Snap and Blue Apron’s disastrous 2017 IPOs left Wall Street tech investors with a bitter taste in their mouths. Over the summer, pessimists even went so far as to predict that these two stock market flops would impede other companies’ efforts to go public, including Uber and Dropbox.
Uber and Dropbox haven’t gone public yet, but a group of healthy tech companies made some significant inroads into the stock market in the last two weeks. Open source database company MongoDB went public two weeks ago at a $1.5 billion valuation, followed by cybersecurity company ForeScout, which saw its market cap rise by 15% last weekend to $934 million.
At about the same time, two high-profile tech companies, online fashion shopping service Stitch Fix, and marketing email company SendGrid, filed their S-1 forms. Worldwide meal kit delivery startup HelloFresh has expressed its appetite to go public and is aiming to do so soon at a $1.8 billion valuation, ignoring Blue Apron’s challenges in the market from last June.
The public tech market is experiencing its best time ever, with the NASDAQ breaking new records every month. The NASDAQ has been soaring, having passed the 6,000 point mark for the first time last April.. With Apple gaining 35% of its stock price since the beginning of 2017, Google adding 22.7%, Facebook 46%, Oracle 29%, and Amazon 30%, it’s no wonder that others want to join the party.
The S-1 documents filed by Stitch Fix and SendGrid last month gave us some sense of their growth and the good momentum they’re experiencing at the moment. Yet, they did not disclose some critical numbers, such as their valuation and churn data. Using NLP and AI, we might be able to assess both companies’ level of growth and success to complete the picture described in the filings.
In order to learn more about these firms and their prospects, let’s use Zirra’s company analysis platform. Zirra has built an automatic process that delivers insightful outputs on private companies creating high-level analytical insights within seconds. Zirra collects and aggregates data from a myriad of public and private information sources and then utilizes Natural Language Processing (NLP) techniques to process this large volume of unstructured text and data.
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Stitch Fix
Stitch Fix is one of the biggest surprises in tech and e-commerce in 2017. The online fashion retailer sends its customers a package with five items, a “fix,” according to his or her size and style. On its face , just another Silicon Valley “kit delivery” startup. But Stitch Fix’s numbers are very impressive: the company’s revenue grew by almost 34% to $977 million in the 2017 fiscal year (which ends in July), with a net loss of only $1 million. That’s almost a billion dollars in revenue from 2.2 million active clients, not bad for an online fashion company that was founded just six years ago.
Now, let’s ask Zirra’s company analysis bot, Emmet, about the risk and success criteria we need to know about Stitch Fix. Within seconds, Emmet pulls out the following output:
Source: Zirra
In terms of successes, Emmet mentions the extensive media coverage, the fact that Stitch Fix has recently begun a funding process (IPO) and its many patents and trademarks. As far as risks, Emmet mentions a few challenges: the highly competitive market (with the likes of LE TOTE and Trunk Club) and the fact that the company hasn’t raised much more capital than its competitors.
Emmet also mentions some legal issues that Stitch might be involved in. In order to locate the exact problem, let’s go to Zirra’s homepage and search for Stitch Fix in the search line. Then we’ll scroll down to the Latest Events section and click on “legal problems”. The linked article tells us that Stitch Fix was found in the eye of the hurricane of the sexual harassment claims against Justin Caldbeck from Binary Capital. While Caldbeck was an associate at Lightspeed, one of Stitch’s investors, founder Katrina Lake, accused him of sexual harassment. According to Axios, Lightspeed compelled her to sign a non-disparagement agreement to not sabotage the next financing round. You will not find that in the S-1 document
Source: Zirra
Emmet also flagged Stich Fix’s high number of open positions, which can be a sign of future growth, as a risk factor. Double-checking this with LinkedIn’s Total Employee Count dashboard shows that the company has hit a plateau in employee growth. Did Stitch cut expenses in order to show profitability before filing its S-1? Or else, had its excessive growth in 2015 and 2016 forced it to slow its expansion in 2017?
Source: LinkedIn
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Let’s look at another important indicator, traffic. According to SimilarWeb, a service that monitors web traffic, the number of visits to Stitch Fix’s website has grown significantly in 2017: from January to June 2017, traffic doubled. Yet, this growth isn’t coming from Stitch Fix’s home market. In fact, traffic originating in the U.S. decreased by almost 3% in this period, a bad sign for a business deeply rooted in that country.
Source: SimilarWeb
So, after considering some company health indicators, let’s answer Stitch Fix’s valuation riddle. Let’s ask Zirra’s valuation calculator, which estimate a company’s valuation, had it been a public company. According to Zirra, Stitch Fix’s pre-money valuation is estimated at $600-$700 million. In the case that the company will file for an IPO, it can pursue a valuation of $800-$900 million as a public company (or else would it get acquired).
Source: Zirra
The Zirra valuation process involves both intrinsic and relative valuation algorithms. The intrinsic data includes revenue and expense estimations, traffic trajectories, investment history and velocity, all based on aggregated sources. In the relative analysis, data is compared and benchmarked with a database of thousands of companies,controlling for stage, space, size, and trajectory.
Let’s evaluate SendGrid and HelloFresh, two companies that plan to go public very soon. SendGrid is estimated at $360-$380 million pre-money valuation, and up to $600 million if it chose to go public right now (read the full SendGrid Zirra Premium Insight Report); Germany based HelloFresh is estimated at $1.5-$1.6 billion, and up to $2.2 billion in the case of a liquidation event. In comparison, competitor Blue Apron is now traded at a $952 million valuation (read the full HelloFresh Zirra Premium Insight Report)
Zirra has also valued some of the recent tech IPOs. MongoDB, trads on the NASDAQ at $1.46 billion, but is valued by Zirra at $1.7-$1.8 billion, while ForeScout, now traded at $916 million, can pursue up to $1.4 billion if bought.