Subscribe to the SA国际传媒 Daily

Casper intends to list its shares on the NYSE under the symbol CSPR. Although the company hasn鈥檛 disclosed the precise number of shares it intends to float, the filing states that it intends to raise $100 million in the offering, a common placeholder value. The filing is still 鈥渟ubject to completion鈥� and we should expect to see amendments to it between now and its debut.

, and are the lead underwriters of the deal.

The Numbers

Touting more than 1.4 million customers who have bought one or more of the company鈥檚 27 sleep products, the company says that as of the end of Q3 2019, more than 16 percent of people who already own at least one Casper product since the company鈥檚 inception have made a repeat purchase.

Casper reported net revenue of $312.3 million for the first nine months of 2019, up 20.3 percent from $259.7 million for the same period a year prior. The company also reported losses of $67.4 million for the first three quarters ended September 2019–up about 5 percent from the same period in 2018. So while net loss increased, it wasn鈥檛 by much, especially considering its revenue growth during the same time frame.

In terms of cash, the company鈥檚 free cash flow was -$69.3 million for the first nine months of 2019, compared to -$52.2 million during the same period last year. This can be attributed to more spending in investing activities.

The company says it has expanded its gross margin over time 鈥渇rom 42.8% in 2016 to 44.1% in 2018 and to 50.7% for the three months ended September 30, 2019.鈥�

Funding History

According to SA国际传媒 data, Casper has , most recently in a $100 million Series D deal announced in March 2017. The round valued Casper at roughly $1.1 billion, post-money. SA国际传媒 News covered the round and IPO rumors at the time.

Casper disclosed that entities affiliated with (an investor ), (lead investor ), and Red Cart Ventures (the corporate investment arm of , which led ) each hold greater than 5 percent of outstanding shares. and Vaizra US I, LP are also listed as significant investors.

The Risks

Reading through a company鈥檚 risk factors is always interesting (so interesting that we picked our favorites from last year鈥檚 IPOs). While Casper lists the common risks most companies have to disclose, such as the big one of never turning a profit, it also lists risks that are specific to direct-to-consumer brands, such as the risks, costs and potential regulation of using social media for marketing.

鈥淯se of social media and influencers may materially and adversely affect our reputation or subject us to fines or other penalties,鈥� the company wrote in the filing.

滨濒濒耻蝉迟谤补迟颈辞苍:听

Subscribe to the SA国际传媒 Daily

Sprout, which was founded in 2010 and launched publicly the following year, has capitalized on organizations鈥� focus on social media and social media鈥檚 reach to build a platform to manage it all. Its software combines data, workflows and social messaging so that users can manage their social media all from one place.

The company has 23,000 customers in 100 countries, according to its S-1 filing.

Sprout鈥檚 2018 revenue was 99 percent sourced from software subscriptions. The same percentage (99 percent) of its revenue came from software subscriptions the first nine months of 2019. The company estimates that the market opportunity for its product is $13 billion in the United States. And since about 30 percent of its revenue came from customers in other countries in 2018, Sprout believes the international opportunity is 鈥渁t least as large.鈥�

The company鈥檚 IPO comes during a somewhat quiet period for technology offerings, despite such debuts having a strong start to the year in terms of offering volume and dollars raised. Sprout is also pursuing an IPO immediately after WeWork pulled its IPO and had to secure emergency financing to avoid running out of cash. Its results will therefore have more weight than its flotation might have carried had it come in June.

Let鈥檚 explore its history and its financial results on this lovely Friday.

Prior Venture Funding

According to SA国际传媒 data, Sprout Social has raised roughly . The company was founded in 2010 and raised from Chicago-based VC firm in May of that year. Sprout Social is the first company Lightbank backed since its first round to go public. It won鈥檛 be the firm鈥檚 first exit via IPO, however. Lightbank also invested in (first check ) and (first check ).

Sprout Social鈥檚 last private market financing was , closed in December 2018, which valued the company at roughly $800 million, post-money. That deal was led by the Australian sovereign wealth and saw participation from (which led ) and (which led ).

