Nubank, Hashicorp IPOs Boost Startup Market

Wrapping Up the 2021 IPO Season

The initial public offering (IPO) activity for 2021 is nearing its conclusion this week. Both HashiCorp and Nubank successfully priced their IPOs and commenced trading on the public markets.

The outcomes of these IPOs are positive news for those following the startup ecosystem and the venture capital community.

Samsara is anticipated to launch its IPO next week, assuming current schedules are maintained. However, this will likely represent the final major IPO of the year.

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Analyzing HashiCorp and Nubank's IPOs

Today’s focus is on dissecting the final IPO pricing for both HashiCorp and Nubank. We will also compile their pre-debut valuations and revenue multiples.

The aim is to evaluate the strength of the U.S. technology IPO market as 2021 draws to a close, based on their initial trading performance.

Looking Ahead to 2022

An active IPO cycle is expected in 2022, barring any unforeseen market disruptions.

This expectation is founded on the fact that valuations for publicly traded technology companies remain significantly elevated compared to historical averages.

Furthermore, the number of privately held unicorn companies is currently at a record high. This combination suggests a strong potential for numerous public offerings in the coming year.

However, a thorough understanding of how 2021 concluded is crucial for accurately forecasting the beginning of 2022.

HashiCorp’s Initial Public Offering

Initial projections indicated HashiCorp would offer shares in its IPO within a range of $68 to $72 each. However, the company successfully launched its public offering at $80 per share, representing a significant achievement for the open-source software provider.

Renaissance Capital calculated that a $70 per-share price would value HashiCorp at $14.2 billion. Consequently, the $80 per-share IPO price establishes the company’s fully diluted valuation at $16.2 billion. This IPO price is remarkable considering private-market investors valued the company around $5 billion in early 2020.

The company’s stock experienced an increase following its initial offering, ultimately closing at $85.19 per share yesterday. Yahoo Finance currently estimates the company’s non-diluted valuation at $15.24 billion, as of Thursday’s market close.

HashiCorp reported revenues of $82.2 million for the quarter ending October 31, 2021. This results in an IPO valuation multiple of just over 49x based on the company’s run-rate. Utilizing the Yahoo Finance valuation, the current run-rate multiple is slightly above 46x. These are substantial multiples, demonstrating that companies focused on growth can achieve high valuations even before profitability.

In its most recent quarter, HashiCorp recorded year-over-year revenue growth of 49%. While positive, this growth rate isn’t exceptional for a company of its size and current valuation.

Analysis: HashiCorp’s IPO performance suggests a positive outlook for 2022 IPOs of unicorn companies.

Nubank’s Initial Public Offering

Nubank represents a significant case study in the fintech IPO landscape. Initial concerns regarding the Brazilian neobank’s public offering were somewhat alleviated when it successfully navigated a price adjustment. Despite reducing expectations, the IPO ultimately proved more resilient than anticipated.

The company initially projected a price between $10 and $11 per share, but later revised this to $8 to $9. Nubank ultimately priced its shares at the upper end of the revised range, $9 per share. Subsequent trading has seen positive momentum, reaching $10.33 yesterday and $11.74 in pre-market activity today.

This post-IPO performance is encouraging, though it hasn’t triggered intense debate about potential underpricing. MarketWatch reports an IPO valuation of approximately $41.5 billion for the company.

Nu Holdings, Nubank’s parent company, generated $480.9 million in revenue for the quarter ending September 30, 2021. This resulted in a revenue multiple of 21.6x. The company’s valuation has increased since the commencement of trading, further expanding this multiple.

A review of Nubank’s IPO documentation reveals a successful business model. Revenue climbed from $156.1 million in the September 30, 2020 quarter to $480.9 million during the same period in 2021. Importantly, losses remained relatively stable over this timeframe.

Generally, revenue multiples exceeding 20x for neobanks, particularly those with gross margins below those of Software-as-a-Service (SaaS) companies, suggest a bullish market outlook. Nubank’s gross margin of 46.6% in its latest quarter falls short of the typical strong SaaS benchmark by 300 basis points.

This difference in margin could be expected to exert a more substantial influence on Nubank’s valuation. However, the market response has been less dramatic than one might anticipate.

The IPO of Nu Holdings serves as another compelling indicator of liquidity for unicorn companies as 2021 concludes.

Consequently, expectations for a surge in IPO activity throughout 2022 are high. Will these expectations be met?