Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<p>Root Inc is getting ready to complete its IPO in the NASDAQ exchange in the next few weeks. Root Inc is an insurtech company that operates through a mobile app that uses smartphone technology, telematics, and data science to provide auto and home insurance. Since the founding of the company, Root has raised a total of<a href="https://www.insurancejournal.com/news/national/2020/10/06/585407.htm" target="_blank" rel="noopener"> $523 million</a> in funding. It was last valued at $3.65 billion in September 2019 in a round led by ST Global and Coatue. Root is targeting about <a href="https://www.businessinsider.com/root-insurance-us-based-insurtech-filed-for-ipo-2020-10#:~:text=The%20US%2Dbased%20insurtech%20has,currently%20available%20in%2029%20states." target="_blank" rel="noopener">$6 billion</a> valuation in this IPO. You can read Root Inc's S-1 <a href="https://www.sec.gov/Archives/edgar/data/1788882/000162828020014305/roots-1.htm" target="_blank" rel="noopener">here.</a> </p>
<p><strong>Surging revenue &amp; rapid improvement in net margins</strong> - The company's revenues have exploded higher in the past three years. In 2019, the company generated revenue of $290.2 million (up 570% YoY) while its total operating expenses increased by 393% YoY. A combination of a much higher revenue growth rate than operating expenses has resulted in a rapid improvement in net margins, which improved from -159.6% in 2018, -97.3% in 2019, and -58.9% in 1H 2020.</p>
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<p><strong>Root Inc's exploding revenue growth and improvement in the reduction of net losses is very impressive, in the ranks of <a href="https://www.smartkarma.com/entities/snowflake-inc" target="_blank" data-smartkarma-citation="entities:29254:1" rel="noopener">Snowflake Inc (SNOW US)</a>. </strong></p>
<p><em>Although Snowflake and Root compete in different industry segments, both are SaaS companies with exceptional sales growth and significant operating leverage going forward. Similar to Snowflake, the word <strong>"WOW"</strong> came to my mind in reading through Root's IPO prospectus. </em><em>Root Inc could be one of those exceptional, highly disruptive SaaS companies that even the great value investors such as Warren Buffett could inject significant amounts of capital (similar to Snowflake).</em></p>
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Root Inc is getting ready to complete its IPO in the NASDAQ exchange in the next few weeks. Root Inc is an insurtech company that operates through a mobile app that uses smartphone technology, telematics, and data science to provide auto and home insurance. Since the founding of the company, Root has raised a total of $523 million in funding. It was last valued at $3.65 billion in September 2019 in a round led by ST Global and Coatue. Root is targeting about $6 billion valuation in this IPO. You can read Root Inc's S-1 here. 
Surging revenue &amp; rapid improvement in net margins - The company's revenues have exploded higher in the past three years. In 2019, the company generated revenue of $290.2 million (up 570% YoY) while its total operating expenses increased by 393% YoY. A combination of a much higher revenue growth rate than operating expenses has resulted in a rapid improvement in net margins, which improved from -159.6% in 2018, -97.3% in 2019, and -58.9% in 1H 2020.

Root Inc's exploding revenue growth and improvement in the reduction of net losses is very impressive, in the ranks of Snowflake Inc (SNOW US). 
Although Snowflake and Root compete in different industry segments, both are SaaS companies with exceptional sales growth and significant operating leverage going forward. Similar to Snowflake, the word "WOW" came to my mind in reading through Root's IPO prospectus. Root Inc could be one of those exceptional, highly disruptive SaaS companies that even the great value investors such as Warren Buffett could inject significant amounts of capital (similar to Snowflake).


Root Inc IPO Preview - The Next Snowflake?

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Palantir Technologies  / Equity Capital Markets

<p>Palantir has set its expected listing date as the 30<sup>th</sup> of September and has offered guidance suggesting that 3Q revenue would be $278-280m and full year revenue would be $1.06bn implying 4Q revenue of about $300m. The indicative pricing for the stock has been touted as $10 implying an EV of $18bn on fully diluted shares. We examine the attractiveness of this valuation below.</p>

Palantir has set its expected listing date as the 30th of September and has offered guidance suggesting that 3Q revenue would be $278-280m and full year revenue would be $1.06bn implying 4Q revenue of about $300m. The indicative pricing for the stock has been touted as $10 implying an EV of $18bn on fully diluted shares. We examine the attractiveness of this valuation below.

TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

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<p>We've looked into many IPOs over the last 20 years, and think Snowflake is one of the better ones we've come across. Its architectural competitive advantages vs. legacy data warehouse providers are simply insurmountable, and while the cloud platforms loom as eventual rivals, we think this management team knows how to carve out a defensible place amongst the cloud titans.</p>
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<p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p>
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We've looked into many IPOs over the last 20 years, and think Snowflake is one of the better ones we've come across. Its architectural competitive advantages vs. legacy data warehouse providers are simply insurmountable, and while the cloud platforms loom as eventual rivals, we think this management team knows how to carve out a defensible place amongst the cloud titans.




Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.




