The Pixar (NASDAQ:PIXR) IPO

On this date 20 years ago, Pixar held its initial public offering on the NASDAQ. Pixar’s IPO on 11/30/1995 came on the heels of Toy Story’s initial release a week earlier on 11/22/1995. Before I delve into the details surrounding its IPO, let me give a brief history of pre-IPO Pixar.

In 1979, Ed Catmull was hired by George Lucas to head Lucasfilm’s new venture called Graphics Group, which would later be purchased by Steve Jobs and renamed ‘Pixar’. John Lasseter, the creative mastermind behind all of Pixar’s works, joined the Graphics Group in 1983. The Graphics Group released The Adventures of André & Wally B in 1984, which was their first computer-animated short. In 1985, the Graphics Group created the stained glass knight scene for the film Young Adventures of Sherlock Holmes. Steve Jobs purchased the Graphics Group division of Lucasfilm in 1986 and renamed it ‘Pixar’ (condensed version of ‘pixel art’). Pixar released the short films Luxo Jr., Red’s Dream, Tin Toy, and Knick Knack in 1986, ’87, ’88, and ’89, respectively. In 1991, Disney and Pixar agreed to create and distribute at least 1 computer-animated feature length film, a plan which would finally come to fruition in 1995 with the release of Toy Story.

The monstrous success and popularity of Toy Story (which was No. 1 at the box office at the time) proved to be the perfect catalyst for Pixar stock on the day of its IPO, as shares of the animation firm opened at $47, more than double their offering price of $22, and closed at the price of $39. With a first-day closing price of $39, Pixar commanded a market cap of about $1.5 billion. At the time of its IPO, PIXR had 37.4 mm shares outstanding, with Steve Jobs owning 29.9 mm of those shares. For the 9 months ended 09/30/1995, Pixar had made a profit of $3.1 mm on revenue of $10.6 mm. Pixar’s valuation is reminiscent of both modern day software firms and the multitudinous internet companies of the dotcom bubble, with investors valuing interesting ideas and possibilities of huge future profits over the cash flow of the present.

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Adesto Technologies S-1 Analysis (NASDAQ:IOTS)

Exchange: NASDAQ

Proposed Symbol: IOTS

CEO: Narbeh Derhacobian

Offer Amount: $56.58 mm

No. of Shares to be sold in IPO: 4.1 mm

Price Range: $10-12

Mkt Cap at Latest Round of Funding: $153.4 mm

Expected IPO Date: 10/16/15

Shares Outstanding: 13.95 mm

Overview from S-1: “We are a leading provider of application-specific, feature-rich, ultra-low power non-volatile memory products. We optimize our non-volatile memory products for Internet of Things, or IoT, applications including current and next-generation Internet-connected devices in the consumer, industrial, medical and wearables markets. We combine our non-volatile memory design capabilities with proprietary intellectual property and differentiated technology platforms to deliver high-performance products that dramatically reduce the overall energy consumption of our customers’ systems and extend battery life. Our products feature embedded intelligence in a small form factor and high reliability.”

Underwriters:

  • Lead Underwriter: Needham & Company, Oppenheimer & Co.
  • Co Managers: Roth Capital Partners

Competitors: Atmel Corporation, Macronix International Co. Ltd., Microchip Technology Inc., Micron Technology, Inc., Spansion Inc., STMicroelectronics NV, & Winbond Electronics Corp.

*NOTE* ALL Dollar Amounts indicated in the graphs below are in thousands (ex. 45,000 on graph is $45 mm)

Other Notes

  • Based in Sunnyvale, CA
  • Founded in 2006
  • Adesto Technologies is a semiconductor company developing ultralow-power, embedded, non-volatile memory technology.
    • Its semiconductors are integrated in various Internet of Things appliances, wearables, sensors and medical devices.
    • Similar public companies include Micron (MU) and Pixelworks (PXLW)
  • Investors: ARCH Venture Fund VI L.P., ATA Ventures II L.P., ATA Affiliates Fund II L.P., ATA Investment Fund II L.P., Harris & Harris Group Inc., Adams Street 2006 Direct Fund L.P., Adams Street 2007 Direct Fund L.P., Applied Ventures LLC, Rambus Inc., Microchip Technology Incorporated, ATEL Ventures Inc., Serge Dassault, Altis Semiconductor, Altera Corporation, Opus Bank
  • Total Funding since inception = $56.39 mm
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Unorthodox Methods Used by High Growth Tech Firms to Report Revenue

Over the course of the past 3 – 4 years, technology startups (specifically firms in the SaaS and consumer web/social media sectors) have been focusing on gaining market share in order to grow quickly.  They do not focus on earnings because investors are now willing to pour money into high-growth firms with the hope that such companies will become dominant forces in their respective sectors, potentially leading to huge profitability in the future.  At least, that is the hope.

