NEWS | IPO & SPAC | OPPORTUNITIES | READING
Big Tech’s New Tools & Features
Amazon’s Echo Show 10 brings a display with a built-in motor and camera that track and follow you around the room.
Twitter announced its first paid product, called “Super Follow”, that will allow users to subscribe to their favorite creators in exchange for exclusive content, subscriber-only newsletters and a supporter badge. The feature aims to combine “the community trends of Discord, the newsletter insights of Substack, the audio chat rooms of Clubhouse and the creator support of Patreon” into one creator subscription. Techcrunch has more.
Netflix launched “Downloads for You”, a new feature that automatically downloads content you’ll like. If you enable “Downloads for You”, Netflix will download recommended content to your phone based on your tastes according to your watch history. After turning on the feature for the first time, you’ll be able to select the amount of storage space you want to dedicate for these recommended downloads. Techcrunch has more.
Facebook’s R&D group, the NPE Team, released an app that enables rappers to create and share their own rap videos. The app, which is called BARS, lets you choose a professionally created beat, auto-tune it and even suggests rhymes as you write the lyrics.
Spotify announced a high-end subscription offering, called Spotify HiFi, that will provide “CD-quality, lossless audio.” The pricing and launch date have yet to be announced.
Android’s latest update will let you schedule texts.
Big Tech vs Journalism, continued …
On Monday, Facebook announced that it had come to an agreement with the Australian government to allow users and national media companies to again share and view links to news content on its platform. Previously, Facebook had blocked any Australian news links on its site due to the planned law that would force tech companies to pay publishers for content that appears on their sites. The Guardian has more.
Semiconductors
The semiconductor supply chain took a hit in 2020 since much of the global supply relied on China and Taiwan as main manufacturers. As a global chip shortage is impacting products in a range of industries from medical supplies to electric vehicles, Joe Biden signed an executive order to strengthen the supply chains and making industries less reliable on potentially unstable sources of chips. More here.
Digital Currency
FED Chairman Jerome Powell announced in Congress earlier this week that it is closely considers issuing a digital US dollar. In June 2020, the Senate Banking Committee already held a hearing on the future of the digital dollar after China began testing its own digital currency, the DCEP, which will be used in popular apps such as WeChat and AliPay. The EU and other countries are also thinking about introducing digital versions of their currencies. Given the technical and political complexities, …
NEWS | IPO & SPAC | OPPORTUNITIES | READING
Coinbase
After doubling revenues to over $1 billion in 2020, Coinbase has filed for a direct listing on the Nasdaq, instead of a traditional IPO route. The company states in its S-1 filing “Our net revenue is substantially dependent on the prices of crypto assets and volume of transactions conducted on our platform. If such price or volume declines, our business, operating results, and financial condition would be adversely affected”.
On the Nasdaq Private Markets, shares in Coinbase traded at a PPS of $373, implying a valuation of over $100 billion. If the share prices stays at or above this level, the company’s initial public valuation could be the largest by a US tech company since Facebook’s IPO in 2012. The company did not yet set a date for its trading debut.
Coinbase has been increasing its global market share and as of December 2020, the total value of crypto assets on its platform represented 11.1% of the total market capitalization of crypto assets.
Source: S-1
SPACs
Blank-check companies are being funded at an unprecedented pace. So far this year, over 160 SPACs have raised a total of more than $48 billion. As a reference, over the entire year of 2020, which had been a record year for SPACs, 248 blank-check companies raised a total of $83 billion. A look inside VC firms joining the SPAC rush.
TransferWise
The developer of the money transfer application designed to send money abroad, is rebranding as “Wise” ahead of its expected IPO. Originally launched in 2011 as a money transfer service for people, today the company processes £4.5 billion in cross-border transactions every month. In July 2020, Fidelity and other investors acquired a secondary stake in the company at a valuation of $5 billion. More here.
Joby
The 11-year-old, company Joby Aviation has spent a more than a decade developing an all-electric, vertical take-off and landing passenger aircraft and is now going public through a merger with Reinvent Technology Partners, a SPAC from LinkedIn co-founder Reid Hoffman and Zynga founder Mark Pincus. The merger values Joby at $6.6 billion. What’s unusual about the transaction is that it includes a 5-year lock up period for all major shareholders, including the SPAC, to ensure a long-term alignment of interests. Additionally, the deal includes an earn-out structure that fully vests only when the share price reaches $50, which represents a 5x over the merger price. Techcrunch has more.
Berkshire Grey
The 8-year-old robotics and AI logistics company Berkshire Grey is going public through the merger with a SPAC called Revolution Acceleration Acquisition Corp. The company was backed by NEA, Softbank and Khosla, and was previously valued at $225 million in 2018. In 2020, the company generated $35 million in revenue. The current transaction values Berkshire Grey at $2.7 billion, or 77x LTM revenue. More here.
NEWS | IPO & SPAC | OPPORTUNITIES | READING
Top Picks
Here is my list of some of the most attractive opportunities in public cloud companies based purely on fundamentals. I am doing deeper due diligence on each company on the list as time allows.
New Opportunity
Docebo (DCBO) - Target price: $70 (Long, +61%)
Docebo is a learning management software (LMS) used by enterprises to facilitate training for employees, partners and customers.
