📮The Sunday Newsletter archive

The new IPO season starts with a bang

The last time we talked about promising upcoming IPOs, well, we had a different season. After about a month of virtually no IPO activity, the new season for Wall St. starts with a bang. Grab your ☕ Pumpkin Spice Latte and read about some really interesting names that are set to debut next week.

The Nike of the Swiss Alps

On Holding ($ONON) is a premium 👟 athletic footwear and related sports apparel company. It was founded just a decade ago in Zürich, Switzerland, by World Champion Olivier Bernhard. Olivier was not satisfied with the existing athletic shoes on the market and devoted himself to creating a running shoe that would give him the perfect running sensation; so he founded On. Fast forward to today, and On is firing on all cylinders.

The company sells its products both through lifestyle retailers worldwide and direct-to-consumer (DTC), through its online sites and corporate-owned retail stores. In the first half of the year, sales jumped 85% y/y to $343.8 million, accelerating from a 59% growth in 2020. Its gross margin of 59.3% is one of the highest in the retail industry and the company is already slightly profitable. In the first half of 2021, its operating margin came in at 4%, up from -4% in 2020.

Commentary: There are hundreds of companies designing and selling athletic footwear, both big brands like Nike and Adidas, and small firms, so there’s plenty of competition. But On’s rapid growth from zero to half a billion 🚀 in revenue in such a competitive industry in just 10 years shows that the company is clearly doing something right.

And its future potential is very strong as well. Research firm Mordor Intelligence estimates that the global market for athletic footwear will reach $130 billion by 2026, up from $99.6 billion in 2020. The main driver of this growth is the evolving consumer preferences towards more active, healthier lifestyles and the growing interest in sports.

On has priced its IPO at a midpoint price of $19 per share. At this price, its market cap will stand at $5.9 billion and its P/S ratio at 9.5. While this is a 64% premium to Nike’s 5.8 multiple, the company deserves a premium valuation given its strong financials and promising future potential. ONON starts trading on Wednesday.

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Coffee first

Dutch Bros Coffee ($BROS) is the largest privately held drive-through coffee chain in the US. Founded in 1992 by two brothers of Dutch descent (one of them still actively engaged), the company has expanded to 11 western states. BROS differentiates itself by focusing on personal connections and offering hand-crafted and highly customizable 🥤 beverages.

During the pandemic, its drive-through model proved highly resilient as it was a safe and convenient way to visit, and buy your favorite beverage; the company managed to increase revenue by 37.4% in 2020. And in the first half of the year, growth accelerated to 51.1% y/y to $228 million. BROS is also profitable, cash flow positive, and has been increasing its same-store sales for 14 consecutive years. It’s a sign of a strong and resilient business model.

Commentary: BROS faces competition from established brands like Dunkin’ Donuts or Starbucks ($SBUX), but its success in 11 states shows that the company can actually steal market share. Its focus on drive-through convenience, differentiated customer experience and customized beverages help it gain market share.

BROS has priced its IPO at a midpoint price of $19 apiece, which translates into a market cap of $3.1 billion. At this price, its P/S ratio will be 7.7 while Starbucks’ ratio is 5.2. But the premium valuation is justified as the company is growing faster and has stronger growth potential. Shares start trading on Wednesday.

An Okta competitor is finally going public
ForgeRock logo

In the 📰 last Sunday Newsletter, we talked about ForgeRock ($FORG), a promising SaaS firm that’s finally going public next week. FORG is a zero-trust security firm that offers solutions like multifactor authentication, server access control, single sign-on, and more.

It’s one of OKTA’s ($OKTA) biggest competitors, which has risen 10-fold since its 2017 debut, so we can clearly see why ForgeRock’s future is interesting. In the updated prospectus, the company revealed its IPO price range. At the midpoint price of $22.50 per share, FORG will be valued at $1.8 billion and its P/S ratio will stand at 11.3; a huge discount to Okta’s 38.5 multiple. The reasonable valuation gives the stock significant upside potential if the company executes well. Shares start trading on Thursday.

NBA’s official data provider
Basketball player

Sportradar Group ($SRAD) is a leading provider of data on sporting events for betting operators and media firms. It’s the 🏆 #1 provider of data to bookmakers in the US, providing offerings like pre-match data and odds, live data and odds, as well as sports audiovisual content. SRAD also holds exclusive and worldwide media data rights for the NBA and MLB.

The company offers its platform on a subscription and revenue-sharing basis, and the Net Retention Rate of its top 200 customers was a strong 113% in 2020. In the first half of the year, revenue increased 42% y/y to $318.3 million, while it’s already profitable and cash flow positive.

Commentary: Sports betting is the fastest-growing category within the broader gaming market. In the US alone, it’s expected to grow from a $1 billion market in 2019 to a $23 billion market at maturity as more states legalize sports betting and volume increases in current states.

Sportradar is the leading sports data provider so it’s well-positioned to benefit from the expected growth. It supplies sports data to over 85% of all bookmakers in the United States, in many cases as the sole provider.

SRAD has priced its IPO at a midpoint price of $26.50 per share which translates into a market value of $7.9 billion. At this price, its P/S ratio will be 13.9, which is a very reasonable multiple given the company’s strong revenue growth and promising future potential. Shares start trading on Tuesday.

Ranking next week’s IPOs:


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