactic,” said Meagan Crawford, managing partner with SpaceFund, a venture capital fund in Texas. “I think what you’re seeing today is a market correction based on that hype wearing off a bit. It’s obviously hard to value a company that isn’t yet operational and has no firm date when that’s going to change.”
Airbnb could meet gloomy, uncertain environment in 2020
WeWork, Peloton, Endeavor, Poshmark and more just got the message: It’s not a great time to go public.
Disappointing initial public offerings and unsettled economic conditions could shut down many IPOs for the rest of the year -- and maybe well into 2020, when the next batch of marquee IPO candidates like Airbnb could meet an even gloomier market and geopolitical environment.
The Hollywood agency Endeavor Group Holdings Inc. shelved its IPO on Thursday, saying unfavorable market conditions have dented investor sentiment. Poshmark Inc., an online resale marketplace for second-hand clothing, is expected to postpone its IPO into next year. Also in flux are a range of stock offerings from e-commerce companies and cybersecurity firms Palantir Technologies Inc., Postmates Inc., and McAfee Inc.
The dim outlook isn’t a total surprise given the high-profile flops this year. Fitness startup Peloton Interactive Inc. fell 11% below its IPO price on its first day of trading Thursday and extended declines by 2% on Friday. WeWork, the office-sharing company, was forced to put off its offering to next year in the face of tepid demand.
Ride-sharing giants Uber and Lyft have also traded well below their offering prices, prompting “a lot more market scrutiny” of IPOs, said Jeffrey Langbaum, a senior analyst at Bloomberg Intelligence.
The trend shows a disconnect between companies’ lofty private valuations and public expectations that are skeptical of even well-known brands.
“Private valuations have been going up, but that hasn’t necessarily translated into the public IPO market,” said EquityZen research analyst Adam Augusiak-Boro.
Sell Instead
Sharing-economy startups, especially late-stage companies, are going to have a tough time going public, said Bloomberg Intelligence analyst Mandeep Singh. The appeal of selling rather than going public will increase for companies such as Postmates, he said.
Postmates said it had submitted a confidential filing in February, but so far there is no sign the company is starting an IPO roadshow anytime soon. Its plans could slip in to 2020, people familiar with the matter said. Postmates declined to comment.
Palantir, the security company, has decided to keep on its path of raising billions in the private markets instead of a near-term IPO, Bloomberg has reported.
McAfee had been looking to be valued as high as $8 billion in an IPO later this fall, Bloomberg has reported. It’s unclear where its plans stand. McAfee declined to comment.
J. Crew Plans
Despite the uncertainty, some IPOs on deck for the year are moving forward, but it might be because they have no choice. Madewell, the denim unit of J. Crew, is still planning to go public this year, according to a person familiar with the matter. J. Crew is distressed and the company is under pressure to deliver returns to its credit holders. A representative for Madewell declined to comment.
Before the high-profile IPO slog this month, 2019 had been a solid one for debut offerings. With almost $17.4 billion raised, May was the biggest month for IPOs on U.S. exchanges since September 2014 when Alibaba Group Holding Ltd. raised $25 billion in its IPO. More than half of the May total was Uber’s $8.1 billion offering.
Overall, 187 IPOs on U.S. exchanges have raised $59 billion this year, including so-called greenshoe shares issued by underwriters after the initial listing.
Bright Spots
Software and cloud computing companies have generally performed well. Crowdstrike Holdings Inc. exceeded its IPO target with a $612 million offering in June and its shares are now up more than 50% from its offer price.
Beyond Meat Inc., which makes burgers made of chickpeas other plant-based proteins, is the best performer of the IPO class of 2019, with its shares trading more than 500% above their offer price.
Smaller, less high-profile companies also seem able to push ahead with IPOs. Opportun Financial Corp., a financial technology company, finished trading 8% above its IPO price after raising roughly $90 million.
Still, other software companies have flopped. Slack Technologies Inc., a workplace-messaging platform provider, bypassed the IPO process with an unusual direct listing of its shares. Slack’s shares are now down about 15% since the debut.
“Companies aren’t necessarily rushing to go public,” said Alan Felder, head of private capital markets for Americas at UBS Group AG. “The private market is very healthy.”
SmileDirectClub Inc. shares sank 28% from their initial public offering price in Thursday’s debut, becoming the first U.S. firm since at least 2008 to raise more than $1 billion and price its IPO above range, yet sink in its opening trades.
