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Jeff Bezos
Amazon announced yesterday that founder step aside in the third quarter of this year to become executive chairman. Andy Jassy, who is the current CEO of Amazon’s cloud computing division, AWS, will replace Bezos as CEO of the entire company. The company’s 57-year-old founder said he would stay “engaged in important Amazon initiatives”, but focus his attention towards climate change, the space exploration and The Washington Post newspaper owned by him. The Financial Times has more.
Squeeze Game
What a volatile week. There are hundreds of articles on the attack of stimulus-funded retail traders who organized themselves on Reddit against hedge funds like Melvin Capital, so I will not dive into the details again. However, being a Menlo Park-based cloud platform, it is worth pointing out how Robinhood raised $1bn in convertible debt in a matter of hours on Thursday as the company received a notice from a clearinghouse to sharply increase its trading deposits and then raised another $2.4bn over the weekend. The round was led by Ribbit Capital, with participation from earlier backers ICONIQ Capital, Andreessen Horowitz, Sequoia Capital, Index Ventures, and NEA
Ad Tech
Apple’s “App Tracking Transparency” feature, which moves IDFA from an opt-out to an opt-in model, will be rolled out in spring. As a consequence, many ad-targeting companies will need to rethink app tracking sooner rather than later. TechCrunch has more.
Calendly
The company which helps users schedule and confirm meeting times, raised $350m from OpenView and Iconiq. Until this financing, Calendly had raised only $550k in total, while building a base of 10 million MAUs which generated $70m in recurring revenue last year. TechCrunch has more.
TikTok
Against President Trump’s and India’s actions towards banning TikTok in their countries, its parent company ByteDance grew revenues in 2020 by more than 100% YoY to about $37bn, mainly driven by robust ad sales. The company generated an operating profit over $7bn, vs. less than $4bn in 2019. More here.
Source: Azeem Azhar
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Roblox
The gaming company has postponed its IPO plans after the SEC expressed scrutiny of how the platform recognizes revenue in its finances. The delay is a setback for one of the most eagerly-anticipated IPOs for 2021. Reuters has more.
Coinbase
The cryptocurrency exchange Coinbase plans to go public via a direct listing. The company allows users to buy and trade decentralized tokens like bitcoin and ethereum and has raised over $540 million in private funding. The company unveiled that it had confidentially filed an S-1 with the SEC.
Squarespace
The nearly 18-year-old, NYC-based website builder, announced that it has filed for IPO. Squarespace raised just two rounds of VC funding from Accel and Index Ventures totalling almost $80m. The company was last valued $1.7bn in a $200m combination of primary and secondary secondary financing by private equity firm General Atlantic in 2017. Reuters has more here.
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New
Wix.com (WIX) - Target price: $350 (+26% to current)
Wix is an online platform that enables small business owners, freelancers, bloggers and SMEs to build their own websites and online stores.
Product: The Company provides solutions that business owners can use to operate various aspects of their business online, such as e-commerce, booking reservations and scheduling appointments. Wix provides users an intuitive front-end for visitors of their website, as well as a back-end management dashboard. The Company focuses on users in specific verticals, including retail and e-commerce, service providers, hotel and property management, media and restaurants. Templates for users in these verticals can be installed on any existing website and set up by the user without the need to write code.
The company has continuously launched new products over the last quarters in order to drive growth and expand its target market. For example, Editor X is a fully customizable tool aimed at professional web designers and agencies who want to have complete control over the design.
Market: There is a large and growing number of website builders which customers can choose from. The most prominent one is Wordpress with an estimated (relative) market share of 62% in 2020. Taking a closer look at the development of market share on a quarterly basis throughout 2020, we can see that Wordpress, Shopify (SHOP) and Wix grew most most strongly, while competitors like Squarespace and BigCommerce (BIGC) remained rather constant in terms of market share.
With the continued lock-downs in many countries, companies that focused on brick & mortar stores saw revenues drop while e-commerce players benefitted from an acceleration of the move to online shopping. If lock- downs are lifted as the numbers of vaccinations increases through 2021, we can expect to see a revival of brick & mortar shopping. However, even when stores start to re-open, companies are likely to add an online presence to their business in the future. In a more pessimistic scenario, under which there is a third wave of infections caused by mutations of the virus and renewed lock-downs, an even larger numbers of companies would be forced to focus on shifting its business online if possible.