The company has a dual-class share structure which grants holders of Class B founder shares ten times the voting power as holders of Class A shares, primarily assigned to investors. Co-founders and own 37.4 percent and 41.5 percent of Class B shares, respectively, concentrating the surpassing majority of voting power in their hands.1

Stockholders in a company not only have some governance control (however nominal) over the company; their fate is tied to its financial performance.

Financial Results

Sprout Social鈥檚 business combines majority subscription revenue with a sliver of services income. As such, the business is effectively a pure-SaaS play. We can, therefore, understand it.

The company has historically grown quickly, scaling from $44.8 million of revenue in 2017 to $78.8 million in 2018. That roughly 76 percent gain led to slightly smaller deficits, with the firm鈥檚 net loss slipping from $21.9 million in 2017 to $20.9 million in 2018.

More recently Sprout has continued to grow. That growth, however, has slowed. The company鈥檚 revenue in the first three quarters of 2019 amounted to $74.6 million, up from $56.5 million in the same time period of 2018. Sprout has therefore posted just 32 percent growth in 2019.

And its losses are rising, from a net loss of $17 million in the first nine months of 2018 to a $20.9 million net loss in the same time period of 2019.

A large portion of that larger loss ($5.4 million) stemmed from share-based compensation that was not present in the same period of 2018. Strip out that cost, and the company鈥檚 net loss is smaller than in the preceding year; that fact could help Sprout secure a higher valuation than it might have if its rising losses were more heavily tied to cash-based results.

There鈥檚 good news to be found as well. Sprout鈥檚 gross margins are improving. Its subscription revenue gross margin grew from 72.6 percent in the first three quarters of 2018 to 74.3 percent in the same period of this year. (Investors love high gross margins as they make revenue efficient in helping the business cover its own costs and, hopefully, generate profit.)

Sprout Social had $12.6 million in cash, slightly less than its negative free cash flow from the first three quarters of the year ($13.6 million).

SaaS Bits And Bolts

For SaaS fans, some metrics. The company鈥檚 aggregate Q3 2019-ending ARR was $109.5 million, of which $103.9 million of recurring revenue being what the company calls 鈥淥rganic ARR.鈥� The second number appears to strip out some 鈥渓egacy鈥� incomes, providing a clearer look at the company鈥檚 current operating business.

Continuing on the subscription theme, Sprout鈥檚 number of customers contributing $10,000 ARR or more grew from 1,157 at the end of Q3 2018 to 1,965 at the conclusion of Q3 2019. That鈥檚 a gain of just under 70 percent, a heartening result for its investors we presume.

Finally, this is a SaaS business so let鈥檚 explore how much Sprout鈥檚 customers raise their spend on its products each year:

Our dollar-based net retention rate for the years ended December 31, 2017 and 2018 was 108% and 106%, respectively. Our dollar-based net retention rate excluding our SMB customers for the years ended December 31, 2017 and 2018 was 118% and 115%, respectively.

What does that mean? It means that Sprout鈥檚 largest customers tend to spend a mid-teens percentage more each year that they are a customer. That makes growth for Sprout easier to achieve, and less expensive than it would be without upselling its existing client base. The SMB-inclusive numbers (the smaller set) indicate that even with its smaller accounts, Sprout still sees what we loosely call positive dollar churn.

Summing then, Sprout isn鈥檛 super unprofitable and 诲辞别蝉苍鈥檛 have titanic cash burn. Its SaaS metrics seem pretty good, but its recent growth pace feels light. Valuing the company will therefore come down to how investors weight its relatively short path to profitability against its (comparatively) slower growth rate.

Watching how Sprout prices, therefore, will be an education.

滨濒濒耻蝉迟谤补迟颈辞苍:听

Subscribe to the SA国际传媒 Daily

The popular exercise company . You can read our full notes here.