With other mega-IPOs like Peloton Interactive Inc. and The We Co. looming, SmileDirectClub provides the first test in months on whether IPO investors will endorse a large, unprofitable firm surrounded by buzz despite a broader rotation into value trades. The maker of alternatives to dental braces raised $1.35 billion in this year’s fifth-largest IPO, which priced Wednesday night above its indicated range. The stock joins Uber Technologies Inc. -- which priced within its indicated range -- as the only 2019 debut above $1 billion to open lower.
SmileDirectClub sank 28% in its trading debut
SmileDirectClub was the first to U.S. listing to raise at least $1 billion since Chewy Inc. on June 13, but at least three more are expected in the coming weeks. CloudFlare Inc. is scheduled to debut Friday, Peloton on Sept. 26 and WeWork possibly by the end of this month.
The company sold 58.5 million Class A shares on Wednesday for $23 each, above the $19 to $22 offering range. The deal valued the company at about $8.9 billion based on the outstanding shares as listed in its filings with the U.S. Securities and Exchange Commission.
SmileDirectClub Inc. raised $1.35 billion after pricing shares above its targeted range in the fifth-biggest U.S. initial public offering of the year.
The maker of alternatives to dental braces sold 58.5 million Class A shares on Wednesday for $23 each, according to a statement. SmileDirectClub had offered the shares for $19 to $22 each.
The listing values the company at about $8.9 billion based on the outstanding shares as listed in its filings with the U.S. Securities and Exchange Commission.
SmileDirectClub’s offering is the biggest in the U.S. since May, when Uber Technologies Inc. raised $8.1 billion in its IPO. It’s one of only seven U.S. listings topping $1 billion and the first to do so since pet supply company Chewy Inc. raised $1.02 billion in June.
The listing by SmileDirectClub could could set the tone for IPOs expected this fall. Those planned offerings include exercise company Peloton Interactive Inc., which filed on Tuesday to raise up to $1.16 billion, and WeWork, the office-sharing company whose IPO plans have been beset by doubts among potential investors and its largest backer, SoftBank Group Corp. and its affiliates.
SmileDirectClub lost $32 million on revenue of $196 million for the three months ended June 30, according to its filing. That compared with a loss of $14 million on revenue of $107 million for the same period a year earlier.
The offering was led by JPMorgan Chase & Co. and Citigroup Inc. The shares are expected to begin trading Thursday on the Nasdaq Global Select Market under the symbol SDC.
Analysts are starting to pull back from Beyond Meat
Investors want another helping of Beyond Meat Inc. stock, with shares up another 12.6% in Wednesday trading, but competition in the plant-based and meat-alternative categories could take a bite out Beyond Meat’s stratospheric growth.
Since going public last month, Beyond Meat’s BYND, +1.99% stock was up 158.5% as of Tuesday’s close and has hit the “short-squeeze trifecta” as lending fees continue to go higher.
But Beyond Meat isn’t the only plant-based meat on the market, and it’s facing risks from the competition.
According to data provided by SEMrush, a content-marketing platform, for the year spanning April 2018 to April 2019, “Impossible Burger,” another plant-based burger option from Impossible Foods Inc., was searched on Google an average of 171% more than “Beyond Burger.”
And just as talk about the Beyond Meat IPO was picking up steam in April, “Impossible Burger” was searched 400% more than “Beyond Burger.” Beyond Meat began trading on May 2.
“Based on our search volume data, it is clear that the Impossible Burger is much more popular among consumers than the Beyond Meat burger,” said Olga Andrienko, head of global marketing at SEMrush. “While search volume cannot determine causation, the significant difference in consumer interest for one of its main competitors, the Impossible Burger, points to a larger long-term risk for Beyond Meat in addition to its recent losses on Wall Street.”
Beyond Meat stock is up 78% for the past month while the S&P 500 index SPX, is about breakeven for the period.
On Thursday, meat producer Tyson Foods Inc. TSN, entered the alternative protein market, as it unveiled new products under the Raised & Rooted brand, including plant-based nuggets and blended burgers made with a combination of meat and plants.
Impossible Foods said it welcomes Beyond Meat into the meat-alternative fray because Impossible Foods only has one competitor: animal protein.
“Our competition 100% is the cow,” said Rachel Konrad, chief communications officer at Impossible Foods. “Impossible Foods has the mission of eliminating the need for animal products.”
