Investors bet that Sweetgreen will make sweet amounts of green

American fast-casual salad chain Sweetgreen priced its IPO at $28 per share yesterday. Selling 13 million shares in its IPO, the company’s early gross proceeds from the transaction total $364 million, before taking shares reserved for its underwriting banks into account.

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For Sweetgreen, the pricing is a win. The company initially expected to price between $23 and $25 per share, meaning that it sold shares at a higher price than it had anticipated. And Sweetgreen sold 500,000 more shares in its IPO than its final S-1/A filing indicated.

Given that investors made a larger, more expensive bet on Sweetgreen than we might have anticipated, there’s work to do.

Let’s calculate the company’s IPO valuation, using both simple and fully diluted share counts. Then we’ll dig into Sweetgreen’s final IPO revenue multiple to understand how investors are truly valuing the company. From there, we’ll see if the company’s valuation squares up with what we’ve seen from other recent technology-enabled IPOs.

Why are we paying attention to Sweetgreen? Because it started raising external capital in the mid-aughts and kept at it through a Series I in 2019. More simply, a host of private investors, including venture capitalists, bet on Sweetgreen. So, we care.

Sweetgreen’s IPO valuation

Before it added 500,000 shares to its IPO — 575,000 if we include 75,000 shares placed into its underwriters’ option pool — Sweetgreen expected that it would have 106,311,529 shares outstanding after its IPO. That figure rises to 108,761,529 shares if we count the additional equity sold and the full total of shares reserved for underwriters.

At that new share count at $28 per share, Sweetgreen is worth $3.05 billion.

Renaissance Capital calculated that at the midpoint of its early range ($24 per share), before shares were added to its IPO, Sweetgreen would command a fully diluted market cap of $2.9 billion. Converting that to $28 per share gives us an estimate of around $3.4 billion

For a company last valued at $1.65 billion, per Crunchbase data, the company’s IPO pricing gives it a very solid repricing, doubling its final private valuation.

Now let’s talk multiples. For reference, here are the company’s key metrics from its most recent quarter (the 13 weeks ended September 26, 2021):

  • Revenue: $95.8 million.
  • Net loss: $30.0 million.

The company’s most recent quarterly revenue result put it on an annual run rate of $383.4 million. At our calculated $3.4 billion fully diluted valuation, Sweetgreen is worth around 8.9x its revenue pace.

In the wake of the Rent the Runway and Allbirds IPOs, The Exchange noted that there was a loose valuation range forming for tech-enabled IPOs:

It’s too soon to write out a new rule of thumb, something like tech-enabled valuations at IPO for companies that remain unprofitable but are seeing double-digit year-on-year growth should see a mid- to high-single-digit multiple. But when we do get pricing information from Sweetgreen, we’ll have another data point for our mix. At that point, we might have enough numbers to issue an edict.

Rent the Runway was valued at around a 7x multiple when it went public. Allbirds was around 9x. Today’s Sweetgreen pricing is right in there, making our guess at a valuation range for such business — expressed in revenue multiple terms — a bit more precise than we might have anticipated.

Sweetgreen is being valued like a high-quality, tech-enabled business. Which is not a diss; getting a nearly 9x revenue multiple for running a food business is wildly good. That’s what, 2015 software prices for salads? How can we call it anything but a win?

Of course, we are incredibly curious how the company will trade later today, and how it will approach balancing growth and profitability as it scales, bringing more Sweetgreen to the world.

We had our issues with the company’s results and one or two of its adjusted metrics. But it appears that investors did not, which is to say that — once again — this column has found itself on the bear side of a financial conversation. I’m not even going to pretend that I am contrite.

Instead, I will simply use the moment to highlight the exuberance of today’s public markets. They are willing to pay top dollar for even lower-gross-margin businesses. So, any unicorn that is putting off going public today is taking on inherent risk by not leveraging the current climate. I cannot imagine a good reason to not debut now, period.