This is what you need to know:

• Peloton’s revenue in its most recent fiscal year was $915 million, up more than 4x from 2017.
• That growth was expensive. Peloton’s sales costs have shot higher in recent quarters.
• The company’s net loss ($195.6 million in its fiscal 2019) was up more than 4x from its fiscal 2018 deficit.

Peloton also consumes cash to fund its operations and investing activities.

The firm’s growth will make it attractive to investors chasing quickly expanding companies. Its losses as a percent of revenue are not staggering. And if Peloton can moderate its sales costs, it could draw a path to profitability.

滨濒濒耻蝉迟谤补迟颈辞苍:听

Subscribe to the SA国际传媒 Daily

The company鈥檚 S-1 filing details a healthy company, with revenue growing from $87.1 million in the first half of 2018 to $129.2 million in the first half of 2019. That growth, combined with a net loss that scooted up a slim $4 million. The company’s net loss rose from $32.5 million in the first half of 2018 to $36.8 million in the corresponding period this year, making Cloudflare a company that we can both understand and explain.

That鈥檚 a welcome respite after trying to untangle Uber鈥檚 numbers听补苍诲 WeWork鈥檚 filing. Let鈥檚 begin with some history, and then talk numbers.

History, And In-Practice

According to SA国际传媒, San Francisco-based Cloudflare has since it was founded in 2009. Its last known financing was a that was announced in March at a pre-money valuation of $3.1 billion. led that round.

Other known investors who would benefit from a successful public exit include and , among others. We originally reported on the possibility of Cloudflare going public on July 31 and at the time, wrote that it intended to float this September, according to

Back then, we detailed Cloudfare’s business for you all:

鈥�Cloudflare is best known for its CDN, or content delivery network; the company鈥檚 services help speed Internet content to consumers around the world, helping the patchwork quilt that we call the web function with minimal delays.

Cloudflare鈥檚 business is part of the furniture to a degree. It鈥檚 also something critically important to how well online video works, for example. Which makes its debut interesting and somewhat exciting. Here鈥檚 part of the Internet鈥檚 backbone, going public.鈥�

Got all that? Let鈥檚 get into the money.

The Numbers

As noted before, the company鈥檚 H1 2019 revenue grew from $87.1 million in the year-ago period to $129.2 million. That鈥檚 growth of 48.3 percent, year over year. That pace of growth compares favorably to the company鈥檚 full-year 2018 performance, when its revenue grew from $134.9 million to $192.7 million, a gain of 42.8 percent.

Cloudflare鈥檚 accelerating growth rate is heartening for the firm, but it does come at the cost of slightly worse profitability in gross terms. The firm鈥檚 net loss grew from $32.5 million in H1 2018 to $36.8 million in the first two quarters of 2019. While its net loss did widen, the firm鈥檚 operating cash burn fell during the two periods from $17.1 million to $12.6 million, another sign of health.

The company is, therefore, managing toothsome growth with net losses that are shrinking in percent-of-revenue terms, while it consumes less cash. Its investors must find that particular cocktail encouraging.

And Cloudflare 诲辞别蝉苍鈥檛 have to go public. With over $124 million in cash on hand at the end of Q2 2019. So, it can afford to self-fund for years. But, with the public markets until recently at record highs, it isn鈥檛 a huge surprise that the company wants to go public now. Why not get out while the getting is still good?

A final note for fans of recurring revenue. According to Cloudflare, its 鈥渄ollar-based net retention rate鈥� bounces between 110 percent and 115 percent, depending on the quarter. Built-in growth of that sort is key to a modern software services company鈥檚 ability to expand while keeping a lid on costs.1

Nuts, Bolts

According to its S-1, Cloudflare plans to list its shares on the New York Stock Exchange under the symbol 鈥淣ET.鈥� Underwriters include Goldman Sachs, Morgan Stanley, Wells Fargo Securities, RBC Capital Markets and JMP Securities, among others.

The company鈥檚 S-1 has a placeholder $100 million figure in place regarding the size of the deal. Expect more on that front when we get the company鈥檚 initial pricing interval.