In the meantime, it’s generating millions of dollars in funding from investors and getting play on fast-food menus across the country.
On May 14, Impossible Foods, which is privately held, announced it completed a $300-million round of funding, bringing total funding to $750 million. Investors include Jay-Z, Serena Williams and husband Alexis Ohanian, Katy Perry and Questlove, as well as Bill Gates, UBS and Google Ventures.
Since January, Impossible Foods products have popped up on menus at chains such as White Castle, Red Robin Gourmet Burgers Inc. RRGB, -0.54% , Qdoba and Little Caesars, where the Impossible Supreme pizza, featuring Impossible Sausage, is available in three markets in Washington, New Mexico and Florida.
In total, Impossible Foods is on 9,000 menus in the U.S., Hong Kong, Singapore and Macau.
The company caused big buzz with the addition of the Impossible Whopper to the Burger King menu. Burger King is part of the Restaurant Brands International Inc. QSR, +0.75% portfolio.
Data from Earnest Research, a business insight company, shows a 36% spike in April sales versus March at St. Louis Burger King locations since the addition of the Impossible Whopper, with only a portion explained by the $1 increase in price.
Impossible Foods’ Konrad emphasized the versatility of Impossible Foods products, and its ability to make the leap from pizza to burgers to Vietnamese pho and Italian Bolognese without sacrificing taste, the number one thing that diners who aren’t vegan or vegetarian are looking for in a meat alternative.
“If you don’t have a product that’s just as delicious and craveable as meat from cows you’re not even allowed to play in this space,” she told MarketWatch.
Konrad also talked up the science behind Impossible Foods, a factor that’s highlighted on the company’s website and has been talked up by others in the meat-alternative industry, which is now also populated by animal protein purveyors like Tyson Foods Inc. TSN, +0.89% In many ways, the plant-based meat company with the best science will win.
“Let’s really end the fantasy that our food is untouched by science,” she said. “It’s the ultimate science product.
Among the more than 100 scientists working with Impossible Foods are molecular biochemists, geneticist, and a nuclear physicist who was responsible for the texture and “chew down” of the Impossible Burger.
Beyond Meat certainly isn’t standing still, with the company announcing a new, “meatier” burger coming for summer.
With the meat industry valued at about $1 trillion, there’s plenty of room for growth, and customers are seeking out animal alternatives for a variety of reasons, from health to environmental concerns. Other plant-based meat companies facing off in the space include Before the Butcher; Rebellyous Foods, makers of plant-based chicken nuggets; and Good Catch, makers of plant-based tuna.
“Differences between the plethora of companies offering plant-based meat products are mainly reflected in their varied taste and composition,” said Isaac Thomas, chief executive of VeganNation, an organization that brings together businesses, diners and organizations for vegan goods.
“We are on a race for the best vegan meat substitute, and Beyond Meat serves as an important catalyst in promoting plant-based meat products. Beyond Meat’s glorious IPO is attracting a lot of necessary and healthy competition, shining a beam of light on the immense financial opportunity stored in the vegan consumer base while drawing the attention of key financial players worldwide.”
Still, analysts are starting to back away from Beyond Meat, with JPMorgan and Bernstein downgrading the stock this week.
“As we wrote last week, ‘At some point, the extraordinary revenue and profit potential embedded in [Beyond Meat]...will be priced in’ — we think this day has arrived,” JPMorgan wrote.
Even ‘traditional meat guys’ are planting more of the legume
Growers in the U.S. and Canada set to seed 20% more peas
There is, it would seem, nothing but bleak news in U.S. farm country. Soybean prices are down. Corn is also still way below its highs, as is wheat. Then there’s the trade war with China, which has cost farmers access to one of their biggest markets, and the non-stop spring rains, which inundated fields.
But there is one bright spot: the pea. Long an afterthought for most farmers -- largely just something planted to help with crop rotations -- the tiny legume has suddenly gotten pulled into the alt-protein craze fueled by the likes of Beyond Meat Inc. and the Impossible Burger.
Prices are moving higher, buoyed as well by rising demand from pet-food makers, and growers in the U.S. and Canada are now rushing to put more peas in the ground. Even those who are a bit put off by the whole vegetarian movement that’s driving the demand. Like Tony Fast. Beyond Meat’s goal of helping wean humans off meat consumption “does not interest me at all,” Fast says. “I am a traditional meat guy and pro-rancher.”
