For Tech IPOs, Does Profitability, Growth, or Market Size Matter the Most?
LAS VEGAS–(BUSINESS WIRE)–This is a commentary on initial public offerings (IPOs) and affinity for
By Michael Shustek
2019 is the year of the tech unicorn IPO. Thus far, Lyft (LYFT),
Pinterest (PINS), and Zoom (ZM) have completed an IPO so far, with Uber,
Airbnb, Slack, and others expected to hit the market later this year.
We can learn a lot about which companies have the most upside by looking
at the factors affecting trading valuations of our first three major
IPOs this year: Lyft, Pinterest, and Zoom. Since Lyft and Pinterest are
not profitable, we’ll look at price-to-sales as a proxy for
First, an overview of the companies and how they’ve performed since
Lyft seems to be the most interesting with price-to-2018 sales as
of April 24, 2019: 7.5. Combine this number with the year over year
sales growth of 103% and 2018 revenues of $2.16 billion, along with a
loss of $975 million, well, some are scratching their heads.
Lyft’s stock saw a healthy first day of trading, where it closed the day
at $78.29, up from its $72 IPO price. That closing price represented a
market valuation of $22.2 billion. Lyft’s trading since March 29th
has been disappointing, with Wednesday’s market close at $57.82 (or
$16.21 billion market valuation), down more than 35% from its first day
The factors affecting Lyft’s valuation include accelerating losses – not
close to profitability, nor is there a clear path. Additionally, you
can’t miss their intense competition – especially Uber’s dominant market
share and impending IPO.
There’s the potential market size – the rideshare market is estimated to
grow to $285 billion revenue by 2030. Raising eyebrows is Lyft’s
potential revenue growth – the company’s revenues doubled from 2017 to
2018. Some estimates expect global rideshare market revenues to grow at
a compound annual growth rate of 16.4% through 2024.
Next is the impressive Pinterest, which had price-to-2018 sales as of
April 24, 2019: 19.8. When you consider its year over year sales growth
of 60% with only a small loss of $63 million on revenues of $755
million, well, Pinterest is worth a consideration.
Pinterest priced its IPO at $19 and opened up 25% to $23.75 on its first
day of trading. Pinterest isn’t profitable, but it is on its way, with
net losses narrowing from $130 million in 2017. The upside for Pinterest
is in global expansion, and better monetizing its international users,
with average revenue per user under $1 globally compared to over $3 in
The key factors affecting Pinterest’s valuation include not being
directly in competition with Facebook, international revenue growth
prospects and limited market upside compared to rideshare. Pinterest’s
appeal is in a social network that has proven its ability to monetize
users, and has carved out a niche away from Facebook’s orbit.
Zoom is the only profitable IPO of the three. It’s shares have traded
exceedingly well, rallying up 72% from its $36 IPO price. As of April
24, 2019 close, the company’s shares were worth $63.20 for a market
valuation of $16.5 billion. Zoom’s valuation is incredible, as it
benefits from being the only profitable tech startup and strong sales
These three companies showcase how diverse the companies can be under
the “Tech” umbrella. We have a ridesharing company marketing services to
end consumers, a social network building a community and selling ads,
and a business-to-business enterprise software company. Revenue
multiples cover a wide range, with Zoom clearly showing what the market
values, leading the pack at 50x, Pinterest at 20x, and Lyft at 8x.
The takeaway in April, 2019 is clear: business fundamentals matter.
Despite Lyft’s huge revenue growth potential and rapidly expanding
available market, an unclear path to profitability is weighing on the
stock. Zoom’s profitability and strong revenue growth make it the star.
These three companies could provide clues as to how future tech IPOs
Michael Shustek is an author, thought leader and investor. He is CEO of
The Parking REIT and for more information, visit www.michaelshustek.com
Malkus Communications Group