Product (video)
The company does not create any learning content itself but offers customers a platform to manage existing learning content, customize assignment and interaction with different user groups, both internally and externally, and provides a single pane of glass to monitor and control learning & development (L&D) processes across an organization. The platform is easy to use for both administrators and learners, which encourages engagement and adoption. The company has one of the industry’s most comprehensive solutions for training management and, accelerated by the pandemic, sees strong adoption by a Tier-1 customer base.
Source: Q3-20 report
Docebo’s platform has an integration into Salesforce as well as a sales-enablement platform to more effectively onboard news sales reps and decrease the ramp up time. Additionally, the company has a strong mobile solution and allows customers to combine different gamification features with their learning content.
Market
The market environment counts a growing number of competing solutions of different sizes. According to the industry renowned Fosway, one of Europe’s leading HR industry analysts, Docebo has a high presence in the market and is categorized as a strong performer with a lot of potential. Differentiation through better tech is limited in this market, but switching costs from deep integration within organizations provide some competitive moat. Therefore it makes sense for players in the space to expand their offering to increase the stickiness of their product suite. Cornerstone for example offers complementary recruiting and HR management solutions as part of its product portfolio.
According to Valuates Reports, the LMS market is expected to grow by 21% p.a. to $30 billion by 2025, driven by innovation in eLearning tools, the increasing trend of BYOD (Bring Your Own Device) and growing enterprise mobility. Due to its cloud-based deployment model, LMS is becoming more popular among companies which have an interested in training their employees regardless of their geographical location.
Source: Q3-20 report
Financials
Docebo is relatively small for a Nasdaq-traded public company. In September 2020, the firm had $65 million in ARR and approximately 2,000 customers with an average ACV of $32,000. More than 3/4 of its ARR comes from customers that are subscribed to a multi-year contract, which provides good visibility of future revenues.
One of the financial highlights is the company’s capital efficiency: From 2016 to Q3-20 the company burnt $16 million in cash to generate $54 million in net new ARR, which represents a capital efficiency ratio of 3.4, in a market that typically sees ratios of less than 1.
In Q3-20, Docebo was growing at 55% YoY, which is ok but not great for a company of its size. As the economy adapts to doing a lot more business digitally, an increasing amount of e-learning content is created and LMS providers like Docebo are likely to see elevated growth levels for the foreseeable future. As a result, the consensus of analysts covering Docebo expects to see sustained growth of 50% in 2021.
Docebo has a high gross margin of 82%, a strong balance of growth and profitability, expressed by a rule of 40 value of 52%, and has sufficient cash on the balance sheet to invest in sustaining a higher growth rate. In December 2020, the company raised $166 million through an offering on the Nasdaq, which it will use to “pursue its growth strategies”.
On March 11th, the company will announce its Q4-20 performance.
Valuation
After last week’s price correction, the company is now trading at a NTM revenue multiple of 16.3x. There are some plausible explanations for this low valuation:
1) The market is quite competitive with a large number of players and little potential for technological differentiation. Cornerstone (CSOD), for example which is considered one of the main players at around 10x the revenue size of Docebo, is expected to grow only 15% in 2021 but is also trading at a low multiple of 5.2x.
2) So far growth has exclusively been organic but the company will soon need to add inorganic growth sources to sustain high growth levels at scale. If Docebo can perform on its budget and grow to ARR levels of $150 million - $200 million, we may see higher multiples for the same level of growth as confidence in the company’s ability to execute grows and its market position strengthens.
Source: Factset, currency in $ CAD
In Summary
Docebo has one of the most comprehensive LMS solutions in the market. The company has managed to generate good traction with a Tier 1 customer base and is well positioned to benefit from a growing momentum going into 2021. The current valuation is discounting a crowded competitive landscape with little possibility for technological differentiation. Given the company’s small size, there is some need to believe that it can execute according to budget, maintain high growth levels and that market multiples will not contract significantly.
Nevertheless, with an expected growth rate of 50% in 2021, the company’s valuation of 16.3x NTM revenues represents an attractive buying opportunity after the recent correction. Based on a fundamentals-driven valuation, my price target is $70, which implies a 61% upside from its Friday close and is a little higher than the analyst consensus of $64.
Active
Pexip (PEXIP) - Target price: $30 (Long, Analysis)
Exited
Appian (APPN) - Realized profit: +20%
Despite my price target and consensus price targets being still lower, I used this week’s correction in tech stocks to take profit with APPN at a PPS of $166. The short position helped me cover most of last week’s losses in long positions. According to my model there is now a range of attractive opportunities on the buy side so I decided to realize an ok profit of around 20% with Appian and focus on new opportunities.
Other
Agora (API)
Lost almost 40% since I mentioned it 3 weeks ago. I was on the sidelines for this one.
NEWS | IPO & SPAC | OPPORTUNITIES | READING
Market shares and competition in big tech are changing.
Global debt-to-GDP rose to 356% in 2020, a 35% increase over 2019.
Ray Dalio: “Are we in a stock market bubble?”
LinkedIn is building a freelancer marketplace.
Deepfakes #Tomcruise.
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Disclosure: I am long PEXIP, DCBO, ESTC, FROG, JAMF, QTWO. 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.