The news has been teeming with IPOs or initial public offerings for months as investors and SPACs go wild with new launches as COVID-19 recedes.
Today saw the foodservice technology company Olo go public with the ticker (NYSE: OLO) on the New York Stock Exchange. My colleague Evan Niu previously reported on its IPO, but the important detail is that after the $ 25 price tag, the supply quickly surged above $ 30, giving the company a valuation of more than $ 4 billion.
If you read the news about Olo’s IPO, the next question on your mind is likely whether it is a purchase. In the end, DoorDash (Nasdaq: DASH) is now valued at $ 43 billion About Technologies (Nasdaq: UBER) took Uber Eats’ growth to a valuation of $ 105 billion.
Even Grubhub (NYSE: GRUB) is valued at $ 6.3 billion. This makes Olo a little smaller than the group, but also has a business model that differs significantly from other technology companies when it comes to online ordering.
Does this offer small size and a fast growing market opportunity? Here’s a closer look at the details behind this newbie to the stock market.
How Olo went public
Olo’s mission statement is contained in its name, which is an abbreviation of “online ordering”. Unlike delivery companies like Grubhub and DoorDash, Olo doesn’t take care of groceries, but offers software platforms for restaurants. These include:
· Digital ordering software for menu and order management
· On-demand delivery software to optimize the connection between customers, delivery services and restaurants
· Secure digital order platforms that are said to be able to process 50 orders per second
Since it was founded in 2005, Olo has existed in the hospitality industry for over 15 years. Just as those who sold picks and shovels to the “Forty-Niners” are said to have gotten richer than the prospectors themselves, Olo’s positioning seems to have been successful so far.
While delivery services like DoorDash are still causing losses and writing in the red despite a huge increase in orders during COVID-19, sales in 2020 rose 94% year over year to $ 98.4 million and achieved a net profit of 98.4, according to Olo Million of $ 3.1 million.
While this is only marginally positive, these are better margins than any major delivery company, and make Olo a rare type of IPO that actually generates positive net income at the time of going public.
Some important facts about OLO
With the market in favor of Olo’s IPO right now in the afternoon trading session, here are some of the well-known facts about the company:
· The company already has around 400 brands using its software, including Shake shack (NYSE: SHAK), Brinker International (NYSE: EAT) Subsidiary Chili’s Bar & Grill, Sweetgreen, Wingstop Inc. (Nasdaq: WING) and Five Guys Enterprises LLC
· Plans to partner with small and medium-sized businesses for on-demand platforms as well
· $ 75.8 million in cash and cash equivalents
· No outstanding debt
Software is managing 68,000 restaurants, 1.8 million orders per day, and $ 14.6 billion worth of groceries by 2020
Time to Buy Olo Stock? A cautiously bullish attitude
Olo looks surprisingly robust for an IPO and even made a positive profit last year. The business model is positioned in such a way that the boom in restaurant deliveries and collections can be optimally used.
At the same time, it has a relatively low overhead, unlike delivery companies, which allowed it to switch from net losses to net profit once the return on sales recovered.
In terms of Company Value to Sales (EV / Revenue), the company appears to be pretty high at roughly 40 times last year’s sales.
As restaurants turn away from expensive delivery companies to handle their own deliveries, the efficiency offered by the Olo platform will make these companies an attractive choice, allowing them to take advantage of a strong software infrastructure without having to develop and manage it themselves have to.
Conversely, Olo can sell its software even if third party delivery continues to be strong so that all of the various moving parts stay in sync. This stock appears to have solid footing regardless of the restaurant’s future direction, and seems like a good buy with caution.
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