But with demand flat for the crops he’s been planting for years -- alfalfa for use in livestock feed and wheat -- Fast has turned to peas as a possible growth market. At his farm in northeastern Montana, the top U.S. pea growing state, he increased his plantings of the legume by about 20% to total 1,800 acres this season. Next year, he might sow 2,000 acres.
“At the beginning we didn’t see it as a money maker -- it just made the farm more sustainable,” Fast said by phone. But that’s changing now with his peas fetching close to $5 a bushel, up from about $2.80 a few years ago, which was roughly a break-even price. “I am excited for new markets for the peas.”
Alternative Crops
Part of the excitement comes after tariffs from India had clobbered the market. Prices for peas aren’t as transparent as say corn, where futures set a global benchmark, but many growers report they weren’t making much money from the legume. Still, the story the was the same for many staple crops, where excess supplies forced growers to look for alternatives.
So now whether they like the vegan burgers or not, North American farmers are boosting plantings. Growers in Canada and the U.S. are expected to seed about 20% more field peas this year, government data show. That’s happening even as U.S. farmers cut acres of principal crops including corn, soy and wheat by about 3%.
Opening Of The Beyond Meat Manhattan Beach Project Innovation Center - Sandwiches made with Beyond Meat breakfast sausage
Plant-based companies have been around for decades, but products were aimed at vegans and vegetarians, a tiny market, according to Greg Wank, food and beverage lead at New York-based accounting and consulting firm Anchin, Block & Anchin LLP. Now that even meat-eating consumers are trying to get more of their protein from alternative sources, demand is taking off, underscoring the blistering debut of Beyond Meat. The shares are up about 500% since they started trading in May.
“It’s the right place and the right time,” Wank said.
To be sure, the market for pea crops is by no means as hot as the plant-protein stock. India’s tariffs have been in place for more than a year amid a global glut that’s kept a lid on prices. It’s also a tiny share of U.S. agriculture compared with mammoth crops like corn or soy. But the trade tensions have also forced the development of more processing capacity in North America.
In Saskatchewan, Oscar winner James Cameron announced an investment in Vanscoy-based pulse processing plant Verdient Foods, which U.S. ingredient maker Ingredion Inc. has also partnered with. In Manitoba, France-based nutrition company Roquette is building a pea protein plant that’s set to open next year. The company already operates a pea-protein plant in Vic-sur-Aisne, France, and has a supply agreement in place with Beyond Meat for this year.
Meanwhile, incessant rains in the U.S. meant not all farmers were able to get peas in the ground even if they wanted to.
Foiled Plantings
Jordan Carlson, 35, farms 3,500 acres with his dad near Gothenburg, Nebraska. He didn’t plant any peas for the first time in 10 years because of the deluge, and he’s predicting there could be some local shortages.
Even with India’s tariffs “the demand in food products is fairly high, and that’s keeping us from sinking on the price completely,” he said.
Some farmers are ready to welcome the changes that are ushering in that growth in demand. Even U.S. Agriculture Secretary Sonny Perdue, a self-declared meat eater, wasn’t immune to the lure of a vegan burger on a recent visit to the Impossible Foods Inc. headquarters, where he said the company’s signature offering tasted “very good.”
“I’m excited about things like Beyond Meat and Impossible Burger that are putting pea protein in their burgers. It’s awesome,” said Paul Kanning, who grows yellow edible field peas in Flaxville, Montana. Kanning didn’t increase his pea acreage this season, but if consumer interest is strong, he’ll consider it for next year.
“The demand is going to do nothing but increase, I believe, and you will see production increase in various areas of the U.S.,” he said.
Investors Like What They See in Beyond Meat's First Public Earnings Report
Beyond Meat Inc. shares are on the rise again and short sellers are feeling the burn to the tune of half a billion dollars.
Short sellers are down $534 million in mark-to-market losses since Beyond Meat’s initial public offering last month, Ihor Dusaniwsky, managing director of predictive analytics at financial analytics firm S3 Partners, said in a message. Bearish bets in the faux meat company are at $799 million with 5.3 million shares shorted, according to S3 data.
With the stock up 11.4% in late morning trading Monday, short sellers are left more than $70 million in the red today alone, Dusaniwsky said.
Makers of real meat, like Tyson Foods Inc. and Pilgrim’s Pride Corp., are also getting burned as summer barbecue season gets underway this week and Beyond Meat kicks off sales of its “Beyond Beef” plant product meant that’s meant to look like ground beef.
