Technology is moving at warp speed during the coronavirus pandemic, but the IPO process is stuck in place.
For a second straight week, a tech company has more than doubled in value upon its stock market debut. Last week, it was Chinese cloud software developer Agora, which surged 150% in its first day of trading on the Nasdaq. And on Thursday, insurance-tech company Lemonade jumped 139%.
Tech IPOs have long been criticized for a process that lets investment bankers hand over underpriced stock to large public money managers, who often enjoy immediate and massive pops before ordinary investors are able to participate. Meanwhile, the issuing company ends up raising far less money than it could.
Over the past four months, with face-to-face meetings off the table, IPO roadshows have gone virtual. Management teams, with the help of bankers, are selling their story over Zoom rather than spending two weeks traveling to the money hubs of New York, Boston, Baltimore and San Francisco.
While they may be saving money on travel, they’re still leaving piles of cash on the table. Lemonade sold 11 million shares at $29 a piece, bringing in just over $300 million and giving new investors the $444 million difference, based on the closing price of $69.41. That’s a big deal for a company that had cash and cash equivalents of about $567 million before the IPO.
“They are ignoring demand when they price. On purpose,” said venture capitalist Bill Gurley of Benchmark, in a text message. “This problem is systematic. Because the system is broken.”
Gurley, who has been among the loudest IPO skeptics, posted a similarly themed tweet after Agora’s IPO, expressing amazement “that there is a financial exercise on this planet involving hundreds of millions of dollars where its OK to not even get to 50% of the actual end result.”
A Lemonade spokesperson declined to comment and an Agora representative didn’t respond to a request for comment.
In a video interview last week following Agora’s IPO, CEO Tony Zhao told CNBC that the “roadshow went well,” and that he got good feedback from 30 to 40 different investor groups. Zhao participated in meetings from China while Chief Operating Officer Reggie Yativ joined from Silicon Valley, where the company also has a big presence.
“They encouraged us to keep focused on long-term things and said they appreciate our strategy,” Zhao said.
Agora’s software powers communications systems and allows developers to easily embed video or voice tools into their applications. Revenue almost tripled in the first quarter to $35.6 million, as demand soared from customers dealing with a Covid-related spike in online communications .
Agora raised about $350 million in its IPO for shares that, by the end of the first day of trading, were worth over $880 million. The stock rose from its IPO price of $20 to $50.50 on day one, and closed Thursday’s session at $56.49.
“At a macro level, you have an enormous amount of optimism about the future of technology,” said Glenn Solomon, a partner at venture firm GGV Capital, which is an investor in Agora. “At a micro level, it’s a challenge. You have bankers trying to price offerings based on some reasonable valuation multiple while the market is paying up for new names and growth.”
Solomon, who offered his views by text, said he’s in agreement with Gurley about the need for a “better system where the market can set price for IPOs in a more efficient manner.” Gurley has been trying to get companies to follow Spotify and Slack in pursuing direct listings, which allow existing investors to sell shares at a market-clearing price.
Lemonade priced its IPO at $29, after previously increasing the range to $26 to $28 from $23 to $26. Still, the debut price valued the company at $1.6 billion, below a private market valuation of about $2 billion last year.
Lemonade’s revenue more than doubled in the first quarter to $26.2 million, in part because, with consumers stuck at home, the company is set up to automate the insurance buying experience and to let company representatives write insurance plans remotely. Lemonade has artificial intelligence bots named AI Maya and AI Jim for handling customer calls and claims.
“Our customers’ experience with Lemonade is likewise largely unaffected by the turmoil, as AI Maya and AI Jim chat with customers, wherever they may be, without triggering concerns about social distancing,” the company said in its prospectus.
‘Uncertainty always brings a discount’
Matt Oguz, an investor in Lemonade, wasn’t involved with the pricing of the deal or in the roadshow, though he said the process moved “very fast” and that there was a lot of new investor interest. Raising over $300 million at a time of economic and financial turmoil is a significant feat, he said, even if the pricing wasn’t on target.
“Uncertainty always brings with it a discount,” said Oguz, who is a partner at the firm Venture Science. “On one hand you’re getting lot of money right up front. On the other hand, if a pop like this happens then you may be leaving money on the table.”
There’s more to the story than the first-day pop, said Lise Buyer, co-founder of Class V Group, which assists start-ups as they prepare to go public. Plenty can happen in the ensuing months that can cause the stock to move much higher or lower.