Source: W3Techs
Financials: As of the last available quarterly financials, Wix is growing 29% YoY and is forecasted to have a positive EBITDA margin of 10.4% for 2020. With around $87m in net cash, cash flow positive operations and a strong momentum in the market, the company decided to invest more heavily into sales & marketing, which started in Q2-20. Given the company’s situation this is the prudent thing to do in order to capture a larger market share. As a result, the market consensus expects growth to accelerate to 31% in 2021. Wix’s rule of 40 value is a healthy 32%.
Public trading: In line with many other software companies, growth expectations and consequently valuations increased after the initial drop in March 2020. From its low of $80 per share in mid March, the company’s share price gained +288% over the course of 5 months, peaking at $310 in August. Since then, both price and trading volume has been decreasing slowly and the company lost some attention of the public market. On February 17th, Q4 result will be published.
Source: FactSet
Valuation: The chart above shows the development of the company’s share price against its TEV/NTM Revenue multiple, adjusted by its projected growth rate. The two valuation metrics moved in sync throughout the first half of 2020. Since August, however, the valuation multiple has contracted at a faster pace. This implies an opposite movement of the valuation of the company and its revenues: Not only is Wix growing at a faster rate than it was a year ago, but also the valuation is decreasing. This means that now, 6 months after the peak in August, the company has become larger while increasing growth perspectives, and at the same time is now cheaper, both in absolute and relative terms.
With a PPS of $277 and an expected growth rate of 31%, Wix is currently valued at $15.2bn, or 12.8x NTM Revenues. In comparison, Shopify is expected to grow 45% next year and is trading at a multiple of 40.3x, and BigCommerce is expected to grow only 18% while trading at a multiple of 31.2x. Applying a fundamentals-derived valuation, Wix’s price target is $350 per share, which translates to a NTM Revenue multiple of 16.3x. This is close to the consensus target price of $330 by equity analysts covering the company.
Source: Interactive Brokers
Overall, the company seems to be in a healthy financial position with attractive growth prospects and tailwind from a growing momentum in the market. The competitive environment is crowded and the possibilities for technological differentiation are limited. Nevertheless, the market is far from saturated and there is abundant room to grow for solutions with a broad offering and strong user experience. Public comps are trading at significantly higher multiples, both in nominal terms and on a growth-adjusted basis. With an acceleration of revenue growth to 31% over the next twelve months and positive cash flow, I believe that the company is significantly undervalued at a multiple of 12.8x and estimate a target PPS of $350 over the next 4 - 6 months.
Active
Appian (APPN) - Target price: $80 (-59% to current)
In my original analysis of the company, I set a price target of $80. Last week, simultaneous with price increases in other companies which have elevated short interest ratios, the price of APPN shares temporarily jumped to over $258. There have been no news or updates around or from the company and competitors with similar fundamentals still trade at around 16x NTM revenues. I therefore used the spike to sell more shares at $248 per share and reiterate my price target of $80 over a time-horizon of approximately 4 - 6 months. At this moment the PPS is at $196.
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NEWS | IPOS | OPPORTUNITIES | READING
On Clubhouse, Elon Musk said that 4.5-year-old company Neuralink, already has a “monkey with a wireless implant in [its] skull with tiny wires who can play video games with his mind.”
Students of Ivy League’s Columbia university have launched a tuition strike, saying the school's online classes aren't worth the money. More here.
Starship, the Estonian robot delivery shop, has completed its one-millionth autonomous delivery.
The best time of day to exercise.
GDPR fines in 2020 totalled €150m.
The live-streaming platform Twitch recorded 17bn hours watched last year.
Feedback, comments or questions are appreciated. Reach out any time and I will get back to you within a few days.
Disclosure: I am long WIX and short APPN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from paid subscribers of my newsletter. I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: I am not a registered investment, legal or tax advisor or a broker / dealer. All investment / financial opinions expressed by me are from personal research and experience and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.