Datto Stock: IPO Prices at Top of Range, Trades Higher

Following an initial price of $27 per share, Datto’s stock experienced gains during standard trading hours. By the middle of the afternoon, the data and security software provider was valued at $28.10 per share, representing an increase of just over 4%.

This initial public offering occurred during a busy third quarter, which saw numerous technology companies, especially those focused on software, enter the public market. Although the number of privately held, high-growth companies (unicorns) in the United States increased during the quarter, Q3 also witnessed a significant surge in liquidity that had been anticipated for some time.

Datto’s IPO is part of what is expected to be a smaller group of public offerings in the fourth quarter, although companies like Airbnb and Affirm are still anticipated to launch their offerings soon. Both Airbnb and Affirm have announced their private filings to become publicly traded, but have not yet released their S-1 filings to the public.

The Datto IPO was noteworthy for several reasons, including its combination of moderate growth and increasing profitability, its position within the ongoing situation involving Vista Equity Partners, and the accuracy of its pricing.

While 2020 has seen a substantial number of venture capital-backed IPOs, it has also brought a comparable number of criticisms regarding the IPO process itself. Following significant value increases for many technology companies immediately after their pricing and listing, prominent figures in the tech and venture capital industries argued that IPOs were effectively transferring potential gains from the companies to the underwriting banks and their clients.

There was validity to these concerns. However, Datto is unlikely to generate similar controversy. With a modest increase from its IPO price, it appears to have been priced effectively, maximizing the capital raised during its initial offering.

Datto intends to use the funds from its IPO to reduce debts incurred during its acquisition by Vista Equity Partners. Nevertheless, Datto’s CEO, Tim Weller, informed TechCrunch during a conversation that the company will remain financially strong following the public offering, maintaining a robust cash reserve.

The company is expected to have opportunities to utilize its remaining capital. In its S-1 filings, Datto emphasized a positive impact from COVID-19, as companies accelerated their digital transformation initiatives. TechCrunch inquired whether this trend extended internationally, and whether digital transformation was accelerating on a global scale, not just within the United States. The CEO responded positively, indicating that it was.

The company opted against pursuing a public debut through a special-purpose acquisition company (SPAC), as Datto’s founder, Austin McChord, stated that his company had always planned a traditional public offering. Regarding the situation with Vista Equity Partners, McChord indicated that the departure of Brian Sheth from Vista did not affect Datto’s IPO process.