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Despite WeWork, IPO Momentum Looks Good

Morning Markets: A quick note on the current health of the IPO markets.

Yesterday a few things happened that are worth noting. First, Cloudflare raised its IPO price range, and SmileDirectClub priced its IPO above range.

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In the first case, Cloudflare raised its range by $2, from $10 to $12 per share to $12 to $14 per share. This pushed the content delivery and Internet security company’s maximum valuation to $4.2 billion, about $1 billion higher than where the company was valued in March by private investors. And SmileDirect priced at $23 per share, $1 over its $19 to $22 per-share price interval. This pushed the value of the teledentistry company to nearly $9 billion.

Both signs are nice and bullish at a time when a well-scrutinized IPO is sinking before the market’s eyes. WeWork’s issues (more here and here) do not appear to be shaking sentiment among public investors for companies that are both growing (WeWork is good at growth) and have some sort of path to profitability (WeWork is less strong in this category).

And the path to profitability can even be rather loose. Cloudflare’s operating and net losses rose in H1 2019 compared to H1 2018, but the company’s revenue growth acceleration and falling losses as a percent of top line seem to be enough. And in the case of SmileDirect, the firm’s operating losses improved in the first half of 2019 over its H1 2018 results, but on a net basis it actually did a bit worse. However, each seems to be sufficient for the companies to go public following a positive pricing dance.

It will be interesting to see if next week’s IPOs, Datadog and Ping Identity (more on their initial pricing ranges here), can keep up the momentum. If that does happen, it’s hard to imagine a more public rebuke of WeWork’s model. Four companies, all unprofitable, go public precisely as your IPO sees valuation cut after valuation cut.

More when SmileDirect begins to trade.

Illustration: Dom Guzman.

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