Rather than focusing on earnings, these firms use alternative accounting metrics to measure their progress.  For example, in order to display their high growth but also mask the fact that they are hemorrhaging money, many new tech firms report certain financial data differently than most mature companies.  As a result, these newer firms focus on “billings” or “bookings” rather than “profits.”

When companies file to IPO (ie “go public”), the SEC ensures the accurate reporting of revenue according to GAAP. In 2014, the SEC questioned 88% of technology companies about how they account for revenue, up from 79% of tech firms in 2013. For reference, the SEC only questioned 46% of all IPO bound companies (tech and non-tech alike) about their revenue reporting throughout 2014.

The SEC is obviously much more focused on the tech firms financial reporting because many more of these companies are cash flow negative and the accounting issues are critical.  The trend is getting worse.  In 2010, 66 % of tech IPOs were profitable, whereas only 17% of 2014 tech IPOs were profitable.  The 17% from 2014 was the lowest since 2000, the year of the dot-com bubble collapse, which is why many people are predicting a similar collapse in the technology sector soon.  In 2015 the numbers got worse: 15.4% of all IPO’d tech firms have been profitable.

The Rubicon Project (RUBI) is one of many high-growth public tech firms. Though the SEC forces RUBI to report revenue and profitability according to GAAP, RUBI also reports a metric they call “managed revenue”, which they define as money spent on advertising using the RUBI platform. Their managed revenue increased 179.6% between 2011 and 2014, from $238.8 mm to $667.8 mm, respectively. But in reality the company’s own revenue total is much less, coming in at $125.3 mm in 2014. And they were also unprofitable last year, with a net loss of $18.7 mm. Other tech firms such as Hortonworks (public) and Uber (private) report revenue unconventionally. Uber reports “bookings”, which they say will near $10 bn in 2015, but their revenue is only about 20-25% of that amount. And HDP, like many SaaS companies, reports software “billings”, which means predicted sales of software to occur as part of subscription contracts, but which has not yet occurred and is not included in GAAP. HDP reported $100 mm in billings for 2014, but had only $46 mm in revenue.

Investors in IPO’s and other young tech firms need to be aware, and should be wary, of such unorthodox accounting methods implemented by high-growth technology IPOs and their claims of financial success, which may be based on obscure or invented metrics.

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Dimension Therapeutics S-1 Analysis (NASDAQ: DMTX)

Exchange: NASDAQ

Proposed Symbol: DMTX

CEO: Annalisa Jenkins

Offer Amount: $115 mm

No. of Shares to be sold in IPO: TBA

Price Range: TBA

Mkt Cap at Latest Round of Funding: $219 mm

Expected IPO Date: TBA

Shares Outstanding: 11.3 mm

Overview from S-1: “We are a leading gene therapy platform company focused on discovering and developing new therapeutic products for people living with rare diseases associated with the liver and caused by genetic mutations. Our initial programs address hemophilia B, hemophilia A, ornithine transcarbamylase, or OTC, deficiency, and glycogen storage disease type Ia, or GSDIa. In August 2015, we submitted an Investigational New Drug application, or IND, with the U.S. Food and Drug Administration, or FDA, for our lead product candidate, DTX101 for the treatment of hemophilia B. In September 2015, we received notification allowing us to proceed with our Phase I/II clinical trial of DTX101. DTX101 was also granted Orphan Drug Designation in the United States in August 2015 and Fast Track Designation in September 2015 for the treatment of hemophilia B. We plan to initiate clinical trials for DTX101 by the end of 2015. We retain the global rights to all of our programs, with the exception of our hemophilia A program, which is partnered with Bayer HealthCare LLC, or Bayer. We have developed a robust scientific platform that brings together deep expertise in rare genetic diseases, liver biology, adeno-associated virus, or AAV, gene therapy and vector manufacturing. We believe that by leveraging the expertise created by our platform we will be able to accelerate the research and development of our pipeline of programs while continuing to discover and develop the next generation of products in this field. We have made and continue to make significant investments in order to develop manufacturing processes designed to reliably produce high quality AAV vectors at commercial scale. We believe that our manufacturing processes, methods and expertise will ultimately give us the most comprehensive manufacturing platform developed to date for AAV-based gene therapy product candidates. ”

