It’s been a very good time to be in software and services. Indeed one of our early favorites (January 2017), Twilio (TWLO) has been trading at $200 versus the ~$27 level it held just over three years ago. Ref: Time to buy Twilio.
Patience is required - these stocks have high volatility but recurring software and services models are the gifts that keep on giving - especially in low/no interest rate environments.
The most recent was just two weeks ago with GAN Limited (GAN). If you didn’t seem our full note on that GAN provides the software infrastructure for casinos and governments to offer online gambling and sports betting. The shares started trading at $13 and change and closed out last week near $22. While DraftKings (DKNG) has captured the spotlight, we continue to favor GAN. You can see our full GAN note here: Online Betting with GAN.
Here is a snapshot of the schedule for this week:
ZoomInfo (ZI) is a software/services name to take a closer look at. (Along with Warner Music Group (WMG) which is a big one at $1.7B.)
There’s more to do on this one but here are some of the stats for ZoomInfo:
As a base, we will use 382.5M shares outstanding which at the $17 mid-point results in a market cap $6.5B. This number is inspiring and staggering.
Revenues more than doubled in 2019 to reach $293M and the company posted strong March Q 2020 results of $102M.
Income from operations was $36M for 2019 and $20M for 1Q 2020. Total paid users reached 202,000.
Taken together the numbers would seem to justify the proposed valuation. For reference, LinkedIn was doing ~$3B when it was acquired.
There’s quite a bit of organizational gunk on this deal. There are multiple entities and classes of stock. At the bottom of it all is the fact that public shareholders will own only about 11.9% of the company and 1.3% of the shareholder vote.
The “sponsors” of the company are some of the “usual suspects” in the private equity world - TA Associates and The Carlyle Group to name two. Acquisitions have been a big part of the story and it’s not clear what kind of corporate culture really exists here.
As it stands now the chatter from capital markets is that this one is already “hot” and may be able to increase and/or price above the range. Having said all that there are some reasons to be a bit leery. There will be a note along with a full transcript of the roadshow posted by tomorrow morning.
The Candyman
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