Online ordering and food delivery will remain, and Olo wants to offer restaurants another solution.
On-demand software platform for restaurants Olo (NYSE: OLO) hit the public markets today after rating its initial public offering (IPO) last night.
The stock trades under the symbol “OLO” and trading begins at 12:00 noon. Within 10 minutes the share price rose to USD 31 per share, well above the offer price of USD 25. The IPO market has been hot for the past few months, with many debuts sprinting out the window relative to the asking price.
Here’s what you need to know about Olo’s initial public offering:
The numbers behind Olo’s IPO
The company operates a cloud-based software-as-a-service (SaaS) platform that allows restaurants to easily set up online stores that range from ordering and delivery to managing their offerings on other third-party platforms.
Olo has three core segments (known as “modules”): ordering, shipping, and rails. Ordering uses a subscription-based model that charges restaurants a monthly subscription fee to process customer orders through various channels such as mobile devices or the web.
The Dispatch and Rails modules generate transaction-based revenue, with Dispatch being a delivery fulfillment service, while Rails enables the restaurant to manage menu, price and location information across channels and to integrate orders from third-party aggregators into the restaurant’s point of sale (POS) system.
The company was founded in 2005 by Twitter (NYSE: TWTR) Co-founder Noah Glass, who currently serves as Olo’s CEO and is based in New York City. 64,000 restaurants now use the platform and process 1.8 million orders per day.
In 2020, Olo had gross sales (GMV) of $ 14.6 billion. Net revenue retention, a metric that measures how well SaaS companies are building relationships with existing customers, has been over 120% since early 2018.
Revenue growth was also impressive: total revenue rose 94% to $ 98.4 million in 2020. Unlike many tech startups going public, Olo is already profitable, generating over $ 3 million in net income last year.
The COVID-19 pandemic is likely to have spurred demand for the Olo platform over the past year as many restaurants scrambled to adopt digital services in order to survive.
Olo’s share price indicates a valuation of more than $ 4 billion
As mentioned earlier, the IPO was priced at $ 25 per share, above the expected $ 20-22 range. Olo sold 18 million Class A shares at that price and raised $ 450 million in fresh capital to fund future growth.
Investors should also keep in mind that Olo’s capital structure includes oversight of Class B shares, which receive ten votes per share, as opposed to one vote per share that Class A shares are entitled to.
Class B shares are predominantly held by insiders in order to maintain voting rights. In particular, Class B shareholders collectively hold 99% of the voting rights. This is a common structure for many modern technology companies.
Based on the 142 million shares outstanding after the IPO, Olo already has a total market cap of $ 4.4 billion, based on a share price of $ 31.
Summary: Why Olo Stocks Could Be a Buy
The pandemic catalyzed a wholesale shift to online ordering and food delivery for both restaurants and consumers, which has been a boon for businesses like this DoorDash (NYSE: DASH) and GrubHub (NYSE: GRUB).
Olo is entering a highly competitive market to offer an alternative to the leading platforms that are often criticized for their high commission rates.
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