While Buyer acknowledges that “too many companies do appear to leave too much on the table,” she said there are other factors that go into the pricing, including management’s effort to account for employee morale and potential risks to the business.
“Just because a stock may trade way up in a frothy, volatile market we have now, doesn’t mean that the top price is sustainable,” Buyer said, in an email. “As management teams have to be responsible to their employee base, they often choose to price to a value the fundamentals support as opposed to the price the market wants to pay today. One can really only tell if a deal was seriously mispriced if it maintains the opening trade price several months later.”
Students work on computers at the 42 school campus in Paris.
Martin Bureau | AFP | Getty Images
JAMF’s IPO prospectus names Apple 533 times. The company says its mission is to “help organizations succeed with Apple.” One of its key risk factors is that customers become dissatisfied with Apple products.
Founded 18 years ago, JAMF is finally headed for the public market. In its prospectus released on Tuesday, the company isn’t shy about tying its fortunes to a tech giant that’s now valued by investors at over $1.5 trillion.
“Apple is ubiquitous,” JAMF says in the industry background section of its filing. “It has transformed the technology landscape by placing the user first and designing everything around maximizing the Apple user experience.”
JAMF helps companies securely deploy all of those Apple products, connecting them together and giving IT teams the tools to manage them. In the first quarter, revenue climbed 37% from a year ago, to $60.4 million, and the company’s gross margin rose to 75% from 70%, as more customers turned to its subscription offering. It’s still losing money, though its net loss narrowed slightly from $9 million to $8.3 million.
JAMF has been around for a long time, but its business has taken off in the last few years as Apple devices became more popular in business environments. Prior to the iPhone’s rise last decade, companies tended to rely on PCs running software from Microsoft and other vendors, and a myriad of phones from different providers. The iPhone’s popularity convinced some companies to take a closer look at other Apple products, including iPads and Macs.
Apple became a customer in 2010 and a channel partner in retail and education a year later. In its customer case studies section of the prospectus, JAMF highlights IBM, which decided in 2015 to deploy more than 30,000 Mac computers over a six-month period to employees, and SAP, which in 2018 shifted employees to over 80,000 iPhones and iPads in seven months.
JAMF says competitors include VMware, Microsoft and IBM, though none of them are focused on products in the Apple ecosystem.
Apple itself represents a different kind of risk. Just last week the iPhone maker announced the acquisition of Fleetsmith, a four-year-old company, whose software makes it easier to remotely configure, wipe and deploy devices.
Competing with Apple?
JAMF said it currently sees Fleetsmith as focused on small and medium-sized businesses and not in direct competition for the same customers.
“However, Apple could leverage this platform, whether through additional investment or the consolidation of other competitors of ours, to compete more directly with the scale and breadth of product offerings we provide,” the filing warns.
Another prominent theme in JAMF’s prospectus is the coronavirus pandemic. The words Covid and coronavirus show up a combined 60 times in the filing.
The coronavirus, which sent office workers and students across the country home in February and March, has underscored the need for companies to adopt remote management technologies, the filing says. Health-care providers and schools, in particular, have become more reliant on iPads and have had to transition to them in a hurry.
JAMF is telling investors that many of these trends are likely here to stay.
“The COVID-19 pandemic has accelerated the need for solutions to empower remote work, distance learning and telehealth,” the prospectus says. “While these trends were gaining mind share prior to the pandemic, recent challenges have added momentum to these digital transformation changes that will last long after the struggles related to COVID-19 have passed.”
Tesla went public ten years ago todya, pricing shares at $17, higher than its expected range of $14 to $16.
The company raised around $226 million in its IPO, with shares surging that day by around 41% to close at $23.89. Today, shares in the electric vehicle maker closed at $1,009.35, meaning Tesla’s stock has risen by 4,125 % since the close of its first day as a public company.
That stock performance puts Tesla in rarified air, alongside Netflix, which was the top-performing stock on the S&P 500 during the 2010s. (Netflix rose 4,181% between Jan. 2010 and Dec. 2019. But Netflix shares more than doubled in price between Jan. 2010 and June 2010, when Tesla went public. That means Netflix has “only” gained 2,657% in value since Tesla’s debut.) It also means Tesla has outperformed other big tech names like Amazon and Apple, as well as all the major automakers.
