IPOs, Initial Public Offerings: pre & post IPO

Bazaarvoice (BV)

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Based in Austin, Texas, Bazaarvoice (proposed BV) scheduled an $86 million IPO with a market capitalization of $531 million at a price range mid-point of $9 for Friday, February 24, 2012.

Manager / Joint Managers: Morgan; Deutsche; Credit
Co Managers:  Piper Jaffray; Pacific Crest; BMO Capital

SUMMARY
BV is a ‘social commerce’ platform that provides customer ratings & information to clients.  According to BV’s website they serve “over 30% of the world’s leading global brands.”

Revenue increased 67% to$75 million from $45 million for the year ended January, 2012. Losses increased to $18 million from $15 million.  BV consistently loses money because their business model is based on heavy up front customer acquisition costs.

CONCLUSION — BUY ON THE IPO
At this point in their trajectory and with their customer base, BV should be on a much clearer path to profitability, which they are not based on looking at the last six quarters.

They do, however, have a high customer retention rate and a nice sequential increase in top line revenue.  Our initial thought was to wait on the sidelines and give BV a chance to become profitable.  However, we changed our conclusion to buy because the market is hungry for ‘cloud’ related companies, especially with the Dow flirting with 13,000.

(notes for the number grids below)
Pre-IPO grade-score summary
. Many IPOs in today’s environment are graded C+ and scored 7
. If the pre-IPO grade is below C+ or the score is below 7,
then our analysts may have some concerns about the company’s
outlook and/or its market segment
. If the pre-ipo grade is above C+ or the score is above 7,
then our analysts believe the company’s overall business outlook
is more favorable
Glossary of IPO Analysis terms

SCORECARD

Mgt

Market

Market Do-

Proprie-

Total

1-5, 5 is high

Growth

mination

tary

rating

20 is perfect

2

2

2

1

C, 7

VALUATION RATIOS

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing Jan qtr

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

in IPO

Bazaarvoice (BV)

$531

4.6

-20

9.5

9.6

16%

QUARTERLY RESULTS

Oct ’10

Jan ’10

April ’11

July ’11

Oct ’11

Jan ’12

Revenues ($mm)

$15

$17

$19

$22

$25

$29

Revenue increase over prior qtr

13%

12%

16%

14%

16%

Gross profit %

57%

61%

62%

65%

65%

66%

Sales & Mkt % of rev

54%

50%

52%

51%

48%

44%

Loss

-$5.5

-$4.2

-$4.7

-$5.5

-$5.9

-$6.6

Net income (loss) % of rev

-37%

-25%

-25%

-25%

-24%

-23%

BUSINESS
BV is a Software as a Service (SaaS) company that turns social media into social commerce for the world’s best global brands by enabling authentic customer-powered marketing.

BV lets consumers create and share ratings, reviews, questions, answers, and stories about products and brands on client websites. BV then syndicate that content across the Web and through the channel to reach shoppers wherever they are.

BV maintains that this customer-generated content has a tremendously positive influence on purchase decisions. It is also rich with customer intelligence, BV says, which BV analyzes and provides to clients so they can make real-time, information-based decisions that affect all aspects of their business — marketing, product R&D, and operations.

CUSTOMERS
According to BV’s web site it “helps over 30% of the world’s leading global brands put customers at the center of their businesses – to turn social media into measurable social commerce.”

Business Model
BV’s business model focuses on maximizing the lifetime value of a client relationship.  That means a negative cash flow up front for customer acquisition.

BV does have very good customer retention.  Of the 122 clients acquired for the fiscal year ended April 2008, 93 or 76% were still clients as of April 2011.

Many clients pay in advance of the recognition of revenue and, as a result, BV’s cash flow from clients may exceed the amount of revenue recognized for those clients in earlier periods of the relationship

REGULATION
The Federal Trade Commission has directed attention to compensated blogging, endorsements and reviews, and state, U.S. federal and international government agencies have become increasingly focused on privacy in social networks and social commerce, including with respect to collection and use of personally identifiable information and the deployment and use of cookies.

In addition, with respect to BV’s clients that are in regulated industries, such as banking and finance or healthcare, our activities may be subject to the regulations governing such businesses.

COMPETITION
BV has several direct and indirect competitors that provide third-party social commerce solutions,

BV has several direct and indirect competitors that provide third-party social commerce solutions, including companies like PowerReviews, Inc. and Revieworld Ltd.

BV may also face competition from companies entering its market, including large Internet companies like Google (GOOG). and Facebook, Inc., which could expand their platforms or acquire a competitor.

BV believes that its main competition is from traditional marketing and advertising programs used by businesses that remain hesitant to embrace social commerce solutions such as Ratings & Reviews.

Additionally, some businesses have developed, or may develop in the future, social commerce solutions internally. These businesses may consider their internal solutions adequate, even if our solutions are superior.

USE OF PROCEEDS
$72mm for working capital

Bazaarvoice BV, C, 7

Post PO shares: 59mm

Social commerce

April 30 fiscal

Jan 9 mos ’11

Jan 9 mos ’12

Austin, TX

2009

2010

2011

2011

2012

IPO Mkt

Revenues ($mm)

$23

$39

$65

$45

$75

Cap (mm)

Gross profit %

63%

61%

60%

59%

65%

$531

Sales & Mkt % of rev

50%

46%

54%

54%

47%

@$9

Loss

-$5

-$8

-$20

-$15

-$18

Net income (loss) % of rev

-22%

-21%

-31%

-33%

-24%

Adjusted EBITDA

-$3

-$4

-$13

-$10

-$9

% EBITDA of revenue

-15%

-11%

-21%

-23%

-13%

Revenue per active client

$131

$132

$137

$101

$112

Revenue per employee

$158

$168

$152

$112

$137

Quarterly results

Oct ’10

Jan ’10

April ’11

July ’11

Oct ’11

Jan ’12

Revenues ($mm)

$15

$17

$19

$22

$25

$29

Revenue increase over prior qtr

13%

12%

16%

14%

16%

Gross profit %

57%

61%

62%

65%

65%

66%

Sales & Mkt % of rev

54%

50%

52%

51%

48%

44%

Loss

-$5.5

-$4.2

-$4.7

-$5.5

-$5.9

-$6.6

Net income (loss) % of rev

-37%

-25%

-25%

-25%

-24%

-23%

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing Jan qtr

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

in IPO

Bazaarvoice (BV)

$531

4.6

-20

9.5

9.6

16%

SCORECARD

Mgt

Market

Market Do-

Proprie-

Total

1-5, 5 is high

Growth

mination

tary

rating

20 is perfect

2

2

2

1

C,7

 

 

 

 

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