assorted fruit shake with fresh fruits on clear glasses

Market Consensus: Heady. Should I be worried that during a stock idea presentation last night on Mattersight (MTTR) the “comps” are trading at 53-57x next twelve months sales? Q3 earnings reports were very strong. That’s what’s supporting the market here.

Last Week: Our two top deals, Rivan (RIVN) and Expensify (EXFY) both did very well. (You can refer to our notes here.) Expensify is up 76% from the IPO price and Rivan is up 66%. I did add RIVN shares to the Real Money Portfolio on the brief dip to $100 and plan to hold it (PT $350). I think we will have at least a handful of large-scale EV companies in 10 years, it won’t be just Tesla.

This Week: There are only six deals on the calendar as of this morning. There are some good ones though and at least one to avoid at all costs. We’ve updated the current IPO sheet. If you are a paid annual subscriber you can always jump right to the current IPOs roadshow download page.

These are some highlights:

  • SweetGreen (SG) – There is some understandable chiding of this deal. The jokes are this isn’t a healthy fast casual restaurant chain it’s “salad as a service” and a “healthy food delivery platform.” In terms of execution, quality and culture this company has done very well. Panera is the elephant in the room here with over 2,000 locations (versus SG with 140). Panera is expected to file for an IPO soon. (There’s a strange way to pre-buy into the IPO via a SPAC right now.) There is a segment of the market which remains underserved when it comes to healthy foods and so far the field is filled with fragmented, expensive and inconvenient offerings. I believe that SG has runway to at least reach 10x their current size which would put them at ~$3B in revenue and $300-400M in operating earnings. It’s too early to know how far they can scale beyond that as it depends on competition and if they can replicate their US success in some international markets. At the current $23-25 range it’s a ~$3B market cap so not a bargain. For reference Shake Shak (SHAK) is at $3.3B with a 5x P/S ratio. Of course SHAK is a burger joint and not even a good one so they probably deserve a discount.

  • UserTesting (USER) – The hook here is that these guys use real customers and video to help you understand what your online customers experience. This is increasingly important and traditional methods of surveys are not useful. Even tracking and click analysis doesn’t provide much of a true picture of the actual customer experience. I think we all have experienced some terrible online use cases. At a technical level it’s not really that hard to do but building a network of contributors and the support infrastructure around it does provide a bit of a moat. It’s useful not just for sales but HR, customer support and operations. It’s a SaaS model with acclerating growth – from 31% in 3Q2020 to 47% in 3Q2021. It’s a little early with $100M of TTM revenue and a $2.6B market cap but it’s a rare new thing in customer experience and online product development. Along with Amplitude (AMPL) this is a step forward.

  • Others worth a look include Braze (BRZE) which is in the customer engagement space similar to companies like Medallia (MDLA) (acquired by Thoma Bravo for $6.4B in July of this year.) At the current $55-60 range the market cap is $5.9B or around 30x sales.

  • The deal to avoid is KinderCare (KLC) which provides early childhood education and care. It’s built itself into a fairly large provider of these services with LTM sales of $1.7B and a proposed EV of $3.5B. Culture and operational excellence is important for a business like this and it doesn’t sound like this is that

  • Other deals on the schedule include a funky developer of solar-powered vehicles, Sono Motors (SEV) that is pre-revenue. Another “green” BTC miner, Iris Energy (IREN) and even a gold miner, Austin Gold (AUST). Some technical analysts have been noting that gold may be poised for a run given it’s recent strength against non-USD currencies.

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Pipeline: 17 new filings last week (9 SPAC) with a few looking of note. Remember Gilt Groupe? They are back as Rue Gilt Groupe (RGG) as another “luxury fashion e-tailer.” One IPO that has attracted retail attention is TypTap Insurance (TYTP) in which public company HCI has a major stake. “Technical apparel” maker 5.11 (VXI) has filed as well.

New Street Coverage: The Vita Coco (COCO) day has finally arrived. A raft of buy ratings with price targets came out this morning with targets ranging from $18 to $22. The shares are up 17% today and we are booking profits. Still a good long-term story but this was a new coverage trade.

Lockups Off: The Oatly (OTLY) downside was even worse than we thought it would be so I covered it too early. At what point does this one become a buy? It’s now down from $28 to $9.55 but that’s still a $5.6B market cap versus COCO at only $1B.

Parting Thoughts: Next week will be slow due to the Thanksgiving holiday so we will take some time “out of the office” but I will be working on some new stuff for the following week.

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