Signs investor appetite for tech IPOs remains strong despite Lyft’s share price travails since its IPO last month has encouraged Pinterest and Zoom to forge ahead with their own plans at higher price targets. Both companies have now listed their IPO share price ranges above initial guidance on strong demand.
In Pinterest’s case, the IPO price has been hoisted to $19 from an initial $15-$17 range. Zoom, a B2B video conferencing software company, has raised its own IPO price to $36 from $33-$35. However, while Zoom’s IPO price represents a multiple of 10 on what investors paid during a private capital raise two years ago, delivering an excellent return on investment, Pinterest’s means a ‘down round’. Sales were privately sold for 12% more 2 years ago. Pinterest’s overall IPO capitalisation will be $12.6 billion and Zoom’s $10.5 billion. Both are dwarfed by Uber’s $90 billion to $100 billion IPO.
Institutional investors are said to not have been put off new tech IPOs by the disappointing post-IPO slide of Lyft, which has lost 17% in the two weeks since making their stock market debut. Investors will judge the new IPOs coming to market since on their own merits.
Pinterest’s initial range was considered ‘very cautious’, now giving it the opportunity to raise the share price. There will be hopes that will still leave space for post-IPO gains once the stock floats freely, giving earlier investors the opportunity to cash in without realising a loss.
Pinterest’s potential as an online advertising model able to carve out a niche in a market increasingly dominated by Google and Facebook is well regarded despite the struggles of Snap and Twitter in leveraging their large audiences. However, it has so far failed to live up to that potential – which is why it’s IPO price will be a move down on its last major private investment call.
Pinterest has divided market opinion on its approach to growing its business. The ‘visual discovery platform’ has not aggressively pursued monetisation and didn’t even introduce advertising until 2015. In some quarters that’s seen as a negative while others believe that shunning the Silicon Valley ‘growth at all costs’ mantra will eventually result longer term sustainability. However, Pinterest is still making a loss – $63 million last year. That’s around half of losses a year earlier and compares favourably to Snap’s $514.6 million loss the year before its 2017 IPO.
Zoom, on the other hand, is already profitable. As technology start-up ‘unicorns’ go, the B2B company can be described as ‘under the radar’ in comparison to the hype that tends to surround retail-facing peers. It posted $330 million in revenue in the year ending January 31, 2019 with a gross profit of $269.5 million. It’s also only raised a total of $145 million in private venture capital to date. Despite that, the 12.2% and 11.1% stakes held by early VC backers Emergence Capital and Sequoia Capital will be worth approximately $1.1 billion and $ billion respectively – giving them both circa. 1000% returns on initial capital invested.
Enterprise-facing technology companies have performed very well in recent years. Atlassian, the Australian project management software popular with software developers has seen its shares price increase five times over since its 2015 market debut. For tech companies that are not in a ‘winner-takes-all’ retail consumer-facing market, like Google and Facebook, it is increasingly being realised that there is more dependable revenue in high quality B2B tech products.