Olo’s IPO could value the company north of $3B as Toast waits in the wings

Olo, the New York-based fintech startup that provides order processing software to restaurants, shared its initial IPO price range this morning. The company’s debut comes ahead of the expected IPO of Toast, a Boston-based unicorn with a similar market remit.

Targeting $16 to $18 per share, Olo could raise as much as $372.6 million in its public offering.

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Unlike most companies going public in recent quarters that we’ve tracked, Olo has a history of growth and profitability, making its impending pricing all the more interesting. It’s unknown if Toast is profitable, but because most venture-backed IPOs aren’t, we’re presuming it isn’t.

This morning, we’re doing our usual work: parsing the company’s pricing interval to get a valuation range for Olo. We’ll calculate both simple and fully diluted pricing and then do some quick work on its revenue scale to come to grips with its total scale.

Are investors willing to pay more for profits? And, if so, how much? This is a niche question because most IPOs look a bit more like Coursera than Olo, but it’s still worth answering.

Olo’s IPO valuation range

If you’d like to follow along, you can read the new S-1 filing here. Our first look at Olo is here, and its fundraising history is here, per Crunchbase.

The company is targeting $16 to $18 per share with an expected sale of 18 million shares. The company is also reserving 2.7 million shares for its underwriters. At the upper end of its range, not counting shares reserved for its bankers, Olo could raise $324 million in its debut.

Per the company, its total number of Class A and B shares outstanding after its IPO would come to 142,012,926, or what we calculate to be 144,712,926 shares, including its underwriters’ option. Using the latter — because we tend to look for valuation extremes — Olo would be worth $2.32 billion to $2.6 billion.

But what about its fully diluted valuation? Adding in shares that are currently tied to unexercised but vested stock options bring Olo to around 188,085,714 shares. Add in the underwriters’ option and the total rises to 190,785,714 shares.

Using the latter figure, at $16 and $18 per share Olo could be worth $3.05 billion to $3.43 billion on a fully diluted basis.

Is that expensive?

Let’s find out! Digging back into Olo’s growth, we can see a business with rapidly expanding software incomes. And the same software revenues are improving in quality over time. From 2019 to 2020, for example, Olo’s “platform” revenues — a mix of subscription and transaction top line from software — grew from $45.1 million to $92.8 million. Over the same time, the company’s platform revenue saw its gross margin improve from 73.6% to 84.5%.