Illustration: .

Subscribe to the SA国际传媒 Daily

Switzerland-based seems to have, and the company鈥檚 innovative storage method made see enough potential profit to . (The company has raised other capital , including led by , subsidiary of . That deal will make sense shortly.)

For the Vision Fund, the deal size isn鈥檛 shocking; but what caught our eye is the technology selected. This is the fund鈥檚 first-ever investment into an energy company, according to a by Energy Vault.

Energy Vault is a change from Masayoshi Son and Company putting capital to work in on-demand companies, chips, or dog-walking, and we鈥檙e here for it.

Towering Possibilities

Here鈥檚 how the company鈥檚 Super Jenga (our name, not theirs) system works:

That is very smart? And simple? And pretty cool? And we suspect that it would look pretty neat in action. (TechCrunch of the system.)

Energy storage is an active sector, one that has as our needs to capture, and later access, power have risen; as the world moves towards renewable energy sources, some of which are more cyclical in nature than traditional power generation methods, being able to save generated power is a key piece of work.

To demonstrate the scale of the need for Energy Vault鈥檚 product, or one like it, read discussing how Utah may store air power in salt:

One hundred miles south of Salt Lake City, a giant mound of salt reaches thousands of feet down into the Earth. It鈥檚 thick, relatively pure and buried deep, making it one of the best resources of its kind in the American West.

Two companies want to tap the salt dome for compressed air energy storage, an old but rarely used technology that can store large amounts of power.

Compared to that, Energy Vault鈥檚 methods look downright simple. Let鈥檚 move on now to the Vision Fund and its recent deal flow and performance (both the good and bad), leaving you with the point that Energy Vault is incorrectly named. It should be called 鈥淓nergy Tower.鈥�

Vision Fund 2

Aside from investing in every late-stage company you can name, is looking to raise more money of its own. The SoftBank Vision Fund II plans to land somewhere around $108 billion, several billion dollars larger than its older sibling.

The pace and size of investments from 厂辞蹿迟叠补苍办鈥檚 first fund was hard to wrap our heads around — and, apparently, investors struggled as well. Reports in June detailed that the second Vision Fund was having a hard time raising cash to fuel its investing machine. However, a month later, SoftBank said it had landed and on its list of LPs for the second Vision Fund.

It was a welcome boost for SoftBank, as it raises new billions, that its first fund had a good recent quarter. The firm saw liquidity, as well as 鈥渦nrealized valuation gains鈥� that looked strong. The results weren鈥檛 too surprising, considering some of its portfolio companies鈥� recent successes (think direct listing, fundraising rush, and recent investing news), but they were notable all the same. And while we poke at 厂辞蹿迟叠补苍办鈥檚 invest-in-everything strategy, keep in mind its numbers showed specific strengths in its enterprise and consumer deals.

When SoftBank does launch its second, gigantic fund, we鈥檒l see a second wave of investments by the behemoth. Despite its string epic check size and deal stamina, the company does have a few investments that could serve as learning lessons for the second fund

Market Wobbles

First up, Uber, a huge Vision Fund investment that had a disappointing start to its life as a public company and still is struggling.

The most recent news from the ride-hailing giant comes from its recent second quarter earnings report. The global transportation company – which SoftBank put billions into, making it – had less revenue than expected and larger losses than anticipated.

Uber must be feeling deflated, to say the least.

SoftBank, in its earnings report, explained that it had an 鈥渦nrealized loss totaling 楼195,326 million was recorded for the decrease in the fair values of investments in Uber and others.鈥� That means Uber isn鈥檛 the only Vision Fund deal that appears weak.

Looking to the future, WeWork, which filed its S-1 publicly yesterday, appears dangerously unprofitable as well (more here). And SoftBank has invested at least $6 billion into the co-working space business over time, and at one point .

