A couple of weeks ago we had the “Zillow of China” go public in the shape of KE Holdings (BEKE). This week we have an Chinese EV (electric vehicle) company on the schedule for this Wednesday night.
Xpeng (XPEV) is planning a $1B IPO although insiders have “indicated an interest in purchasing” up to $500M of the deal. In this case insiders include Alibaba (BABA), Coatue, QIA and Xiaomi and one new investors (PRIMECAP). In the current $11-13 range that would give the company a market cap of ~$9B an an enterprise value of ~$7B. For the six months ended June 2020 the company sold 5,499 vehicles and generated revenue of $142M. That works out to about $24K/vehicle (I backed out the $12.7M in service revenue.) After running a very negative gross margin for some time they have just crossed over into positive gross margin. The operating loss for 1H 2020 came in at $203M. The company suffered some in the first half due to the pandemic and noted that they shipped 2,541 cars in the month of July. Even at the same ASP that would make annualized revenues ~$731M. There was favorable mix shift in July which would suggest that their ASP will increase in 2H 2020. Most of the concern has been valuation which appears high at more than more than 10x current year revenues. Tesla (TSLA) is trading at 12.6x estimated current year sales of $30B. Investors have also pointed out that the market in China is more competitive with recently public Li Auto (LI) and NIO (NIO) serving as just two examples. No word yet from syndicate about demand but given the momentum of the EV market and the interest of their investors in adding to positions the deal should at least work.
Last week we had four deals price and most did very well. However we again observed a pattern in the immediate aftermarket where the shares decline from their very high opening price – punishing any investor who chases it within the first hour of trading. The exception was Nano-X Imaging (NNOX) which opened quieter and we were able to buy shares at a decent price. The other deals we liked, Harmony Biosciences (HRMY) and Kymera Therapeutics (KYMR) didn’t offer any trading profits but may make into our long-term portfolio now that prices are declining.
Now that we are covering SPAC IPO transactions here we note a new public company in the making. Gores Metropoulos (GMHI) announced their intention to take Luminar, a lidar supplier, public. It feels like an echo of the Graf Industrial (GRAF) IPO of Velodyne Lidar, a similar company and story. You can check out their investor presentations filed with the SEC:
Both are subject to the normal approval and completion process.
There were 15 new filings last week with 6 of those being SPAC deals. There were some interesting regular-way filings however.
Corsair Gaming (CRSR) has tried to come public before but no doubt the COVID-driven surge in computer buying has helped them post strong results in 2020. Another reason I’m interested in this is that after much research I upgraded my own desktop infrastructure with a monster computer from them. It is not only one of the most powerful computers you can buy but it is also a work of art. (At least if you are a technology guy 😉 Corsair has grown over the years to $1.3B of LTM sales and has reached profitability. Investors tend to discount the valuations on hardware companies but note that Logitech (LOGI) has soared to 4x revenues in part thanks to frantic webcam buying. Goldman has the books.
There are two big software deals coming too – Unity Software (U) and Bentley Systems (BSY). Goldman has the lead on both. Unity is a technology platform for creating interactive 3D content. The placeholder suggests at least a $1B deal. Unity had TTM revenue of $640M. Bentley is a vertical provider of software for engineering, construction and infrastructure projects. Bentley had TTM revenue of $768M and what look like high margins.
In the healthcare space Outset Medical (OM) caught our eye. They are a medical device company aiming to disrupt the dialysis market with a product (Tablo) that can be used not just in a hospital or clinic but also in a home setting. We’ve been looking for more investments in this area and this one may fit the bill. Last week we purchased some Renalytix AI (RNLX) which is improving the diagnostics around kidney disease.