Will the public market welcome a company with expanding losses? Hortonworks is ready to find out.
Earlier today, the company priced its initial public offering, announcing that it will sell its shares for between $12 and $14 apiece. Early analysis pegs the company’s valuation at a per-share price in the middle of the proposed range of $659 million.
As TechCrunch reported, that valuation figure is a step down from its previous marker of $1 billion, reached when it last raised $100 million. The company’s IPO, at the proposed range, also raises less capital than that same round of funding.
Put another way, it seems that Hortonworks is discounting itself to go public. At least for now. Its S-1 document notes that it wants to raise up to $100 million. To reach that sum, leaning on some back-of-the-envelop math, Hortonworks would have to raise its per-share target for the offering. that would bring in more money, and value the company more richly.
When Box filed to go public, worry about its losses outstripped enthusiasm for its quick revenue growth. The company was slightly surprised at the reaction, as TechCrunch recently reported. Regardless of who was more right, Box put its IPO on ice, and raised another round of private capital to continue on its path.
Other IPO attempts have been more successful this year. Profitable firms, like Arista Networks, have done well. Zendesk, which priced its offering conservatively, has been on a tear. MobileIron has seesawed around its IPO price, and currently trades for a discount to its debut.
Don’t think for a minute that Box is alone in holding off on going public. Good Technology also hit the brakes. The company, which showed consistent revenue growth, but persistently larger losses, decided to wait. You can decide if the pause in either case was voluntary.
If all the above appears to add up to nothing, I understand. Oddly enough I want to say that the IPO market at current tip is slightly conservative. Two things, it seems, are required to go public: Fast-growing revenues and either declining losses or expanding profits. We don’t need to do the GAAP and non-GAAP dance here, as the rules are not so strict.
The Hortonworks IPO is interesting because the company has similarities to the companies listed above who shelved their offerings: Growing revenue but troubling losses on that top line that could indicate long-term margin pressure. From our previous coverage:
For the first 9 months of 2013, the company’s revenue totaled $33.38 million, up 109.5 percent from its year-ago, 9 month tally of $15.93 million. Its Support Subscription revenue grew at a slower pace, up a slightly more modest 94.97 percent, to $19.19 in the most recent 9 months. Professional services revenue grew more quickly.
On the other side, the company’s losses have also greatly expanded. The company had a net loss of $86.73 million in the first 9 months of this year, up from, $48.40 million in the year-ago, 9 month period. That represents a 79.19 percent gain. That means that Hortonwork’s revenues are growing a faster percentage clip than its losses.
We have several things to watch then: first, whether the Hortonworks’s IPO can go off at all as it falls outside the two rules we described above, failing the declining losses test; and second, whether it changes its pricing north, indicating strong market demand.
In short, we can use the Hortonworks IPO as a metric to see where the market lies, in terms of its appetites and interests. That will help us gauge the potential for Good, Box and others that are hanging about by the rope to hit the big green button.
The final measure, of course, will be IPO day for Hortonworks. It seems obvious that if it struggles out of the gate, the potential for other companies that are more focused on their top and not bottom lines to go public will diminish for some time.