But while its Uber bet hasn鈥檛 performed well thus far, and the company鈥檚 WeWork stake is looking risky, the Vision Fund鈥檚 huge (paper) win from its DoorDash bet could allow the investing giant to keep making big bets on unprofitable companies. And, perhaps, cut checks into different sorts of corporate growth risk, deals like this week鈥檚 Energy Vault deal.

Energy Jenga!

Illustration: .

Yesterday filed to go public, releasing an document and forcing every business publication in the world to scramble to figure out how its books work. Good luck.

Subscribe to the SA国际传媒 Daily

Now that the initial wave of posts are out (here my first, second, a third by Jason, and a with , in case you want more on the matter), I wanted to ask two questions of the company’s current situation. Here they are:

• Are WeWork’s gross margins high, or low, for its business category?
• What do public competitors say regarding WeWork’s implied value at IPO, given what we learned about its gross margins?

The latter question is something that we’ve written about together in the past, so we don’t have to explain it much. We’ll get to it shortly.

The first question might seem a bit odd, so let me explain what I’m aiming for. WeWork as a business likes to emphasize the parts of its business that aren’t the business parts. WeWork’s S-1 is peppered with stuff like “our mission is to elevate the world鈥檚 consciousness,” and “philosophically, we believe in bringing comfort and happiness to the workplace.”

Nice sentiments, certainly, but not the sort of thing that you can tot up in an accounting book. Or can you? WeWork also says in its S-1 that it is “committed to providing our members around the world with a better day at work for less.” That’s notable.

On the same theme, the company detailed on page 3 of its IPO filing how much cheaper it is to rent space at once of its facilities compared to building out office space yourself. I agree! But my curiosity then asked if WeWork is charging enough for space. The company certainly offers attractive offices. Does it price the square footage high enough to generate enough gross profit to pay for its business?

Not yet, certainly, but let’s explore the question through the lens of a competitor.

Gross Margins

WeWork has a public competitor, , formerly known as Regus. Happily, as IWG is a public shop we have access to its financial performance.

In its most recent half-year, IWG revenue of 拢1.302 billion and gross profit of 拢196.3 million. That works out to a gross margin of just over 15 percent. The company also generated operating profit (拢50.6 million) in the period and strong net results thanks to a divestiture.

The 15 percent result is useful. Yesterday, during our second look at the WeWork filing, we found that using a line item similar to cost of revenue, we were able to gist out that WeWork’s gross margins a little under 20 percent:

Now that we have a way to calculate gross profit from the company鈥檚 buildings, what do the results show us? Observe the following pairings of WeWork revenue, and same-period Location Operating Expenses:

• WeWork H1 2018 results: Revenue of $763.8 million, Location Operating Expenses of $636.0 million (83.3 percent of revenue consumed by location operating costs)
• WeWork H1 2019 results: Revenue of $1.54 billion, Location Operating Expenses of $1.23 billion (80.3 percent of revenue consumed by location operating costs)

As you can quickly sum, WeWork’s聽kinda gross margins work out to 16.7 percent and 19.7 percent for the two half-year periods that started 2018 and 2019. Bear in mind that these are directional numbers, not absolutes. What matters is that WeWork’s nigh-gross margins are close-ish to what IWG itself reports.

We know that our WeWork gross margin estimate is generous. Therefore, WeWork isn’t much more profitable on a gross margin basis than IWG. And since IWG is net profitable, I’d hazard that it will be difficult for WeWork to argue that its revenue is worth more than that of its rival due to fundamentals.

This tells us that when WeWork prices its IPO, it will have to lean on revenue growth, and not revenue quality, as its key valuation lever; the firm won’t be able to say yes we are growing more quickly than IWG, and we generate lots more margin per dollar of revenue.

And that makes the IWG-WeWork comp all the more pertinent. Now let’s pursue our second question.

Multiple This!

IWG reported 拢1.3 billion in H1 2019 revenue. WeWork reported $1.54 billion in the same time period. Convert IWG’s pounds to American dollars and you wind up with very similar sums. That’s useful for us.

