NEWS | IPOS | OPPORTUNITIES | DATA
Facebook
As a precaution against coordinated violence arond President-Elect Biden's inauguration next week around, Facebook announved that it would block any events supposed to happen near the White House, the U.S. Capitol or any state capitol building. TechCrunch has more here.
WhatsApp
In early January, WhatsApp sent users a notification asking them to consent to sharing some of their personal information, including their phone number and location, with Facebook. The alert also said users would have to agree to the terms by February 8 if they wanted to continue using the app. Now the company is pushing the enforcement date back three months and has published a new FAQ page outlining its position on user privacy in response to widespread backlash over the privacy policy update.
“No one will have their account suspended or deleted on February 8. We’re also going to do a lot more to clear up the misinformation around how privacy and security works on WhatsApp,” the company said in a post. “We’ll then go to people gradually to review the policy at their own pace before new business options are available on May 15.” More here.
NEWS | IPOS | OPPORTUNITIES | DATA
Affirm
Affirm opened trading last week at more than $90 per share and closed its first day at $97, up nearly 100% from its already-elevated IPO price. After closing, the company had a market cap of $23bn, compared to its last valuation as a private company of $2.9bn in 2019. CNBC has more.
Bumble
The dating and networking service Bumble has filed to go public. The company, launched by former Tinder cofounder Whitney Wolfe Herd, plans to list on the Nasdaq, using the ticker symbol “BMBL.” Bumble’s planned IPO was first reported in December. Techcrunch has more.
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APPN - Target Share Price: $80
Appian provides a low-code software development platform that enables organizations to design, build and implement enterprise-grade custom applications with little or no coding required.
Technology: It started in the Business Process Management (BPM) market and focuses on complex business processes and applications that require sophisticated automation, rules and analytics capabilities. The company’s technological differentiators include prebuilt no-code integration with various AI services and support for DevOps with automated continuous integration/ continuous delivery (CI/CD) for enterprise IT shops. Appian is most suited for professional developers in terms of the ease of use of its proprietary expression and scripting language, making it more difficult for smaller companies to adapt its solution.
Market: As companies are looking for solutions to automate development processes and operational workflows, the low-code/ no-code subsector is starting to gain momentum with an increasing shortage of qualified developer talent. Competing players in the market include ServiecNow (NOW), Pegasystems (PEGA), Mendix, Kony, OutSystems, Betty Blocks, Oracle (ORCL), Microsoft (MSFT) and Salesforce (CRM). Gartner’s Magic Quadrant for enterprise low-code application platforms provides a good initial overview of the crowded market which counts a quickly rising number of small, privately owned challengers. While not as big as the largest enterprise software vendors, Appian has a long list of enterprise customers and also government agencies running its platform, which should ensure its long-term viability in the market.
Financials: As of the last available quarterly financials, Appian is growing 17% YoY and has an EBITDA margin of -7.8%. In 2020 the company burnt $13m of cash, which is expected to increase to $14m in 2021. As the company tries to turn break-even, it has little room to increase its low current growth rate as it struggles to balance growth and profitability. This is reflected in its rule of 40 value of 7% compared to the BVP cloud index median of 39%. As net retention declined from 121% in Q3-19 to 115% in Q3-20, sales execution is the main challenge for the company going forward. With $190m in net cash on the balance sheet, the company has sufficient runway to turn profitable.
Public trading: Starting in November 2020, the company’s share price increased from $60 to shortly over $200, before swinging back to $150 and currently $180. On November 5th, the company announced its Q3 results. Revenue beat consensus estimates by 9% and earnings were break-even against a consensus estimate loss of -$0.17 per share. This resulted in a price jump of 10% which kicked off the 2x increase over the rest of November. Before the price jumped from $140 to over $200, the short interest of Appian’s shares was >20% (a value of >10% is considered high and the median in the BVP cloud index is 5%). Thus it is possible that the increase was partially driven by squeezed short sellers in need to cover their positions. Abdiel Capital, a NYC-based hedge fund, who slowly acquired a roughly 12% stake in the company over the last 3 years, started selling a significant portion of its position at around $150 per share as the price started to spike.
Source: Financial Times
Valuation: Appian is currently valued at a high 36.4x NTM Revenues, which is the 9th highest in an index of +60 SaaS firms. Cloud companies which are traded at such premium valuations can typically show NTM growth rates of 35% - 45% and rule of 40 values of 80% - 100% to justify their price. Applying a fundamentals-derived valuation, Appian should be valued at a share price of $78, which translates to a NTM Revenue multiple of 16x. This is close to the consensus target price of $84 by equity analysts covering the company.
In summary, the promise of low-code/ no-code solutions is appealing and the market is expected to benefit from an accelerated move to the cloud and increased DevOps automation over the next few years. However, Appian is performing only moderately well as it struggles to balance growth and profitability. The SaaS market values future growth above all other metrics and an expected NTM growth rate of 10% is not enough to justify a valuation multiple of 36.4x. Comparable companies with similar fundamentals are valued at ~15x NTM revenues, which is close to my target valuation of 16x. After analyzing fundamentals, technology, market environment and comparable companies, I believe the company is significantly overvalued and estimate a target share price of $80.
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Last year, WisdomTree Cloud Computing ETF (NASDAQ: WCLD) gained almost 110%, one of the best returns among non-leveraged ETFs.
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Disclosure: I am 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.
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