Tyson shares slipped as much as 3.7% intraday while Pilgrim’s Pride fell as much as 4.6%; Sanderson Farms Inc. tumbled 5.6% for the biggest drop since December. Sanderson and Pilgrim’s Price have underperformed by roughly 6% each since Beyond’s IPO on May 1.
With its own veggie burger in the works, Tyson’s stock is the lone outperformer among so-called “protein” names, gaining 5.8% since May 1, even as concerns over feed costs weigh on chicken producers.
Nio hopes to raise up to $1.5 billion, making it the fourth largest IPO in the U.S. this year
Shares of Nio Inc., a Shanghai-based electric-car maker, fell more than 4% in their trading debut Wednesday, after the company priced its initial public offering a squeak above the low end of its range, raising money for an expansion that includes launching a smaller electric SUV to broaden its customer base.
Nio sold 160 million American depositary shares priced at $6.26 each, barely above the low end of its price range of $6.25 to $8.25. The company raised $1.00 billion and could raise up to $1.15 billion if all the options granted to underwriters to buy additional shares are exercised.
The deal is among the larger U.S. IPOs this year, behind Axa Equitable Holdings’ EQH, +0.73% $3.16 billion, PagSeguro Digital’s PAGS, +0.47% $2.6 billion, and iQIYI Inc.’s IQ, -2.56% $2.4 billion.
The company has listed its ADS on the New York Stock Exchange under the ticker symbol NIO. Morgan Stanley, Goldman Sachs and J.P. Morgan were among the underwriters.
Entities affiliated with Chinese technology conglomerate Tencent Holdings Ltd. 0700, +1.70% have a 15% stake in Nio, and those affiliated with investment powerhouse Hillhouse Capital another 7.5%, according to the company’s prospectus. Founder and Chief Executive Bin Li holds a 17% stake.
The company will compete with Tesla Inc. TSLA, -1.02% in the luxury electric-car market, and mentioned the potential U.S. rival 13 times in its prospectus.
Here are five things to know about Nio:
Its name means ‘blue sky coming’
Nio’s Chinese name, Weilai, translates as “blue sky coming.” Li founded the company in 2014, then named NextCar Inc. It changed its name to Nio three years later.
Nio first introduced a “super car,” the EP9, in 2016. It launched its first volume-produced car, the ES8, in December 2017, with deliveries starting in June of this year.
The ES8 is a 7-seater all-aluminum body electric SUV that the company boasts is cheaper in China than Tesla’s Model X.
“Currently we believe no premium BEV is available to Chinese consumers at competitive pricing and the ES8 is expected to face limited competition initially from premium BEVs,” NIO said in the prospectus.
As of the end of July, Nio had delivered 481 ES8s and had unfulfilled reservations for more than 17,000 ES8s with deposits, according to the prospectus.
Nio plans to launch its second vehicle, the ES6, by the end of 2018, and start deliveries in the first half of next year. The ES6 is a 5-seater, “high-performance premium electric SUV, set at a lower price point than the ES8 to target a broader customer base,” NIO said in the filing.
Nio had a fairly standard warning about the ES6 in the filing, saying it “may not successfully develop the ES6. Our vehicles may not meet customer expectations and our future models, including the ES6, may not be commercially viable.”
No revenue until this year
Nio has more in common with Tesla than ambition: it also has lost massive amounts of money and burned through piles of cash — part of the reason it plans to go public.
“We have negative cash flows from operation, have only recently started to generate revenues and have not been profitable, all of which may continue in the future,” it warned.
Nio began showing revenue this year, reporting $6.7 million in vehicle sales and $7 million in total revenue for the first six months of 2018, when net losses topped $502 million. The company reported a net loss of $758.8 million for all of 2017.
Through June, Nio had burned through $549 million in cash to operate, compared with $691 million for all of 2017. Capital expenditures hit $163 million in the first six months of this year, compared with $168 million for all of last year.
The company estimates that its capital expenditures for the next three years will reach about $1.8 billion. That includes money for improvements and installation of equipment at a plant in Shanghai, as well as for research and development and the expansion of its sales and service network. It expects to incur about $600 million of that in the 12 months starting July 2018.
Nio’s total borrowings, as of June, reached $189.9 million, mainly bank loans and a loan from its investors, said the prospectus.
