The Next Tech IPOs: Adaptive Insights And M17

The next couple of weeks are going to be good for a few reasons, two of which are very interesting IPOs.

Adaptive Insights and M17 should both list, with expected pricing and trading dates that currently center on Thursdays: M17 this Thursday and Adaptive Insights following exactly a week after. We will let you know in a Morning Report the precise pricing and trading date for each when we know more.

For now, let’s remind ourselves what we about know M17 and Adaptive Insights, the (probably) next two technology companies to go public.

Adaptive Insights

Adaptive Insights is a Palo Alto-based firm that, per its Crunchbase page, “power[s] a new generation of business planning.”

That’s essentially meaningless, so let’s try one more time to figure out what it does. Clicking into its website a bit, Adaptive Insights sells software that helps companies plan and budget their operations. According to this page, the company’s software will help firms “achieve active planning,” possibly relating to a few things, including “Profitability Analysis” or “Financial Reporting” or “Microsoft Office Integration.”

That’s enough about that. If you more questions about what this particular enterprise play, ask Ron.

On our end of the stick, our first notes about the firm’s finances went as follows: 30 percent year-over-year revenue growth, increasing subscription revenue as a percent of its total top line, GAAP net losses that were slipping over time, and declining cash consumption.

But the company’s most recent quarter is worth taking a moment to observe. Our original reporting on the firm was based on an S-1 filing that didn’t include the firm’s fiscal first quarter ending April 31, 2018, so let’s see how the company did during that most recent period:

• Revenue: $32.1 million (+9.3 percent sequential, +32.3 percent year-over-year).
• Gross profit: $23.9 million (+8.2 percent sequential, +36.3 percent year-over-year).
• Operating loss: $8.9 million (-11.3 percent sequential, -9.5 percent year-over-year).
• Net loss: $11.0 million (+4.5 percent sequential, +10.5 percent year-over-year).

Each of those results is good aside from the last line. The company’s net loss in the quarter was up both compared the sequentially preceding quarter and the year-ago period. Causing that bump is an odd $2.1 million “Other expense.” Without that, the firm’s results would have been even more positive.

So what is it worth? The firm’s range gives it a $15 per-share price on the upper end, which we can work with. Adaptive Insights’ S-1/A states that 44.8 million shares of its stock outstanding after the offering. At $15 per share, that works out to about $672 million.

Is that about right? We’ll get a decent new valuation metric for recurring revenue soon enough.

M17

Jokes aside, we pretty much get Adaptive Insights: it sells software and is powering growth now with deficit spending that it expects to recoup later on. Simple enough.

M17 is a bit more to grok, really. That’s not due to its business. Livestreaming is pretty well understood now as a business; and we can see that in Huya’s IPO and Twitch’s exit. However, the company does have an incredibly odd revenue concentration.

As we noted in our prior coverage, M17 derives a huge percent of its revenue from a handful of users. Here’s the data as the prior F-1 put it:

“We have a large and growing base of users. However, only a limited number of users contribute a significant portion of our revenues. For example, our top 10, 100 and 500 users accounted for approximately 11.8%, 29.2% and 47.9% of our total revenues in the three months ended March 31, 2018, respectively[.]”

As the company hasn’t reported a new quarter since that F-1, we have no new metrics to go by. But we can presume that the firm’s finances are still incredibly skewed towards a handful of power-spenders. Whales, if you will. (For a more granular look at M17’s financial results, head here).

The firm intends to sell its stock for as much as $1.50 per share (not a typo), raising up to $103 million in the process, per the opening of its F-1/A SEC filing. However, The company also claims that it will sell its stock for between $10 and $12 per share in the same filing. Later on the company notes that it could have as many as 276.6 million shares public (inclusive of both shares classes and the greenshoe option) after its IPO. So the firm is either worth around $414 million (at $1.50 per share) or $3.3 billion (at $12 per share).

I could write around the bits of this F-1 that I don’t understand, but I want you to feel confused with me as this offering is odd. And its not just the financial entries that are surprising: M17 claims just 1.7 million aggregate average monthly active users in Q1 ’18, inclusive of its dating apps. Its core livestreaming business has one million monthly active users, something that did not rise from the sequentially preceding quarter. It is up a full 100,000 from the year-ago period.

Again, odd. We’ll have more when (if?) it actually prices.

That is that. We’ll keep you plugged in as both IPOs progress.

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