Good Monday, comrades, and welcome back. With an IPO on deck it should be an interesting week.
Today we’re taking stock of Line’s final IPO figures to help understand private social valuations, and celebrating new intraday highs for the S&P 500. Personal finance wonks, this one is for you.
Markets Reach Fresh Highs
Your 401k is in good shape today, with each the three major US indices trading up. The Nasdaq is a few points from 5,000, and the S&P 500 set a new intraday high in this morning’s trading.
How long have the times been good? Quite a fucking long time, as it turns out. Longer than you likely thought. For some context and profanity-free copy, I give you Reuters:
The second-longest bull market in the S&P’s history. That should explain at least some of the value creation we have seen on the private side of the divide.
Looking more narrowly, each of the three 2016 tech IPOs is up from its offering price as of the time of writing, and the Big Five — Alphabet, Amazon, Apple, Facebook, Microsoft — are all up in today’s trading. So, today at least the sky is not falling.
The social-mobile firm Line priced its IPO over the weekend, selecting a 3,300 yen per-share cost for the offering. At its IPO price Line is valued at $6.9 billion, according to Bloomberg, which also notes that the company could raise up to $1.3 billion in its debut.
Does that $6.9 billion valuation make sense? The company’s top line was greater than $1 billion in 2015, and its most-recently reported quarter puts the company on a quicker pace for 2016. So, the company is debuting at under 7x times sales. If you round Line’s first quarter revenue to $300 million and presume no growth for the rest of year, the company will debut at less than 6x forward sales.
Is that high or low? I’m not sure, but we can use a public-market analog to help. Twitter, get over here.
In its first quarter, Twitter brought in revenue of $595 million. The company has seasonally impacted revenue, mind, meaning that Twitter posted a year-over-year gain in terms of its top line, but a sequential decline compared to the fourth quarter of 2015. However, for our purposes today, the $595 million figure will suffice.
Using the same method as before to calculate Twitter’s forward revenue multiple compared to its current $12.27 billion valuation gives us a ratio of 5.1x. That’s slightly behind Line, but not wildly so. Smoothing over a grip of rough edges that our analogy presents, it seems that Line is aiming for a slightly richer valuation on a per-dollar revenue basis.
Which isn’t that crazy. Twitter has been pummeled by investors in recent quarters, depressing its value as concerns about its slack user growth persist. If you don’t think you can do better than that are your debut, why go public?
Line goes public Thursday. Get ready.
Requisite Pokemon Go Reference
Now have a double espresso with ice and write that email you’ve been dreading.