Tech companies generating $0.45+ per $1.00 of investment go public

Tech companies often overlook the importance of cash efficiency.  In our view, cash efficiency, measured as revenue per year / equity + debt invested, is every bit as important as revenue growth. After all, if you’re spending too much to grow you’re simply diluting away your return. 

 

We did an analysis looking at the revenue, equity, and debt of 42 publicly traded tech companies at the time they filed to go public.  Using the equation above (revenue/[equity invested + debt]), we were able to observe the cash efficiency of each company.  As you would expect, cash efficiency varies by industry: for instance, hardware is the most efficient generating $4.38 per $1.00 of revenue and marketplaces are least efficient, generating $0.45 per $1.00 of investment.   Below is the data.

 

            Revenue/
Name ($mm) Ticker Year Revenue Debt Equity Capital
Social Media            
Facebook FB 2011 3,711.0 677.0 3,293.0 $0.93
Line Corp (in yen) LN 2015 120.4 0.0 31.4 $3.84
Linkedin LNKD 2009 120.0 0.0 117.0 $1.03
Snap Inc SNAP 2016 404.5 0.0 2,726.8 $0.15
Twitter TWTR 2013 253.6 141.7 254.2 $0.64
             
Median     253.6 0.0 254.2 $0.93
             
             
Marketplaces            
Priceline PCLN 1998 35.0 1.0 172.0 $0.20
eBay EBAY 1997 5.7 0.5 8.1 $0.67
Sabre SABR 2013 2,345.0 3,751.1 800.0 $0.52
Shutterstock SSTK 2011 120.3 0.0 39.4 $3.05
Match Group MTCH 2014 421.7 190.0 912.0 $0.38
Expedia EXPE 1999 38.7 0.0 86.0 $0.45
Etsy ETSY 2014 195.0 43.2 103.0 $1.33
Lending Club LC 2013 97.9 1,840.0 118.0 $0.05
Elevate Credit ELVT 2014 274.0 180.0 86.0 $1.03
Angie's List ANGI 2010 25.0 23.7 83.7 $0.23
Zillow Z 2010 30.5 0.5 96.2 $0.32
Groupon GRPN 2010 713.0 13.0 418.0 $1.65
GrubHub GRUB 2013 137.0 2.0 500.0 $0.27
Redfin RDFN 2016 267.0 10.3 563.0 $0.47
Care.com CRCM 2012 48.0 0.0 158.1 $0.30
             
Median     120.3 10.3 118.0 $0.45
             
             
Content Distributors            
Google GOOGL 2003 961.0 6.0 766.0 $1.24
Yelp YELP 2010 47.0 0.0 59.0 $0.80
TrueCar TRUE 2013 133.0 4.0 275.0 $0.48
Netflix NFLX 2001 76.0 6.7 49.0 $1.36
Pandora P 2010 55.0 4.0 105.0 $0.50
             
Median     76.0 4.0 105.0 $0.80
             
             
Gaming            
Zynga ZNGA 2010 597.0 0.0 472.0 $1.26
             
             
Ecommerce            
Amazon AMZN 1996 15.0 0.0 10.0 $1.50
Blue Apron APRN 2016 795.0 94.0 200.0 $2.70
Carvana CVNA 2016 342.0 170.0 310.0 $0.71
Alibaba BABA 2013 5,553.0 5,324.0 8,814.0 $0.39
1-800 Flowers.com, Inc. FLWS 1998 220.0 31.3 20.0 $4.29
Shutterfly SFLY 2004 84.0 5.0 99.0 $0.81
Wayfair, Inc. W 2013 915.0 2.0 241.0 $3.77
Blue Nile, Inc. NILE 2003 129.0 0.0 61.0 $2.11
Overstock.com, Inc. OSTK 2001 40.0 4.7 57.0 $0.65
HSN, Inc. HSNI 2007 2,908.0 0.0 4,522.0 $0.64
LightInTheBox Holding Co., Ltd. LITB 2012 200.0 7.8 68.5 $2.62
             
Median     220.0 4.9 99.0 $1.50
             
             
Payments            
Square SQ 2014 850.0 30.0 1,182.0 $0.70
             
             
New Hardware            
Garmin Ltd GRMN 1999 232.0 27.7 31.0 $3.95
GoPro GPRO 2013 986.0 113.6 91.5 $4.81
Fitbit FIT 2014 745.0 132.0 75.0 $3.60
Apple AAPL 1980 117.0 10.0 12.0 $5.32
             
Median     488.5 70.7 53.0 $4.38

 

A few observations:

 

-While hardware was the most efficient at the time of filing, generating $4.38 per $1.00 of investment, it’s not necessarily the best business: hardware businesses have to generate a lot of revenue because the customer buys very infrequently (how many iphones do you need at once?), whereas other businesses can afford to be less cash efficient because the customer comes back more frequently.

 

-The amount of cash required to get to IPO has changed dramatically.  For instance, Apple in 1980 filed to go public having invested $22mm in equity and debt in the company.  On the other hand, Fitbit which filed in 2014 had total investment of $207mm, nearly 10x Apple. 

 

-ecommerce figures are all over the board.  Despite being a stock market dog, Blue Apron has managed to generate $2.70 in revenue per $1 of investment, while Alibaba, which is an ecommerce darling had taken in $14bln of cash prior to its IPO but generates only $0.39 of revenue per $1 invested.   Indeed some of the most cash efficient ecommerce companies are the ones you don’t hear of as often (BlueNile, 1800Flowers, etc).

 

-Content Distributors, which is a broadly broad defined segment of companies making money off other people’s content, is a somewhat tighter range with median revenue per $1 of investment of $0.80.  Again, because the customer comes back so frequently, making less than $1 of revenue per $1 of investment works for the business. 

 

-Marketplaces are the least efficient, generating only $0.45 of revenue per $1 of investment while Social Media businesses generate a median of $0.93 per $1 of investment, with Snapchat being the worst in the group at only $0.15.

The data should give you a good sense for how efficient your tech co should be based on what industry you’re in.  So long as you can get close to your larger peers, you’ll be well on your way to going public.  

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