It’s been a busy last 24 hours or so for on-demand delivery company Postmates. According to reporting, the company is reviving its IPO plans, possibly selling to Uber, or perhaps looking to go public with the help of a special purpose acquisition vehicle, also known as a SPAC.
For Postmates, a company caught somewhere between DoorDash’s cash-fueled rise and Uber’s ability to lose hundreds of millions on its Uber Eats delivery service every quarter, multiple options are likely welcome.
Postmates first filed to go public in early 2019, but its IPO failed to materialize. The company was also reported to be pursuing a sale in 2019 after it had filed to go public. An M&A exit also failed to appear.
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But 2020 is very different from 2019. With GrubHub’s bidding war behind us, Uber appears hungry for more volume, and the IPO market is surprisingly hot given the global pandemic. Postmates may have a number of viable options in front of it, instead of a continued grind as a private company.
The IPO market
So what to do?
Despite some blips, if Postmates has managed anything like revenue growth acceleration because people have been staying home and ordering more food and other goods, the company’s IPO story could prove attractive. If so, the firm could perhaps best what a cash-burning company can afford to part with in an M&A transaction by going public.
Let’s check the tape. It’s a commonly known fact that the public markets have favored technology companies this year, especially software companies. For many venture-backed companies, this is great news. For Postmates, it’s a slightly different equation, as its margins won’t match those of software companies, nor will its revenue recur in a similar fashion.
But, there are IPOs from this year that we can point to featuring companies that also do not feature strong margins or recurring revenue that did great. So, there is an IPO path for venture-backed startups and unicorns to go public even if they are not software entities.
Vroom
Vroom is my favorite example of this trend, as it has minute margins and large losses. Even better, its business is selling cars, which is hardly something that can recur monthly, quarterly or even yearly, really. And yet, Wall Street ate its shares up, boosting its IPO range from $15 to $17 per share to $18 to $20 per share, before the company priced at $22 per share. Vroom is worth $55 per share this morning.
Of course, Vroom was growing quickly. About 60% from Q1 2019 to Q2 2020. It’s not clear how quickly Postmates is accreting revenue — though if you know, please do send TechCrunch a note — but surely the company will have better than the roughly 5% gross margins that Vroom managed in Q1 of this year. If so, it may be able to post slimmer growth and still find a welcoming IPO audience. Perhaps it won’t price where it really wants to, but with retail enthusiasm pumping, the company’s stock could perform well post-debut.
Naturally the IPO path is a risk. Taking a reported $2.6 billion from Uber, about 8.3% more than its final private valuation of $2.4 billion would be a simpler win in that the company would exit for more than it was worth. But with the terms of its latter financings unclear, we don’t know if at that price common shareholders would do well or not; a financier-friendly exit at the expense of the folks who built the company might not be too tempting.
Postmates’ third option — going public via a SPAC — is pretty weird, especially for a company that previously filed to go public in a more traditional fashion. I doubt it’s a positive signal to swap from a regular IPO to a SPAC deal. Postmates also probably wouldn’t mind another $150 million or $300 million or whatever it could raise in a regular IPO on its balance sheets. Could the SPAC provide similar liquidity?
At this point you should doubt my motives and wonder if I just want to read the Postmates S-1 after all this time. (I do. I admit it.) But for a company that appeared unable to go public and unable to find a buyer, suddenly having three possible options on the table is exciting. Obviously, an IPO is the most fun of the three, but all three are good for Postmates in different ways.
Having viable options outside of selling to Uber means Postmates has more pricing leverage. Perhaps it can eke out another few hundred million in Uber shares and make its last investors a little bit more content.
Regardless, it’ll be a good show, and that’s what makes this industry fun to watch.