Welcome to Tuesday of TechCrunch Disrupt week. In a few hours, I’m hosting a panel about how startups can reach $100 million in annual recurring revenue (ARR) with the CEOs of Egnyte, GitLab and the president of Kaltura. It’s going to be a jam. Bring your questions!
Right now, however, let’s talk about some bigger companies, namely all the unicorns that are going public this week. We can set aside Corsair Gaming, Palantir and Asana, as they debut next week. This morning let’s get settled on what’s ahead for JFrog, Snowflake, Sumo Logic and Unity.
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We explored the most recent pricing ranges for Snowflake and JFrog yesterday, helping set the stage. With both companies setting new, richer price targets for their debuts, the technology market looks hot. That’s good news for Sumo Logic and Unity, which should also begin trading this week.
Read on for your cheat sheet on all things upcoming from the realm of IPOs, and, in response to a Twitter kerfuffle, notes on why Snowflake is seeing such investor demand despite a history of losses. It’s a good day to remind ourselves why some losses are very bad and others are pretty OK, given a certain set of circumstances.
Big-ass IPO week
After trading today we expect to see JFrog and Snowflake price their IPOs. As a quick reminder, this is what the two companies are expecting, starting with developer-focused service provider JFrog:
- Price target: $39 to $41 per share.
- Implied valuation range: $3.46 billion to $3.64 billion, discounting underwriters’ shares.
- Final private valuation: $1 billion.
Up from an initial IPO price range estimate of $33 to $37 per share, JFrog could price above its raised range given its attractive mix of recent profitability, limited cash consumption and growth. JFrog should price after market close today and trade tomorrow morning.
Next, a refresh on the latest from Snowflake:
- Price target: $100 to $110 per share.
- Implied valuation range: $27.73 billion to $30.5 billion.
- Final private valuation: ~$12.5 billion.
Recall that Snowflake managed to boost its IPO price range from $75 to $85 per share earlier; the hype could boost its price, but the company is getting mighty expensive. Why? Here’s as short an answer as we can manage:
Snowflake’s data-focused service has all the things that investors love: Improving margins, improving profitability, quick growth, and customers that stick around and spend more in time. The company’s gross margins improved from 46% in its fiscal year ending January 31, 2019 to 56% in the next fiscal year. In the six months ending July 31, 2020 its gross margins reached 62%. Regarding profitability, Snowflake cut its net losses as a percent of revenue from 170% in the two quarters ending July 31, 2019 to 71% in the same period of this year. That’s a steep reduction in corporate unprofitability. Regarding growth, one set of data points makes the case: Snowflake grew from $104 million in revenue during the six months ending July 31, 2019 to $242 million in the same period of 2020. That’s insane. And, Snowflake customers keep buying more of the service after they are secured (making its past sales and marketing spend more lucrative over time, and thus some of its historical losses more palatable), as shown by the company’s claimed 158% net retention rate as of July 31, 2020. That’s an incredible number.
In short, every number is pointing in the right direction, and investors think that Snowflake’s ~$533 million run rate set in July 2020 has room to multiply.
Snowflake is expected to price after the bell and trade tomorrow.
Next we turn to Sumo Logic, which is expected to price Wednesday after the bell and trade Thursday morning. Our first look into this S-1 holds up, but here’s the latest:
- Price target: $17 to $20 per share.
- Implied valuation range: $1.68 billion to $2.07 billion.
- Final private valuation: $1 billion.
With no pricing range change thus far, there’s not too much more to say here, other than that Sumo Logic is a somewhat standard SaaS company. It doesn’t have JFrog’s profits, or Snowflake’s epic growth. So, how this company prices and trades will probably be a fairer barometer for the startups in the audience regarding what they might be able to expect when they try to go public.
And, finally, Unity. Unity’s IPO is going to be a big damn deal. Here are the brass tacks:
- Price target: $34 to $42 per share.
- Implied valuation range: $8.95 billion to $11.1 billion.
- Final private valuation: ~$6 billion.
Another big IPO win for even its final investors, it appears. Notably Unity has not filed a second S-1/A, at least as of the time I write to you. I almost anticipated another filing with a higher price range from the gaming technology company that TechCrunch has covered at length lately.
Unity’s IPO could make it a double-decacorn week. When’s the last time we had one of those? And with Asana and Palantir coming next week, we’re set for six major IPOs in two weeks, not counting smaller debuts like Corsair Gaming that are a bit off our radar. This is a liquidity storm. This is good.
Now, we just need another dozen or two of these periods, and we’ll have made real progress in unlocking some of the world’s frozen unicorn value.