<p>The Snowflake IPO has attracted significant investor interest including some pretty impressive names such as Warren Buffett and Salesforce. Indeed, the company’s business is impressive, and its sales growth should help drive a successful IPO in our opinion. However, that does not mean the company is without issues and while we suspect this could be a good trade, we are sceptical about its merits as an investment, and not just because of demanding valuations but also because it is unclear how the company will defend its currently attractive position against Amazon and other large players.</p>

The Snowflake IPO has attracted significant investor interest including some pretty impressive names such as Warren Buffett and Salesforce. Indeed, the company’s business is impressive, and its sales growth should help drive a successful IPO in our opinion. However, that does not mean the company is without issues and while we suspect this could be a good trade, we are sceptical about its merits as an investment, and not just because of demanding valuations but also because it is unclear how the company will defend its currently attractive position against Amazon and other large players.

Snowflake – Extremely Pretty, but Liable to Melt in Amazon’s Sun

<p>In this insight, we provide a valuation analysis of <a href="https://techcrunch.com/2020/09/08/snowflakes-ipo-could-value-it-as-high-as-24b-salesforce-and-berkshire-to-invest/" target="_blank" rel="noopener">Snowflake</a> which has set its IPO price range of $75 to $85 per share. At these prices, Snowflake's market cap would range between $20.9 billion and $23.7 billion. Snowflake could raise more than $2.7 billion in this IPO and this would be one of the biggest IPOs in the U.S. stock market this year. The valuation range is a big jump from the valuation the company received earlier this year when it was valued at about $12.5 billion (raising $479 million in its Series G funding round).</p><p>It was also announced that <strong>Berkshire Hathaway</strong> will invest $573 million in the Snowflake IPO, which is likely to have a big positive impact on this IPO, especially among the value-oriented investors globally. <a href="https://www.smartkarma.com/entities/salesforce-com-inc" target="_blank" data-smartkarma-citation="entities:19124:1" rel="noopener"><strong>Salesforce.Com Inc (CRM US)</strong></a>also plans to invest $250 million in the Snowflake IPO. The private placement investments by Berkshire Hathaway and Salesforce.com will be equal to the IPO price. For Berkshire Hathaway, it plans to purchase 3.125 million new shares of the company's Class A common stock (assuming $80 per share, this would represent $250 million) and an additional 4.042 million shares of the company's Class A common stock from one of the existing shareholders (assuming $80 per share, this would represent $323 million).</p><div class="content-highlight"><p>Our valuation analysis suggests an EV of $37.1 billion, a market cap of $40.4 billion, and a target price of $145 per share for Snowflake. The IPO price range is from $75 to $85 per share and assuming the IPO is completed at the high end of the IPO price range, our target price would represent a 70% upside to this price level. We used fully diluted shares outstanding of 278.8 million post IPO and this resulted in a target price of $145 per share. Given the strong upside, we would take this IPO deal. In fact, we are including Snowflake in our model portfolio.</p></div>

In this insight, we provide a valuation analysis of Snowflake which has set its IPO price range of $75 to $85 per share. At these prices, Snowflake's market cap would range between $20.9 billion and $23.7 billion. Snowflake could raise more than $2.7 billion in this IPO and this would be one of the biggest IPOs in the U.S. stock market this year. The valuation range is a big jump from the valuation the company received earlier this year when it was valued at about $12.5 billion (raising $479 million in its Series G funding round).It was also announced that Berkshire Hathaway will invest $573 million in the Snowflake IPO, which is likely to have a big positive impact on this IPO, especially among the value-oriented investors globally. Salesforce.Com Inc (CRM US)also plans to invest $250 million in the Snowflake IPO. The private placement investments by Berkshire Hathaway and Salesforce.com will be equal to the IPO price. For Berkshire Hathaway, it plans to purchase 3.125 million new shares of the company's Class A common stock (assuming $80 per share, this would represent $250 million) and an additional 4.042 million shares of the company's Class A common stock from one of the existing shareholders (assuming $80 per share, this would represent $323 million).Our valuation analysis suggests an EV of $37.1 billion, a market cap of $40.4 billion, and a target price of $145 per share for Snowflake. The IPO price range is from $75 to $85 per share and assuming the IPO is completed at the high end of the IPO price range, our target price would represent a 70% upside to this price level. We used fully diluted shares outstanding of 278.8 million post IPO and this resulted in a target price of $145 per share. Given the strong upside, we would take this IPO deal. In fact, we are including Snowflake in our model portfolio.

Snowflake IPO - Approved by the Oracle of Omaha

United States

Snowflake Inc. provides software solutions. The Company develops database architecture, data warehouses, query optimization, and parallelization solutions. Snowflake serves customers worldwide.

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Snowflake (SNOW US)

Root Inc IPO Preview - The Next Snowflake?

Root Inc could be one of those exceptional, disruptive SaaS companies that even the great value investors such as Warren Buffett could inject...

Douglas Kim

Palantir - Valuation

Palantir has set its expected listing date as the 30th of September and has offered guidance suggesting that 3Q revenue would be $278-280m and full...

Mio Kato

Snowflake: Making It Rain

We've looked into many IPOs over the last 20 years, and think Our investment philosophy attracts us to investing behind THE major secular trend in...

Aaron Gabin

Snowflake – Extremely Pretty, but Liable to Melt in Amazon’s Sun

The Snowflake IPO has attracted significant investor interest including some pretty impressive names such as Warren Buffett and Salesforce. Indeed,...

Mio Kato

Snowflake IPO - Approved by the Oracle of Omaha

In this insight, we provide a valuation analysis of Snowflake which has set its IPO price range of $75 to $85 per share. At these prices,...

Douglas Kim

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