‘Limited experience’ in making cars
There is no dearth of risks listed in Nio’s prospectus, and such risks are familiar to anyone who has spent any time reading about Tesla: “Our ability to develop and manufacture a car of sufficient quality and appeal to customers on schedule and on a large scale is unproven and still evolving,” it said of risks relating to business.
Nio admits it has “limited experience” so far in high-volume manufacturing of electric vehicles.
“We cannot assure you that we will be able to develop efficient, automated, cost-efficient manufacturing capability and processes, and reliable sources of component supply that will enable us to meet the quality, price, engineering, design and production standards, as well as the production volumes required to successfully mass market the ES8 and future vehicles,” it said.
Then there are the suppliers. The ES8 uses more than 1,700 purchased parts which Nio buys from more than 160 suppliers. Many of those are single-source suppliers for these components, and the company is expecting that this will be similar for the ES6 and any other future vehicle it may produce.
“The supply chain exposes us to multiple potential sources of delivery failure or component shortages,” says the prospectus.
The company is also highly dependent on government incentives and policies that are favorable for electric vehicles.
Its business could be affected by trade wars
Nio said its business could be “adversely affected” by trade tariffs or other trade barriers, including U.S. tariffs imposed in March on steel and aluminum and additional tariffs targeting Chinese goods.
Nio does not export any products to the U.S. and it is not yet clear what impact these tariffs could have. It intends to sell its cars only in China at least in the near future, but tariffs could potentially impact raw-material prices, it said.
Unusual—and risky—corporate structure
Like many Chinese companies with listings outside of China, Nio is a variable-interest entity, or VIE, a structure created in the 1990s as a workaround for Chinese companies that are not allowed to have direct foreign ownership.
Under the VIE structure, the Chinese company creates two entities, one in China that holds the permits and licenses needed to do business there and the other an offshore entity, in this case in the Cayman Islands, in which foreign investors can buy shares. The Chinese entity, which is usually owned by top executives, pays fees and royalties to the offshore company in contractual arrangements.
The biggest example of a VIE is Alibaba Group Holding Ltd., in which the Chinese entity is wholly owned by its founder and chairman, Jack Ma.
The risk with this setup is that foreign investors don’t actually own stock in the company, and local management or even the Chinese governmentcould decide or force a split with the listed company, leaving U.S. investors high and dry.
“It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide,” the company warns in its prospectus.
As an “emerging growth” company, Nio has to follow fewer reporting and other requirements.
Beyond Meat Inc. went where no company had gone in more than a decade as shares nearly tripled in their first day of trading.
Top Historical Performers
The 163 percent surge for the maker of vegan beef and sausage products was the best debut session of any U.S. listing since at least 2008 among IPOs that raised at least $200 million. Beyond Meat saw its market value balloon to $3.83 billion at the close of trading.
Goldman Sachs, Bank of America Merrill Lynch, Credit Suisse Group AG, Jefferies LLC and JPMorgan Chase & Co. are among the banks that served as underwriters to the El Segundo, California-based company, which is listed on the Nasdaq. The banks have been busy through the start of 2019 with each serving as an underwriter for Lyft Inc. or Uber Technologies Inc.
Beyond Meat is a privately held, Los Angeles-based producer of plant-based meat substitutes founded in 2009 by Ethan Brown. Beyond Meat's products became available across the United States in 2013 at Whole Foods supermarkets.[1][2][3] In May 2016, it released the first plant-based burger to be sold in the meat section of grocery stores. Product availability has expanded internationally to restaurants and supermarkets in the US, Canada, Europe (Italy, UK), and Israel. The company, as of 2019, has products designed to replace chicken meat, beef, and pork sausage.
Beyond Meat Beyond Burger packaging.png Type Private Industry Food Founded 2009; 10 years ago Founder Ethan Brown Headquarters El Segundo, California Revenue US$33 million (2017)
Beyond Meat burger, a Beyond Burger in a restaurant in Israel
Beyond Meat was founded by Ethan Brown in 2009.[4] The company has received venture funding from Kleiner Perkins Caufield & Byers, Obvious Corporation, Bill Gates, Biz Stone, the Humane Society[5][6][7] and Tyson Foods.[8] The company began selling its chicken-free mock chicken products in Whole Foods across the US in April 2013.[4][5][9][10] In 2014 it developed a Beyond Beef product. The Beast Burger was available in February 2015. Beyond Sausage became available nationwide in January 2018.