Yahoo Finance IWG’s market cap at $3.67 billion, giving the company about a 2.3x revenue multiple on its H1 2019 top line. Yahoo Finance itself notes that the company’s trailing price/sales multiple is a conservative 1.37x.

But let’s use our somewhat-neat H1 2019 IWG revenue multiple result as it uses the most recent financial grounding for each company. WeWork, at the same 2.3x multiple, is worth a hair over $3.5 billion. That’s about 7.4 percent of its .

Now, WeWork will聽not go public at that valuation. The firm’s growth rates of over 100 percent will afford it a higher price. However, IWG has profits to report while WeWork is incredibly unprofitable. How far WeWork will be able to extend its revenue multiple thanks to its growth (with scant help from its gross margins) is the big question in front of it.

We’ll know soon enough!

Illustration: .

Subscribe to the SA国际传媒 Daily

As a private enterprise, WeWork has to its side while pursuing growth at the expense of profitability and liquidity. The company will now address the liquidity point through a public offering. How investors weigh its profitability will help determine what it is ultimately worth.

This post will contain high-level numbers, giving us a brief look at WeWork’s growth and health. Following, we’ll publish a longer look, digging more deeply into the grits of the document. Let’s go!

WeWork’s Revenue, Growth, And Losses

Let’s first observe WeWork’s revenue growth over time. We’ll begin by looking at full years. What follows are the company’s top-line results for the full years of 2016, 2017, and 2018:

• WeWork 2016 revenue: $436.1 million
• WeWork 2017 revenue: $886.0 million
• WeWork 2018 revenue: $1.82 billion

As we can see, the company has managed greater than 100 percent revenue growth in each of its most recent two years. That torrid pace of revenue expansion helps explain how the co-working behemoth attracted so much capital to its shores.

Turning to the more recent, WeWork posted half-year results that are worth our time:

• WeWork H1 2018 revenue: $763.8 million
• WeWork H1 2019 revenue: $1.54 billion

Here, again, we see a greater than 100 percent growth rate from the company, an impressive feat at its size. Most companies see their revenue growth rate decline as they grow. It’s harder to grow at such聽percentage rates from a larger revenue base.

All that growth has come at a very steep cost. WeWork’s operating losses have scaled right along with its revenue. Here are its operating losses, for the same time periods. (We’re looking at operating loss at the company as it has a large “other income” bump in the first half of 2019, making its net loss appear far better than its operating results detail.)

• WeWork 2016 operating loss: $396.3 million
• WeWork 2017 operating loss: $931.8 million
• WeWork 2018 operating loss: $1.69 billion
• WeWork H1 2018 operating loss: $677.9 million
• WeWork H1 2019 operating loss: $1.37 billion

The company’s unadjusted net losses were聽飞辞谤蝉别听in 2016 ($429.7 million), 2017 ($933.5 million), 2018 ($1.93 billion), and the first half of 2018 ($722.9 million).

Cash

Let’s wrap this short WeWork S-1 overview with a look at cash.

First, how much cash does WeWork have? At the end of 2018, WeWork had $1.74 billion in cash and equivalents. That figure rose to $2.47 billion by the end of Q2 2019. Recall that . So, where did the extra money go? WeWork burned it.

There are two things to understand about how WeWork consumes cash. First, its operations once generated cash. In 2016 and 2017, WeWork’s operating activities generated cash ($176.9 million and $244.0 million, respectively). However, in 2018 that figure went negative, with the firm’s operations consuming $176.7 million in cash during the year.

And second, WeWork operations have become even-more cash hungry over time, with the firm putting up negative operating cash flow of $84.4 million in H1 2018, and $198.7 million in H1 2019.

Finally, for this short overview, as you expected WeWork’s investing is far more negative. (The company invests in setting up buildings, so we anticipated that it would have high investing cash flow costs.) Here are the marks:

• WeWork 2016 negative investing cash flow: $818.5 million
• WeWork 2017 negative investing cash flow: $1.38 billion
• WeWork 2018 negative investing cash flow: $2.48 billion
• WeWork H1 2018 negative investing cash flow: $888.2 million
• WeWork H1 2019 negative investing cash flow: $2.36 billion

So WeWork is on pace to put up its biggest revenue number, operating loss, and negative operating and negative investing cash flow in 2019.