Underwriters:

  • Lead Underwriter:Goldman, Sachs & Co., Citigroup, Wells Fargo Securities
  • Co Managers: Canaccord Genuity, Cantor Fitzgerald

Competitors: Spark Therapeutics, Inc., Applied Genetic Technologies Corporation, Asklepios BioPharmaceutical, Inc., Audentes Therapeutics, Inc., Avalanche Biotechnologies, Inc., Voyager Therapeutics, Inc., GenSight Biologies SA, NightstaRx Limited, ReGenX, bluebird bio, Inc., uniQure, Arcturus Therapeutics Inc., Ultragenyx Pharmaceuticals, Bioblast Pharma Ltd., PhaseRx, Inc., Synlogic, Inc., Baxalta Incorporated, Novo Nordisk S/A, BioMarin Pharmaceutical Inc., Pfizer, Inc., Sangamo Biosciences, Inc., Biogen Inc., Alnylam Incorporated

R & D Expenses:   

  • 2013 = $2.806 mm
  • 2014 = $12.974 mm
  • 2015 (6 mo. ended 06/30)= $14.866 mm

Administrative Expenses:   

  • 2013 = $364K
  • 2014 = $2.727 mm
  • 2015 (60 mo. ended 06/30)= $3.782 mm

Net Loss: 

  • 2013 = $3.170 mm
  • 2014 = $12.968 mm
  • 2015 (6 mo. ended 06/30) = $15.361 mm

Cash as of 06/30/15: $80.653 mm

Total Assets as of 06/30/15: $88.121 mm

Working Capital $73.342 mm

Other Notes

  • Based in Cambridge, MA
  • Founded in 2013
  • Dimension Therapeutics is a gene therapy company focused on developing novel treatments for rare diseases.
    • Most similar public companies are Spark Therapeutics, bluebird bio, and Ultragenyx.
    • The firms above held IPOs in 2015, 2013, and 2014, respectively.
    • Spark Therapeutics (ONCE) returned 117.4% on the first day, and immediately following its IPO this past January it climbed to a high of $78 in March. It now sits at around $48-50.
    • bluebird bio returned 58.3% on its first day of trading, and stayed in the $20-30 range for the next year. OVer the course of the past year, BLUE has gone from approximately $30 to a high of $195.
    • Ultragenyx Pharma gained 101.2% on its first day, and since its IPO RARE has climbed 210% (an astronomical 526% from its IPO price)
    • the past performance of companies in DMTX’s sector bodes well for its IPO and post-IPO performance; the big variable will be to see how the IPO market fares over the course of the next 3-4 weeks.
  • Funding Rounds:
    • Series A — $30 mm
      • Jun 23, 2014
      • Investors: Fidelity Biosciences, OrbiMed Advisors
    • Series B — $65 mm
      • Apr 21, 2015
      • Investors: New Leaf Venture Partners, Fidelity Biosciences ,Jennison Associates, OrbiMed, Partner Fund Management, RA Capital Management, Rock Springs Capital,Tourbillon Global Ventures
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The Cyclicality of the IPO Market

