Between December 2019 and mid-2021 a passel of software platforms went public via IPO (and SPAC). Over that time span, I blogged about nine of them. In chronological order they were:
- Bill.com (BILL)
- Selectquote (SLTQ)
- Vroom (VRM)
- Billtrust (BTRS)
- AppLovin (APP)
- Procore (PCOR)
- Marqeta (MQ)
- Payoneer (PAYO)
- AvidXchange (AVDX)
With the exception of Bill.com, the stocks of these companies have fallen rather dramatically since going public.
Charting the Software Platform IPOs
The chart below is the stock performance of these companies, relative to the Russell 2000 index. The chart begins when Bill.com went public in December 2019 and ends as of last Friday. During that time frame, the Russell 2000 advanced 11.9%–despite now being down more than 25% from its peak.
Bill.com is the only software platform whose stock is up since going public. Bill.com’s stock has more than tripled since it went public, even after falling more than 2/3rds from its peak price in late 2021. Bill.com’s valuation was in the stratosphere for a long while and is still richly valued. But the company reported organic revenue growth of 74% last quarter and organic transaction fee growth of 101%. There are not many B2B payment platforms that put up those kinds of numbers.
The Middle Pack
The stock prices of Billtrust, AppLovin, AvidXchange, Procore, Marqeta, and Payoneer all are down 40-70% from their IPO prices.
AppLovin is down the least (-38.6%), likely for two reasons:
- AppLovin expects to generate about $1 billion in adjusted EBITDA in 2022, so the market does not worry about them surviving a recession.
- The company operates both a software platform and a less profitable applications business. The software platform part of the business is now 40% of revenue, up from 14% when the company went public in 2021. AppLovin recently announced plans to get out of the applications business and become a pure platform.
Billtrust and AvidXchange are AR and AP solutions respectively. Both stocks are down about 70%. They may be down simply because of the market correction. In addition, investors may also be realizing the limited pace at which B2B payments businesses can grow-other than Bill.com!
The Laggards: Vroom and SelectQuote
Vroom and SelectQuote are down more than 90% from their IPO prices.
Vroom has continued to grow but had a first-quarter run rate of -$500 million adjusted EBITDA. Vroom is hoping to cut $150 million in expenses to lower the EBITDA loss to -$350 million. Needless to say, the market has turned unforgiving of “growth-at-all-costs” companies for which Vroom has been a poster child. The market is probably also concerned about softening in the used car market.
SelectQuote’s poor stock performance has company-specific attributes. The company’s business is selling Medicare Advantage and Supplement insurance to seniors. SelectQuote’s reported revenue includes estimates of future commissions, which are based on the expected LTV of new customers. In 2022 SelectQuote dramatically reduced its estimates of this LTV and hence revenue per policy by 35%. At the same time, SelectQuote increased its cost per policy by more than 20%. In the end, SelectQuote went from reporting Adjusted EBITDA per policy of 36% to -20% per policy. You don’t see unit economics change that much that fast very often–if ever. That’s what can happen, though, when revenue is being estimated! Here are the ugly numbers:
Given the performance of these stocks, I’m glad I almost never make investment recommendations on software platform IPOs. I learned long ago, that you can love a company, but not feel the same way about its stock price!