That is frankly about what I expected. But the company is balancing that great revenue growth, against an operating loss and negative free cash flow that will sum to a far greater figure. How do you price that?

Illustration: .

Subscribe to the SA国际传媒 Daily

This deal caught our eye for a few reasons. First, it’s yet another software buy from a company with its roots firmly in the real world. And, WeWork is heading towards an IPO that could land as soon as next month.

So, what’s going on with WeWork and its software buys? Let’s examine the situation.

WeWork Hearts Software

WeWork has made during its life (the company was founded in 2010, for reference). Some of the company’s buys are pedestrian deals. Its $400 million of China-based coworking company , for example.

Then there are WeWork’s software buys. In addition to the newly-announced SpaceIQ deal, here are some of WeWork’s buys that deal with software or similar stuff:

• . The company sells building access software.
• Update: WeWork also ! My bad for missing this one. Islands was a digital communications platform for groups.
• . The company sells physical space analytics using WiFi signals.
• . The company sells room booking software.
• . The company sells “[e]nterprise SEO and Content technology for collaborative, customer-driven teams.”
• (we broke that story). The company sells real-world hangout tooling.

There are two things to note in the above set of deals. First, there are more than a few. Indeed, WeWork has acquired at least a half-dozen software and software-ish companies to-date. Second, most of those companies hang close to the real estate world. This means that WeWork is building a real-estate focused software arm.

Prepping to write this post this morning, I expected the WeWork software buys to appear more scattered. But, they don’t. Not really. This means that WeWork is doing something a bit less cynical than I expected. But before we get to what the company may be up to with these buys, let’s examine the pace of its acquisitions.

Here’s a chart of WeWork’s known acquisitions since the start of 2018:

So, a slight uptick in recent quarters. The final column in the chart is provisional, naturally, given that the period is only about one-third complete.

Now let’s get back to strategy.

Why Software Matters

That WeWork is buying software companies isn’t a surprise. WeWork is a , venture-backed company that wants to keep its worth intact when it goes public in a few months.

However, if you value it using public comps, WeWork is overvalued. This is a problem for the company (it needs to keep raising money to fund its growth) and its investors (who bought slices of the company for high-dollar sums).

To ameliorate the issue, WeWork may be able to partially rebrand as a software company. If it can convince the market that it is more than a real estate firm, it may be able to command a larger revenue multiple, thus making it easier for WeWork to defend its present valuation during an IPO.

But WeWork isn’t cynically buying random software companies in hopes of stringing them together into some sort of public-market-friendly chimera; instead, as we’ve seen above, the company is buying related software companies, possibly building a sort of full-building software stack that it can sell to other real estate companies. It’s buying software companies focused on the same space that its core operations work in.

I would bet you $1 that WeWork is far, far away from having software revenues which comprise a material percentage of its aggregate top line. But if WeWork can paint a growth-y picture of its software business in its IPO documents it will have two avenues to revenue expansion, the more valuable of which would help reprice the less-prized business.

Bring on the S-1.

鲍辫诲补迟别:听Forbes’ that I’m a bit slow to the point that WeWork’s software buys often point in one direction. Indeed, if you search anywhere on the Internet for WeWork and, say, operating system or platform, you can find lots of material on the matter. I suppose my only redemption here is that at least I wound up thinking the accurate thing in the end. Better that than never.

Illustration: . Chart fettling via .

News broke yesterday that , an Internet security and content delivery company, will pursue an IPO early this Fall. According , Cloudflare intends to float this September after filing a confidential S-1 with the SEC “earlier in the summer.”

Subscribe to the SA国际传媒 Daily

Cloudflare is best known for its CDN, or content delivery network; the company’s services help speed Internet content to consumers around the world, helping the patchwork quilt that we call the web function with minimal delays.

