Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
Today we’re digging into One Medical’s IPO pricing, especially as it relates to the company’s valuation and resulting revenue multiples. Our goal this morning is to understand how the IPO process priced One Medical last night, and what its resulting value could mean for other tech-enabled companies.
One Medical, a popular and modern medical provider, is a venture-backed company now worth $14 per share, or about $1.7 billion. Is that a lot? Or do those metrics fit well next to its fundamentals? Let’s find out.
Pricing
Yesterday evening One Medical priced its IPO at $14 per share, the low-end of its $14 to $16 per share range. Selling 17.5 million shares, One Medical raised $245 million in its debut. That dollar amount makes the company’s IPO the single-largest funding round in its history, topping the company’s $220 million private equity raise from 2018.
At $14 per share, One Medical is worth $1.71 billion, not including extra shares reserved for purchase by its underwriting banks. Inclusive of that equity, the company is worth $1.75 billion. Last valued at around $1.5 billion as a private company according to media reports, the IPO is a win — One Medical filled its accounts at an up-valuation despite not being a pure technology play at a time when such startups are thought to be out of favor.
Does $1.71B make sense?
If the market bids up One Medical shares, or even allows them to close today flat at $14, the valuation makes sense. Things are worth what folks will pay for them. But, as we know, over time the stock market is more weighing machine than popularity contest, so let’s examine the company’s multiples that will help determine its longer-term trading patterns.
At the top-end of its 2019, full-year revenue estimate of $277.4 million, One Medical is worth about 6.2x times its trailing revenue. It’s a bit cheaper on an annualized basis if you take its fourth quarter and use that to create a revenue base. And if you look ahead, the company’s revenue multiple would compress further, depending on how much growth you forecast for the newly public company.
Putting those numbers into words, One Medical is now priced like a mid-tier SaaS company. SaaS valuations have skyrocketed in the last year, but One Medical’s valuation only looks cheap because cloud software companies are expensive.
If those companies shed value, how investors make the argument that One Medical’s valuation makes sense is hard to see. But while the getting is good, One Medical got, raising a quarter billion at a valuation that it’s sure to celebrate.
For other tech-enabled companies, One Medical’s IPO pricing is a victory. It could have been far worse. Pricing in-range is about as good as this could have gone, given the company’s final private valuation and financial performance.
More when the company’s shares begin trading.