The stock has had plenty of ups and downs along the way, including a 30% drop in the month after Aug. 7, 2018, when a CEO Elon Musk tweeted that he had “funding secured” to take the company private. The SEC accused Musk of misleading the public, as he allegedly knew the funding was contingent, and both Musk individually and Tesla as a company paid $20 million fines to settle the suit.
But shares have been on a rally since early 2020, as Tesla got its factory in Shanghai up and running and began manufacturing the Model Y at its original U.S. car plant in Fremont, California. Investors also bought into the company’s promises to deliver an electric semi truck called the Semi, electric pickup truck known as the Cybertruck and improvements in self-driving technology. Despite the Covid-19 epidemic, which shut down production in its California factory for several weeks, shares are up more than 140% this year.
Since going public, Tesla has never achieved a full year of profitability. The company has reported seven quarters with net income greater than zero, since its IPO — the first was Q1 of 2013. It has now reported three consecutive quarters of GAAP profit, with some accounting adjustments along the way, and is scheduled to report Q2 earnings next month.
Tesla is now gunning for inclusion in the S&P 500, which requires a minimum of four consecutive quarters of profitability, among other things.
Vroom IPO at the Nasdaq site, June 9, 2020.
Shares of Vroom, an online used car seller, skyrocketed in its first day of trading Tuesday, as the Nasdaq fought to stay in the green.
The company, which filed to go public last month, saw its stock trading up more than 115% Tuesday afternoon. Vroom priced its initial public offering at $22 per share, which came in above its price range of $18 to $20 per share.
Vroom’s market debut comes alongside a handful of other companies that went public this month, after Covid-19 essentially brought IPOs to a virtual halt. Shares of ZoomInfo soared more than 60% in its Thursday debut. Warner Music also returned to the public markets Wednesday and saw its stock jump roughly 20% that day.
Vroom’s surge comes as the broader markets worked to pare back Tuesday’s earlier losses. The Nasdaq Composite was up 0.26% in afternoon trading, after trading lower to start the session. The Dow Jones Industrial Average was down 0.83%. The S&P 500 also dropped 0.74%.
An in-home health-care worker from Amwell coordinates a telehealth visit with a doctor on-screen.
Less than a month after raising almost $200 million to meet skyrocketing demand for telehealth services, Amwell is gearing up to go public, according to people familiar with the matter.
The company confidentially filed for an IPO earlier this week and has hired Goldman Sachs and Morgan Stanley to lead the deal, said the people who asked not to be named because the plans have not been announced. The IPO could take place in September, they said.
The company changed its name from “American Well” earlier this year, but still goes by that name on recent financial filings.
Telemedicine has seen an uptick in recent months, as people in need of health services turned to video chats so they could avoid exposure to Covid-19. The company told CNBC last month that it’s seen a 1,000% increase in visits due to coronavirus, and closer to 3,000% to 4,000% in some places.
Amwell can see that public market investors are hungry for opportunities to buy into the growth. Shares of Teladoc, one of its top rivals, are up 88% this year and 34% since the broader market peaked in February. Livongo, a provider of remote monitoring services, has more than doubled its stock price this year, while One Medical, which offers telehealth visits in addition to its physical clinics, is up 120% from its IPO price in January.
Amwell has also benefited from a loosening of laws that previously made it difficult for patients to get online access from doctors in different states. Regulators have removed many of those barriers in recent months to help patients avoid unnecessary exposure to the coronavirus.
Amwell CEO Ido Schoenberg told CNBC in May that the markets are being “very kind to companies like us” in the current environment.
“We don’t know how long it will last, and it’s possible the window for any type of funding might not be available quite soon,” Schoenberg said.
Amwell could face criticism for the lack of diversity on its board as it goes through the IPO process. All nine members are men, and the one minority director, former Massachusetts Governor Deval Patrick, stepped down when he jumped into the Democratic presidential primary. For instance, real-estate company WeWork drew criticism when it first filed to go public without any women on its board, and added Frances Frei shortly after its filing; it later withdrew its IPO filing amid widespread scrutiny of its financials and leadership.
Unlike many pure technology companies that have benefited from increased usage of cloud software and remote collaboration tools, Amwell needs capital in order to scale because it has to hire and train medical experts and manage a host of sensitive compliance issues.
Still, if Teladoc is any guide, Amwell could fetch a software-like multiple on the public market. Coming off a quarter of $137 million in revenue on 29% growth, Teladoc is valued at about 20 times sales.
An Amwell representative declined to comment.
CNBC’s Alex Sherman contributed to this report.