Olo IPO Prices Above Target, Valuation Soars to $4.6B

Market Concerns and Olo's IPO

Significant movement is being observed in the financial markets this morning, with the Nasdaq composite index experiencing a decline during pre-market hours. Simultaneously, bond yields are increasing. This is largely attributed to anxieties surrounding a potential rise in inflation, which triggered a sell-off in the bond market.

Consequently, stocks with high valuations are facing downward pressure, particularly within the technology sector. Tech stocks, as a whole, exhibited weakness earlier today.

This contrasts with the recent initial public offering (IPO) of Olo, a New York-based provider of restaurant software. The company successfully priced its IPO at $25 per share, exceeding its previously increased target range.

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Analyzing Olo's Valuation

Today’s focus is on the price paid by investors for a portion of Olo’s shares prior to the commencement of trading. The resulting company valuation, alongside its new revenue multiples, will be instrumental in addressing key inquiries.

Specifically, we will assess the current demand for rapidly expanding tech companies that are also demonstrating profitability. Furthermore, we will determine whether Olo’s pricing is aligned with, or deviates from, comparable companies.

A discrepancy could indicate a diminishing appetite among public investors for tech IPOs, despite the seemingly positive figures associated with Olo’s offering.

Coinbase's Direct Listing Update

We will also examine Coinbase’s most recent S-1/A filing. This document offers updated information regarding the progress of its planned direct listing.

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Evaluating Olo’s IPO Pricing: Aggressive, Neutral, or Disappointing?

Initially, Olo projected an IPO price range of $16 to $18 per share. This range was subsequently revised upwards to $20 to $22 per share, as anticipated. The final pricing of $25 per share represents a substantial 56.25% increase compared to the lower boundary of the company’s initial valuation.

Olo demonstrated significant growth, with accelerating year-over-year revenue increases – from 59.4% in 2019 to 94.2% in 2020 – and achieved GAAP profitability. A net loss of $8.3 million in 2019 transformed into a net income of $3.1 million in 2020, as detailed in its IPO filings. Consequently, the initial price range appeared somewhat conservative.

With a share count that includes the underwriters’ option, Olo’s valuation at $25 per share reaches $3.62 billion. According to Renaissance Capital, a leading IPO tracking firm, a fully diluted valuation places the company’s worth at $4.6 billion.

Olo reported $30.5 million in revenue for the fourth quarter of 2020. Extrapolating this figure, the company’s annualized revenue run rate is $122.2 million. This translates to a run-rate multiple of approximately 29.6x and a fully diluted multiple of 37.6x. These multiples are relatively high.

Comparable companies with similar lower multiples include Atlassian and Okta. The higher multiple aligns with the revenue/valuation metrics of companies like Datadog and Shopify. Therefore, the IPO valued Olo within the top tier of SaaS company valuations. It’s difficult to contend that the pricing was inexpensive, although a case could be made for a slightly higher valuation.

Notably, Olo’s growth rate surpasses that of many of these comparable companies, and unlike many, it is currently profitable.

The initial trading price of Olo stock is a key indicator. A significant opening price above the IPO price could suggest strong investor demand, fueled by FOMO (fear of missing out) or a general appetite for growth stocks. Conversely, a more subdued trading debut might indicate market caution, potentially reflecting concerns about the sustainability of Olo’s pandemic-driven growth as the economy evolves post-COVID.

Such a scenario could foreshadow a slowdown in performance for other companies that have also benefited from the pandemic-related surge in demand. This aligns with the current market sentiment observed across various asset classes this morning. Further analysis will be possible once Olo begins trading, but regardless of the outcome, the company successfully captured substantial value during the IPO pricing process.

Coinbase

A new S-1/A filing was released by Coinbase this morning, revealing additional information regarding its forthcoming direct listing. Notably, existing shareholders are offering approximately 115 million shares for sale. Furthermore, during the first quarter of 2020, the anticipated trading price for Coinbase stock was indicated between $200 and $375.01.

As reported by SeekingAlpha, a valuation of $350 per share would equate to a company value of around $90 billion for Coinbase.

These price points represent a significant re-evaluation of Coinbase’s worth. According to the company’s own documentation, its shares were previously exchanged for just under $29 each last year.

However, the $200 per-share figure shouldn't be considered a more reliable indicator than the company’s higher valuation. The filing details that Coinbase’s “volume weighted-average price per share for the first quarter of 2021 was $343.58.”

This places the valuation near the $90 billion level, or slightly below the current private market valuation of Stripe.

Determining an appropriate price for Coinbase, given its revenue fluctuations, presents a challenge. The company has demonstrated considerable volatility in its financial performance over recent years. The exact timing of the trading launch and the initial reference price remain unknown.

While today’s filing provides further insights, a complete understanding of the situation is still pending. Additional information will be shared as it becomes available.