Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Don't be afraid, little unicorn. It doesn't have to be scary out here in the land of public companies. 

Thursday's stock market debut for Twilio, an app software startup backed by Silicon Valley investors, went just peachy. The company sold its first batch of stock at a price that valued the company at $1.2 billion, excluding the value of equity issued to employees and others. Twilio padded its cash stockpile by $150 million and drew valuable publicity from a 90 percent pop of its shares and from the clever stunt of writing software code live from the New York Stock Exchange.

Twilio's investors all made money, as the gods of capitalism intended. Even the last stock buyers in the boat before the IPO saw the price of their shares nearly triple, as did the company's valuation from its final days as a private company.  

Brave Unicorn
Twilio is the rare "unicorn" tech startup that has braved the IPO market. The company's climbing stock value shows it was right to go public.
Source: Twilio
Note: First day share price was as of 3:10 p.m. ET

The performance shows that the latest breed of "unicorns" -- the corny but handy term for tech startups valued at $1 billion or more -- can go public successfully. That hasn't been the pattern of late. Almost no unicorns have gone public recently; Twilio is just the second tech company to go public in the U.S. this year.

It used to be an embarrassing aberration when tech companies went public at a valuation lower than they had before their IPOs. Now this valuation deflation has become a fairly regular occurrence. Many prominent unicorns such as Uber are doing unnatural acts to simply avoid IPOs as long as possible. 

Twilio could bring some swagger back to the IPO market. But it may not prove to be much of a trendsetter because the company doesn't have many typical unicorn qualities, just as the 2015 IPO of oddball profitable unicorn Atlassian also didn't spark a rush to the IPO exits. Yes, Twilio has rapidly growing sales and no profits -- check and check on the unicorn qualifications list. But before its IPO, the company raised a relatively modest $250 million, compared with the roughly $15 billion Uber has collected. Each extra dollar of money raised as a startup adds potential IPO headaches. 

IPO No-Go
Only two technology companies have gone public in the U.S. this year
Sources: Jay Ritter, University of Florida and Bloomberg

Twilio is also in the relatively uncrazy corner of the technology world catering to software developers. Those app coders increasingly control the purse strings at their employers, and many of them have grown addicted to Twilio's software. If you tap a button in the Uber app to call or text a driver with instructions, that interaction is enabled by a single-use phone number using Twilio's technology.

Twilio on Thursday afternoon had a stock market value of roughly $2.9 billion, including equity that has been doled out to employees and others. Assuming Twilio's revenue increases this year at the rate it did in the first quarter -- 78 percent compared with figures in the period a year earlier -- the company's stock market value including outstanding equity would amount to about 10 times Twilio's revenue for this year, or about eight times the stock market value excluding options.

That is a heady multiple compared with other software firms catering to corporate software-development teams. For example, New Relic trades at about six times its estimated revenue for the year, according to Bloomberg data, although Twilio's revenue growth is higher than New Relic's. 

Startup investor Bill Gurley wrote in April that "an IPO is the best way to ensure the long-term value of your (and your employees’) shares." Twilio's IPO should give some confidence to those reluctant unicorns cowering in their no-IPOs-allowed clubhouses. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Given the stock surge on Thursday, there should be hand-wringing about whether Twilio's bankers underpriced the IPO shares, depriving the company of extra money.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net