For a monthly fee, it will help them expand the market, just like the Netflix, Amazon, Disney model did.
The dream of creating wealth on Wall Street was on full display last week as IPOs offering their shares to retail investors managed to hit the sweet spot. The return of the IPOs was particularly significant in the busy last week as nearly two dozen offers lined up.
As tech stocks shed some value, the markets have latched on to a packed list of IPOs that were lined up for investors last week. The jump in value for the stocks that have listed recently has caught the imagination of investors looking for a quick return. It was the largest fund-raise by any company on Wall Street as investors saw Snowflake (SNOW) zoom ahead.
Small and big companies gained stature with investors that left millions in the hands of those who had put their money during the IPO.
111 companies have gone public in 2020 raising nearly $38 billion. This does not include funds raised by SPACs. The list also includes telehealth platform provider American Well (AMWL).
Wall Street dream realized
Snowflake Inc.’s story was straight out of a Wall Street dream. Its IPO price was fixed between $75-85, initially. It was then raised to $100 to $110 before finally it was offered to investors at $120 apiece. As the stock doubled in value on the listing, SNOW has is now being counted among the leading names, rubbing shoulders with the likes of Microsoft, Amazon, SAP, and Oracle. It will not be easy to live up to the expectation.
In February 2020, Snowflake did a private placement to value the company at $12 billion. At nearly 6X of that value after its listing could be seen by some as steep. The six million shares issued to Warren Buffet, the first investment in an IPO by Berkshire Hathaway in over 60 years, could have something to do with it. It helps that its revenue growth for the last four quarters has been 155, 139, 149 and 121 percent.
Unity Software (U) makes software that helps create video games. The 16-year-old company is a rival of Unreal engine from Epic Games. Over the last few years, its platform is now used for creating software in areas other than gaming too.
The $52/share IPO from Unity Software (U) valued the company at over $19 billion.
Around the price it is trading right now, JFrog (FROG) is valued at over 50X earnings last year’s sales. It also registered a 50 percent jump from the IPO offer value. If it were to register a 50 percent jump in revenues, its value would still be a steep 36X. In comparison, revenue for Zoom Video Communication (ZM) is expected to grow nearly 3X for the current year and it is valued at 49X its earnings. Whether such rich valuation is justified for FROG depends on the risk appetite for the investor.
JFrog helps companies update their software, calling its vision ‘Liquid Software’. As enterprise programmes move to the cloud and employees access them on multiple devices, JFrog helps each version be updated. With 6000 customers, it is riding the opportunity emerging for the cloud business.
Gaming as a service taking off
Companies that provide gaming platforms are trying to ride the wave where, just like enterprise software, it can be positioned as a service for an annual or monthly fee. For a monthly fee, it will help them expand the market, just like the Netflix, Amazon, Disney model did. It ensures annuity kinds of revenues with enough upside if a particular game is a blockbuster. At a time when consumption is tepid, their success can go well with investors.
Unity claimed that its software was used in 53 percent of the top 1000 mobile games on Apple’s App Store and Google’s Play Store. In the case of mobile games on consoles sold by the likes of Sony, Microsoft, Nintendo, it claims to enjoy similar market share. With its focus also on non-gaming markets, Unity believes that its products address a $29 billion market across gaming and non-gaming sectors.
The action is underway!