With the 10%+ market correction occurring in the past week, the IPO market has grown cold. With fewer IPO filings and zero upcoming IPOs (meaning companies that have set the price range and date of their planned IPO), interest in IPOs has been waning throughout this market turmoil. Whenever a market correction occurs, IPOs are always some of the first stocks to take a hit, as investors lose interest in the high risk nature of investing in such firms. The most recent case of this phenomenon was during the last week of March 2014 into April 2014. During the first few months of 2014, IPOs in the biotech and technology (specifically cloud-based SaaS) experienced huge first day run-ups (firms include RARE, DRNA, CSLT, VRNS, COUP, PCTY, QTWO, AMBR, BRDR), but then most of their prices were cut in half over the next few months after the technology sector experienced a correction. The difference with the market correction occurring right now is that the whole market is being affected, as it is not limited to solely one sector. But with previous market corrections (keep in mind I’m talking about market corrections, not necessarily huge collapses, à la the Dotcom Bubble collapse in 2000 and the Housing Bubble collapse in 2008) IPOs usually heat up within 4-5 months. As for the 2014 correction, IPOs returned in droves by September, with strong showings from Hubspot, Alibaba, CyberArk, New Relic, Yodlee, Hortonworks, and Workiva. I believe that IPOs should be back by this fall/winter, as the market rebounds. Bob McCooey, Senior Vice President of Listing Services at the Nasdaq, stated that “it should be a very busy fall.”

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Pure Storage S-1 Analysis (PSTG)

Exchange: TBD

Proposed Symbol: PSTG

CEO: Scott Dietzen

Offer Amount: $300 mm

No. of Shares to be sold in IPO: TBD

No. of Shares Outstanding: 159.657 mm

Price Range: TBD

Mkt Cap at Latest Round of Funding: $3 bn

Expected IPO Date: TBD

Overview from S-1: “Our mission is to deliver data storage that transforms business through a dramatic increase in performance and reduction in complexity and costs. Our innovative technology replaces storage systems designed for mechanical disk with all-flash systems optimized end-to-end for solid-state memory. At the same time, our innovative business model replaces the traditional forklift upgrade cycle with an evergreen storage model of hardware and software upgrades and maintenance. Our next-generation storage platform and business model are the result of our team’s substantial experience in enterprise storage and web-scale infrastructure, as well as frustration with the industry’s status quo. This deep industry understanding led to the development of our three-part integrated platform: the Purity Operating Environment, our flash-optimized software, FlashArray, our modular and scalable all-flash array hardware, and Pure1, our cloud-based management and support. Our platform can deliver a 10X acceleration in business applications over legacy disk-based storage. It is also designed to be compatible with existing infrastructure, substantially more reliable and power and space efficient. Our business model builds on our technology innovations to reverse the traditional storage business model. Instead of moving data between old and new systems via forklift upgrades, we keep business data and applications in place and upgrade technology around it. Our platform and business model are designed to add value to customers for a decade or more, reducing total cost of storage ownership while increasing loyalty. Our innovations help rebalance the datacenter by closing the performance gap between legacy storage technology and servers and networks. But it is the simplicity of our platform and business model that is revolutionizing the enterprise storage experience. Together, our innovations have helped our customers realize the promise of the cloud model for IT and the benefits of Moore’s Law. This has yielded industry-leading Net Promoter scores, based on the results of customer satisfaction surveys we conducted.”

Underwriters:

  • Lead Underwriter: Morgan Stanley, Goldman Sachs, Barclays, Allen & Company, BofA Merrill Lynch
  • Co Managers: Pacific Crest Securities, Stifel, Raymond James, Evercore ISI

Competitors: Nimble Storage, Violin Memory, Cisco, Dell, EMC, HP, Hitachi Data Systems, IBM, Lenovo, NetApp, Crossroads Systems, Dot Hill Systems, QLogic, Tintri, Tegile Systems, Nutanix, Fusion-io (Sandisk)

Revenue (fiscal year ended January 31):

  • 2013 = $6.077 mm
  • 2014 = $42.733 mm
  • 2015 = $174.451 mm

R & D Expenses:

  • 2013 = $12.383 mm
  • 2014 = $36.081 mm
  • 2015 = $92.707 mm

Sales & Marketing Expenses:

  • 2013 = $10.727 mm
  • 2014 = $54.750 mm
  • 2015 = $152.320 mm

Net Loss:

  • 2013 = $23.372 mm
  • 2014 = $78.561 mm
  • 2015 = $183.231 mm

No. of Subscribers:

  • 2013 = 108K
  • 2014 = 140K
  • 2015 = 194K

Cash:

  • 2013 = $50.120 mm
  • 2014 = $130.885 mm
  • 2015 = $192.707 mm

Total Assets:

