Morning Markets: As expected, Cloudflare is targeting a higher per share price in its impending IPO. Let’s calculate its new valuation, and then ask ourselves if company will price its shares over the top end of its new range.
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The unicorn did not adjust the number of shares it expects to sell in its public debut. At its new prices, Cloudflare would be valued between $3.5 billion and $4.1 billion. (Cloudflare’s value reaches a maximum of $4.18 billion when shares reserved for underwriters are included in the calculation.) Each price is comfortably higher than Cloudflare’s final private valuation of $3.25 billion set in March of this year in its Series E.
The market expects the company to price Thursday after the bell and trade Friday morning. Cloudflare’s maximum IPO raise is now $563.5 million, calculated using $14 per share and counting shares reserved for underwriters in the calculation.
We anticipated the new, higher prices. When the company initially set an IPO price range, we offered to “wager $1” that we see another SEC filing form the company with a “new price range.” Why? Because the company’s IPO price felt light in comparison to its private valuation given that the company disclosed accelerating revenue growth and falling cash consumption. Investors covet both, especially at a company operating at scale (in excess of nine-figures of annual revenue.)
Now, however, the game becomes more complicated. Where will Cloudflare finally price? Despite what’s going on in WeWork-land, I wonder if there isn’t a smidge more upside in the tank for the popular CDN vendor. More precisely, will Cloudflare price its equity at a price over the top of its new range? At $15 per share, for example. I wouldn’t be surprised.
It’s something we’ve seen twice this year, recall. The RealReal priced above range in June and Dynatrace priced above range in August. Both cases show that for companies with traditional economics (ahem, WeWork), there is public-market appetite for IPO shares. Perhaps Cloudflare will catch the same wave.
Illustration: Dom Guzman.