People for the Ethical Treatment of Animals named Beyond Meat as its company of the year for 2013.[11][12]
Tyson Foods purchased a 5% stake in Beyond Meat in October 2016.[13] It sold its 6.5% stake and exited the investment in April 2019, ahead of Beyond Meat's IPO.[14]
In June 2018, Beyond Meat opened its second production facility in Columbia, Missouri, resulting in a three-fold increase of the company's manufacturing space.[15] Beyond Meat also claimed to have 27,000 different points of distribution for their products in the United States.[16] In July, the company was rolling out their products to 50 international markets, partnering with Tesco in the UK and A&W in Canada.[17]
In March 2019, Don Lee Farms filed a civil suit against Beyond Meat. Don Lee alleges breach of contract, and further charges Beyond Meat with problems "regarding inadequate food safety protocols."[18]
As of Monday, April 22, 2019, Beyond Meat is looking to raise $183.8 million dollars through an initial public offering to price between $19 and $21 per share. It has applied to list on Nasdaq under the ticker symbol “BYND”.[19] According to an article in Marketwatch, Beyond Meat faces several possible problem with the company's long-term prospects. Revenues are strong, but Beyond Meat has never earned a profit and company relies on "one single supplier" for its pea protein. Furthermore, Beyond Meat does not have written contracts with several key processing facilities.[20]
Products
Beyond Meat develops and manufactures a variety of plant protein-based food products. The vegetarian meat substitutes are made from mixtures of pea protein isolates, coconut oil, and other ingredients.[10][21] As of 2014, the company's product offerings consisted of Beyond Chicken and Beyond Beef.[2][22][10][23] A vegan and soy-free burger patty called The Beast was released in 2015. Its products are available for purchase in packaged form as well as in retail-prepared dishes.[2][22][10][24]
Beyond Meat's chicken-free products, marketed as Beyond Chicken, are made from a mixture of soy and pea proteins, fiber, and other ingredients and are marketed as a healthy alternative to chicken meat.[4][24] The ingredients are mixed and fed into a food extrusion machine that cooks the mixture while forcing it through a specially designed mechanism that uses steam, pressure, and cold water to form the product's chicken-like texture.[10] After being processed in the extrusion machine, the product is cut to size, seasoned, and grilled before being packaged.[25] Each batch of chicken takes approximately 90 minutes to produce.[25]
The company's two flavors of Beyond Beef imitation ground beef product, Beefy and Feisty, are made from pea proteins, canola oil, and various seasonings.[24][26] The soy and gluten-free pea protein mixture initially resembles a paste before being heated and processed by an extrusion machine.[9] The "beefy" crumbles possess the same protein content per 55 gram serving as ground beef.[4][21]
The Beast Burger, the first burger patty, released in 2015 Beyond Meat announced in 2014 that it had begun development and testing of a new product called The Beast. The vegetable protein-based burger patties were taste tested by The New York Mets during a pregame event.[23][27][28][29] The Beast Burger was officially released February 2015 and is available at Whole Foods Market.[30] The burgers are vegan, soy-free, and contain 23 grams of protein in addition to antioxidants, iron, calcium, Vitamins B6, B12 & D, Potassium, DHA Omega-3s, and ALA Omega-3s.[31][32][32][33]
In May 2016, Beyond Meat released the first plant-based burger to be sold alongside beef, poultry and pork in the meat section of the grocery store.[34] Making its debut at the Pearl St. Whole Foods in Boulder, Colorado, the Beyond Burger sold out within the first hour of hitting shelves.[35] Starting in July 2018, the Beyond Burger was available at all of A&W Canada's locations, the second largest fast food chain in Canada.[36] In January 2019, Carl's Jr. Restaurants LLC. announced a partnership with Beyond Meat to sell the Beyond Famous Star with cheese, a charbroiled Beyond Burger with American Cheese in more than 1,000 Carl's Jr. locations.[37]
The Beyond Burger contains 20 grams of protein and has no soy, no gluten, no cholesterol, and half the saturated fat of an 80/20 beef burger.[38][39] However, it contains five times as much sodium as unseasoned hamburger meat and one dietician argued that the processing of the vegetarian ingredients could cause the loss of valuable nutrients.[40]
The Beyond Burger requires 6.1 mj (1457.93 kcal) of energy to produce 290 kcal of product. According to a study by the Center for Sustainable Systems at University of Michigan (commissioned by Beyond Meat), "based on a comparative assessment of the current Beyond Burger production system with the 2017 beef LCA by Thoma et al, the Beyond Burger generates 90% less greenhouse gas emissions, requires 46% less energy, has >99% less impact on water scarcity and 93% less impact on land use than a ¼ pound of U.S. beef." [41]
In December 2017, a vegan alternative to pork sausage, Beyond Sausage, was announced.[42] The three varieties of "sausage" (Bratwurst, Hot Italian, and Sweet Italian) were first sold for a one-day-only event at a Whole Foods Market in Boulder, Colorado, and became nationally available to purchase in January 2018.[43]
Availability
Beyond Meat is available in supermarkets, restaurants and wholesalers in the US and Canada. Additionally A&W Canada became the first national burger restaurant to serve them in their menu.[44] In Europe, Beyond Meat is currently available in wholesale and in many restaurants across Italy.[45] It is also available in one restaurant in Israel. The chain company HD Diner offers it in a vegan hamburger in France.