  • 2013 = $61.600 mm
  • 2014 = $185.004 mm
  • 2015 = $361.819 mm

Other Notes

  • Based in Mountain View, CA
  • Founded in 2009
  • Pure Storage is an all-flash enterprise storage company that enables broad deployment of flash in data centers.
    • Most similar public companies are Nimble Storage (NMBL) and Violin Memory (VMEM)
    • Both had IPOs in late 2013
    • NMBL has a 26.7% return from its IPO and VMEM has a -74% return from its IPO.
  • Funding Rounds:
    • Series A — $5 mm
      • Oct 1, 2009
      • Investors: Sutter Hill Ventures
    • Series B — $20 mm
      • Aug 1, 2010
    • Series C — $30 mm
      • Aug 23, 2011
      • Investors: Greylock Partners, Sutter Hill Ventures, Redpoint Ventures
    • Series D — $40 mm
      • Aug 15, 2012
      • Investors: Greylock Partners, Sutter Hill Ventures, Redpoint Ventures, Index Ventures
    • Series E — $150 mm
      • Aug 29, 2013
      • Investors: T. Rowe Price, Tiger Global Management , Fidelity Ventures, Glynn Capital Management, Greylock Partners, In-Q-Tel Index Ventures, Institutional Venture Partners, Redpoint Ventures, Samsung Ventures, Sutter Hill Ventures
    • Series F — $225 mm
      • Apr 22, 2014
      • Investors: T. Rowe Price, Greylock Partners, Index Ventures, Redpoint Ventures, Sutter Hill Ventures, Tiger Global Management, Wellington Management
    • Secondary Market — $60 mm
      • Aug 11, 2014
      • Investors: T. Rowe Price, Tiger Global Management, Wellington Management
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Sunrun S-1 Analysis (NASDAQ:RUN)

Exchange: NASDAQ

Proposed Symbol: RUN

Co-CEOs: Edward Fenster & Lynn Jurich

Offer Amount: $250 mm

No. of Shares to be sold in IPO: 17.9 mm

No. of Shares Outstanding: 96.9 mm

Price Range: $13-15

Mkt Cap at Midpoint of Proposed range: $1.358 bn

Expected IPO Date: 08/05/15

Description from S-1: “We provide clean, solar energy to homeowners at a significant savings to traditional utility energy. After inventing the residential solar service model and recognizing its enormous market potential, we leveraged our first-mover advantage to build out the infrastructure and capabilities necessary to rapidly acquire and serve customers in a low-cost and scalable manner. Today, our scalable operating platform provides us with a number of unique advantages. First, we are able to drive distribution by marketing our solar service offerings through multiple channels, including our diverse partner network and direct-to-consumer operations. This multi-channel model supports broad sales and installation capabilities, which together allow us to achieve capital-efficient growth. Second, we are able to provide differentiated solutions to our customers that, combined with a great customer experience, we believe will drive meaningful margin advantages for us over the long term as we strive to create the industry’s most valuable and satisfied customer base.”

Underwriters:

  • Lead Underwriter: Credit Suisse, Goldman Sachs, Morgan Stanley
  • Co-Managers: BofA Merrill Lync, RBC Capital Markets, KeyBanc Capital Markets, SunTrust Robinson Humphrey

Competitors: SolarCity, Sungevity, SunPower, SunEdison, Real Goods Solar, Clean Power Finance

Revenue (fiscal year ended December 31):

  • 2013 = $54.740 mm
  • 2014 = $198.557 mm

R & D Expenses:

  • 2013 = $9.984 mm
  • 2014 = $8.386 mm

Sales & Marketing Expenses:

  • 2013 = $22.395 mm
  • 2014 = $78.723 mm

Customers:

  • 2013 = 48,998
  • 2014 = 73,113

Cash: $105.473 mm

Total Assets: $2.016555 bn

Line of Credit: $48.675 mm

Other Notes

  • Based in San Francisco, CA
  • Founded in 2007
  • Grew customer base from less than 2,000 in 2009 to 73,000 in 2014
  • Sunrun is a United States-based provider of residential solar electricity and solar power services for homeowners.
    • Most similar companies are Solar City (SCTY), SunPower (SPWR), Sungevity (Private), and SunEdison (SUNE)
    • SCTY has seen is stock climb 583% since its December 2012 IPO.
  • Total funding = $682 mm
  • Investors: Sequoia Capital, Accel Partners, Foundation Capital, Madrone Capital Partners
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