Morning Report: Switch’s IPO demonstrates market demand for profitable tech companies.
Shares of Switch are up sharply today during its first day of trading as a public company. The datacenter-focused firm raised over $500 million in its debut. As of the time or writing, Switch is up just over 28 percent, a decline from its earlier intra-day highs.
The firm raised private capital twice, according to its Crunchbase profile.
Switch’s IPO proceeds will go towards an interesting corporate consolidation that will see the company afford steep voting rights to its CEO. For that reason, market expectation is that the firm’s share structure will preclude it from inclusion in the S&P 500.
The previously-noted corporate consolidation makes parts of its business hard to parse, but what we can easily understand are the finances of Switch Ltd., the firm that Switch Inc (the company going public) will purchase with its IPO incomes.
The following chart has the details of that company’s historical financial performance:
This is a slightly odd chart, at least from the perspective of these pages’ coverage of the 2017 tech IPO crop. The firm is profitable and slowly growing. Its revenue growth pace from H1’16 to H1’17 was just 17 percent. However, the firm expanded its profitability over the same timeframe.
So Switch Ltd. was not growing too quickly, but the underlying operation is that Switch Inc. (the newly public entity) is growing while kicking off dozens of millions in GAAP profit each half-year.
Marketwatch estimated that at its IPO price, Switch was worth $4.2 billion. At a 28 percent bump, that figure rises to just under $5.4 billion. A tidy sum for the profitable shop.
From the Crunchbase Daily:
For Q3, US deals rose as exits lagged
- U.S. startup investors were good at putting capital to work this past quarter. They weren’t as good at getting it back. Projected Crunchbase data for the third quarter shows a rise in late-stage funding and a stabilizing early-stage funding environment. Acquisitions and IPO activity, by comparison, were lackluster.
Honest Company eyeing a down round
- The Honest Company, the eco-friendly consumer products company co-founded by actress Jessica Alba, looks to be raising $75 million at a much lower valuation that its last big fundraise in 2015, TechCrunch reports. As a result, the company may no longer meet the $1 billion valuation threshold required of unicorn startups.
Rhythm Pharma shares in IPO
- Shares of Rhythm Pharmaceuticals, a venture-backed developer of treatments for metabolic disorders, soared 76 percent in first-day trading to close around $30 a share. The Boston-based company raised $120 million in its IPO after pricing shares above the projected range.
Crunchbase is publishing a series of stories highlighting investment trends and funding totals for the third quarter of 2017. You can find all our Q3 articles here.