Silicon Valley’s Billion Dollar IPOs
Tech IPOs have changed the way we think about going public: To hit the billion-dollar mark today, there’s no need to have assets, and value is something we can’t touch, or even see—it’s something we just feel.
The wildly successful Dropbox (NYSE:DBX) IPO last week saw shares skyrocket over 35 percent by close in New York, hitting $28.48.
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At a time when the market is plunging, and people are wondering if this 11-year-old company can even grow anymore, this IPO went crazy—and there wasn’t even a ton of hype around it like there was ahead of the Snap disaster.
Last year, the $2-billion Telegram ICO (initial coin offering) also shocked many, as the secure messaging service gained massive popularity among crypto enthusiasts—and it’s set to hit $1.7 billion now, making it the first billion-dollar ICO.
Next week, Spotify—the company credited with saving the music industry—will go public with its shares, and some are valuing it at $23 billion, which would make it the biggest tech company to go public in over five years.
These unicorns are challenging reality, and right now, they’re winning.
#1 Dropbox (NYSE:DBX)
This has been one of the most highly anticipated events on the tech IPO scene in quite a while. That’s because it’s been private for over 10 years, and many think it has an idea behind it almost as important as Google, Amazon or Microsoft.
Dropbox hit $1 billion at a record pace for a software company—making it a hugely attractive Silicon Valley unicorn. According to its filings, it had $1.11 billion in revenue in 2017, up 31 percent from 2016. It also operated at a net loss of $111.7 million last year; but it lost twice that the year before.
At the time of its IPO, it has 500 million registered users, with 100 million having signed up since the first quarter of 2017. Of those, 11 million are paying users, and the gross margin for Dropbox is 67 percent. Average revenue per paid user is up from 2016, but down from 2015.
It’s been compared to Google, which was still tripling in size when it reached the billion-dollar mark. It had legs. Does Dropbox? After all, it’s been around for a decade and not everyone sees growth keeping this pace.
The IPO showing would seem to suggest that the market thinks so—and this unicorn has lured in a lot of true believers. Related: China Poised To Overtake U.S. In Artificial Intelligence Race
What they’re eyeing isn’t an asset, or even what Dropbox is doing right now. They’re eyeing the possibility that this unicorn could become a Pegasus by turning into the only thing in storage. In other words, what Microsoft’s Windows is to operating systems, Dropbox could be to storage systems. And it’s already built most of its own technology infrastructure to make this happen.
It’s a critical infrastructure play—but one you can’t see. And this is why many feel it’s still in the very early stages of growth, not at the end of its life.
The next billion might not be as easy to make, or as fast—but with its own specialized technology and a playing field in which the sky is quite literally the limit, this asset-less tech IPO’s explosive debut might not be crazy at all.
#2 Telegram Group Inc.
In February, Telegram broke world records for new cryptocurrency sales. Now, it’s poised to hit the $1.7-billion mark, making it the first-ever billion-dollar ICO. It’s set to raise another $850 million with round two of the ICO, Bloomberg reported last week.
And all of this is happening despite the dipping sentiment for crypto after a tough month for Bitcoin and other digital currencies.
Telegram seems unstoppable.
Now it’s got 200 million users worldwide, and there has even been talk that it could challenge Facebook.
The Russian-created secure messaging service is a massive crypto playground, and its true believers see it as the blockchain investment of the century.
It’s gone far beyond secure messaging. It’s where the crypto crew is increasingly sharing market news, crypto tips, and more. Basically, it’s become the main communication platform for token sales and ICOs.
And it’s a game for whales.
According to SEC filings, the first $850 million Telegram raised came from only 81 investors, which means an average $10.5 million per investor.
Telegram is even more evidence that the world of offerings is changing irrevocably. Not only are we looking at zero assets, but this company doesn’t even advertise for its users. This is a cryptic world that thrives on digital ‘word of mouth’.
Next up is Spotify, the music streaming behemoth that’s preparing to list its shares directly on the NYSE, sparking talk of a possible $23 billion-valuation thanks in part to new deals with three major record labels.
There’s no costly IPO here, and it will list under the SPOT ticker, with shares to start trading on 3 April.
This year, Spotify sold its shares for $132 each in private transactions, compared to last year’s range of $37.50 to $125 each. If we stick within this range to calculate valuation based on stock price and outstanding shares, we get anything from $6.3 billion to over $23 billion.
If Spotify were to hit a $23-billion valuation, it would hold a significant claim to fame as the biggest tech company to go public since 2012. That would be a major accomplishment for a company that lost $1.5 billion last year.
Spotify CEO Daniel Ek says he will make record labels and publishers obsolete and get rid of the music world’s gatekeepers.
But news flow over the past couple of weeks hasn’t been great.
If investors are going to jump on board, though, they’ll want to see some major improvement on gross margins. Spotify isn’t making any money, and the path forward isn’t all that clear. It may have saved the music industry, but as Bloomberg notes, whether it can save itself is another question.
By Charles Benavidez for Safehaven.com
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