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Internet Equity Research, IPO Research, The Battle Road IPO Review

From Biscuit Factory to the Big Board: Twitter’s Humble IPO Origins

twitter-logo-transparentAs Twitter prepares to launch its IPO it is useful to recall the company’s humble origins. While living in the Sunshine Biscuit Factory in Oakland California thirteen years ago, Jack Dorsey signed up for a service called LiveJournal, becoming one of its first four thousand users.  Dorsey, a Missouri native, was in the midst of creating a company that would dispatch taxis , couriers, and emergency services from the internet.  The idea stemmed from an early fascination with the challenges posed by logistics and routing, which impelled him to work for a courier company during his early teens.

While pursuing the creation of the dispatching company, he came up with the idea to provide live, real-time updates from the road, regardless of one’s location. Problem was, that most people did not have smartphones or tablets at that time, and thus, if they were not seated, behind their computer monitors, the real time value of the message would be lost.

Six years later, in 2006, while working at the podcasting company Odeo, and with the smartphone revolution about to take off into high gear, Dorsey, Biz Stone, Evan Williams and others launched their instant messaging service,  utilizing the name Twitter, which was  selected  by software developer Noah Glass. Twitter was meant to suggest, according to Glass, “a short burst of inconsequential information” akin to chirps from birds. The first tweet, sent by Dorsey a bit before 10 PM on March 21, 2006 read simply: “just setting up my twtr.” What started as 400,000 posts every 90 days skyrocketed to over 50 million each day by 2010, and a purported level of 500 million tweets per day currently.

Twitter ranks as one of the top 10 internet sites with some 200 million registered users and rising. With revenue expected to more than double this year, Twitter hopes to tap into the IPO market with fortuitous timing, on the heels of record valuations accorded to internet companies, and Facebook’s remarkable rebound.

Whatever its fate, the company has come a long way from a clever idea born into a biscuit factory.

Internet Equity Research, IPO Research, The Battle Road IPO Review

ChannelAdvisor (NYSE: ECOM): a Post-IPO Review

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ChannelAdvisorChannelAdvisor (NYSE: ECOM), a provider of cloud-based ecommerce software for retailers and consumer goods companies, is a relatively recent entrant to the public markets. With projected revenue of $66 million in 2013, the company helps retailers and consumer product companies optimize sales on leading ecommerce platforms and comparison shopping engines, such as Amazon.com, eBay, and Google. ChannelAdvisor (ECOM hereafter) claims over 2,000 customers, including 27 percent of the Top 500 US Internet retailers. Over 20 percent of sales come from outside the US. Founded in 2001, the Morrisville, North Carolina company issued 5.8 million shares at $14 per share in an IPO launched on May 23, 2013.

ECOM’s ecommerce software platform enables retailers and consumer goods companies to sell and advertise their goods and services on over 200 platforms and comparison shopping sites. One of the many benefits that ECOM offers is the ability to update product description and pricing information in one location, and then publish it to multiple platforms, Amazon.com, eBay, Google, Yahoo!, Bing, Groupon, Facebook, Nextag, Price Grabber, and Shopping.com.

ECOM customers are dispersed across many consumer segments, including clothing, electronics, automotive, sports and outdoor equipment, patio/lawn garden, and toys. No single customer accounts for more than two percent of sales and the top ten customers account for less than 10 percent. Well known CA customers include Ann Taylor, J&R Electronics, Jos. A. Bank Clothiers, Jockey, Dell, Eddie Bauer, Brookstone, and Sony. That said, most of its customers are smaller and mid-sized companies that are not necessarily household names. ECOM targets an addressable market of more than 100,000 companies with internet gross merchandise volumes exceeding $1 million.

A typical customer contract is one year in duration and calls for an annual subscription fee plus an additional fee based on the gross merchant volume processed through ECOM’s platform. Subscription and implementation fees account for roughly two-thirds of sales, while variable fees are about one third. A particularly encouraging statistic is that average revenue per core customer over the last year has risen from $25,000 to nearly $29,000. The figure excludes a small portion of revenue that comes from fees derived from a legacy acquisition.

The principal risk to the story as we see it is that while customer concentration is low, a significant portion of ECOM’s sales are derived from customer use of Amazon.com, eBay, and Google. Therefore unanticipated policy changes to Amazon.com’s third party market, eBay’s marketplace, or Google’s Product Listing Ads, could hurt ECOM. Another risk is that operating losses have been widening on a year over year basis as the company invests in expanding the business. ECOM’s path to profitability is therefore less predictable than a company with an already proven business model.

To see how ECOM screens against its software peers within the Battle Road IPO Review software coverage universe, please contact: [email protected].