What Correction? Cloud Stocks Shrug Off Market Uncertainty

Covering the connection between public markets and private companies is a favorite topic at Crunchbase News, in part because it gives us a good perch from which to view generally opaque private-market valuations using liquid, public comps.

More clearly, when certain classes of tech stocks rise or fall, it’s possible to infer the impact of those movements on similar, smaller private companies. Examples of this arent hard to summon: Blue Apron likely weighed on HelloFresh’s debut, Box’s post-IPO troubles likely impacted Dropbox’s own journey, and so on.

And that’s why we keep an eye on the BVP Cloud Index, a Bessemer-run cohort of public cloud companies that it tracks over time compared to major public indices. The Index also details a wealth of metrics including certain revenue multiples, but we can leave that aside for now.

What we will observe today is how the recent market chop impacted cloud stocks.

Thinking short term, if cloud stocks are taking punches, enterprise and enterprise-ish IPOs could suffer. Simply put, as 2018 is tipped to be the year that tech IPOs finally get their shit together if cloud stocks falter it could negatively impact the flotation timeline.

So, what is actually happening to cloud stocks? More of the what came before as it turns out, as the following chart notes.

What to see here? First that the recent pseudo-correction¹ failed to make a material dent in cloud stocks. You can quickly see that in the return to form that the index quickly executed.

Secondly, that cloud stocks are rebounding faster than the major indices. While the Nasdaq is merely trying to regain lost ground, the BVP-selected crew has raced ahead to new heights.

A caveat, however. The above chart is only updated bi-monthly. And, per Bessemer, its last update was on the 15th. So, there is some market data not included in the chart. That isn’t overly important given that we are coming off an extended weekend, but it’s worth bearing in mind all the same.

Why Do We Care?

We’ve covered the BVP Cloud Index a few times at Crunchbase News. Why care about it in this moment? Because, in my view, its recent performance indicates that the public markets are still bullish on growth. That’s quite important for unicorns, firms that are betting that profits can come second to topline expansion in IPO roadshows.

(You can quickly vet the preceding comment by asking yourself what percent of unicorns that go public in the next 18 months will have positive GAAP net income on display. Then, contemplate the story that the other 97 percent of the group that do not have positive GAAP net income will tell. It’s growth. 100 percent of the time.)

And thus, the IPO window may be a bit more open than slowpoke unicorns might have us believe. If investors are still paying for growth at historically stretched multiples, shut up and go public.