Reception
Mark Bittman, a food journalist with The New York Times, wrote that "you won't know the difference between that [Beyond Meat] and chicken. I didn't, at least, and this is the kind of thing I do for a living."[46] In 2013, American businessman Bill Gates wrote, on his personal blog: "I couldn't tell the difference between Beyond Meat and real chicken".[1] Celebrity chef Alton Brown wrote that Beyond Meat's Beyond Chicken is "more like meat than anything I've ever seen that wasn't meat", and "while the unflavored product tastes distinctly vegetal and still has a bit of what I’d call tofu-bounce, a hint of the spongy, the tear is meaty".[10]
Slack filed for a direct public listing Friday, which would make the maker of workplace productivity software publicly traded without raising money for it to use.
Slack’s intent to undergo a “direct listing,” echoes a decision made by streaming-music company Spotify Technology (SPOT). The shares will be traded on the New York Stock Exchange with the symbol “SK.”
When it happens, it will add to the list of high-profile public offerings this year. Lyft (LYFT) and Pinterest (PINS) are already trading and deals by Uber Technologies and Beyond Meat are on the way.
It’s unclear what Slack’s market value might be as a public company. Last year, it announced a round of financing valuing it at $7.1 billion. Its filing, meanwhile, said that its class B shares traded hands in private transactions at prices between $8.37 and $23.41 in the fiscal year ended Jan. 31.
The company had about $181 million in cash and equivalents on hand at the end of January, up from $120 million a year before. Here are some more key facts.
• Slack reported revenue of around $400 million in the fiscal year ended Jan. 31, up more than 80% from $220 million the prior year. Gross profits, which came in at $349 million, rose at roughly the same rate.
• But operating losses increased from $144 million in 2018 to $154 million last year, as operating expenses exceeded $500 million. “We expect to continue to incur net losses for the foreseeable future,” the company said in its filing.
As Slack has grown, it has increased its workforce to about 1,500 employees at the end of January from less than half that two years earlier.
• The company reported more than 10 million daily active users last year, with more than 600,000 organizations having at least three users of its software. It had 88,000 paying customers, and 575 of those each represent more than $100,000 in annual recurring revenue.
The 575 customers accounted for about 40% of revenue last year. Adding more, larger, organizations is a key component of Slack’s sales strategy.
• Without details about pricing and the likely timing of the listing, it’s hard to made a well-informed decision about whether you’d like to buy the shares when they begin trading. Generally, it pays to be cautious around high-profile IPOs, as Barron’s explained this month.
>>> Pinterest, Inc. (PINS) provides a visual discovery engine that helps users to discover ideas for various projects and interests worldwide. Its platform allows users to discover ideas for daily activities, remodeling a house or training for a marathon, ongoing passions, and planning a wedding or a dream vacation. The company's platform show visual recommendations called Pins, based on user personal taste and interests. It also provides Product Pins that make items shoppable with up-to-date pricing; Recipe Pins to cook a meal by bringing the relevant information; Shop the Look, which enables pinners to shop for the individual products they see within fashion and home decor Pins; and Video Pins, which are short videos with topics, such as how-to content about cooking and beauty. The company was formerly known as Cold Brew Labs Inc. and changed its name to Pinterest, Inc. in November 2010. Pinterest, Inc. was incorporated in 2008 and is headquartered in San Francisco, California. <<<
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