Cloudflare’s business is part of the furniture to a degree. It’s also something critically important to how well online video works, for example. Which makes its debut interesting and somewhat exciting. Here’s part of the Internet’s backbone, going public.

Let’s remind ourselves of where Cloudflare stands as a private company regarding capital raised, private valuation achieved, and revenue-scale.

Cloudflare

Since its 2009 founding, Cloudflare has , including a modest , a , a , a , and its most recent round, a from this March.

BusinessInsider’s describes that final round as valuing Cloudflare at around $3.2 billion (we’ve reached out to the company for comment on the valuation), making the company a multi-unicorn in startup finance terms. led Cloudflare’s Series E. (FTI has put capital into , , , and since its Cloudflare investment.)

The reported valuation makes sense. In a noting that the company could go public in the first half of 2019, Cloudflare’s revenue was reportedly “well north” of $100 million (recurring-ish, we presume), with “84 percent” gross margins (very good). Toss in some growth and the fact that GeekWire that the firm is “being run at breakeven” and its $3.2 billion valuation looks a little cheap.

Perhaps we’ll see Cloudflare aim for an even higher pricetag in its IPO.

As with many large, private tech companies looking to list, Cloudflare’s IPO coverage has been regular for some time. GeekWire itself cited a in its 2018 piece, for example. However, Reuters said that Cloudflare would go public in the first half of 2019. If the September mark holds up, the company will have come in just a few months late.

Fastly

Cloudflare will not be the first CDN to go public this year. , another provider in the space, went public earlier this year.

After pricing its IPO at $16 per share, Fastly’s equity skated higher in early trading. Today Fastly is worth $23.19 per share, up about 45 percent. That is a good tailwind for Cloudflare’s own offering. (SA国际传媒 News spoke with Fastly’s founder here about the offering.)

Cloudflare is a neat company (), and one that we when it makes a mistake. But regardless of all that real-world chatter, we’re probably going to see an S-1 from the company in short-order and I’m here for it. Bring on the numbers.

Illustration: Dom.

Subscribe to the SA国际传媒 Daily

The firm鈥檚 new S-1, an S-1/A, notes that the company鈥檚 鈥淧roposed Maximum Aggregate Offering Price鈥� was over $196 million. What does that mean? Well, it 诲辞别蝉苍鈥檛 mean that Slack is going to raise that much. Recall that in a direct listing, the company going public does not sell shares.

So, what鈥檚 up with the $196 million figure? According to the filing, the sum was 鈥淸e]stimated solely for purposes of calculating the registration fee pursuant to Rule 457(a) of the Securities Act.鈥� The document goes on to note that as 鈥渢here is no proposed maximum offering price per share of Class A common stock [in the direct listing, Slack] calculate[d] the proposed maximum aggregate offering price […] based on the book value of the Class A common stock.鈥�

In a sense, then, the $196.48 million sum isn鈥檛 material for our needs. However, the S-1/A did include some important news.

Slack is changing its stock ticker from 鈥淪K鈥� to 鈥淲ORK.鈥� And while it is likely a coincidence, it鈥檚 fun to note that Atlassian, a project management software company that has invested in Slack, trades as 鈥淭EAM.鈥�

If you aren鈥檛 overly familiar with direct listings, a non-traditional route to the public markets employed successfully by Spotify, don鈥檛 worry. It鈥檚 somewhat new for all of us. But, , 厂濒补肠办鈥檚 expected trading date, is just around the corner.

We’ll have more the closer we get to that date. Direct listings are rare, a little confusing, and somewhat exciting. Especially when a company as large, and famous as Slack chooses to forgo raising more money and instead opts to just start trading. But hey, if you don’t need the money, you probably don’t want the dilution.

We don’t understand why Slack was called a genius for raising money while younger, and therefore at higher prices, “just because it could,” but is now being hailed for not raising money, at a higher equity price and therefore cheaper in terms of dilution, in its public debut. If you can figure that out, email us.

Illustration: .