Should you Invest? 3 Tech IPOs - Zoom, Tufin & PagerDuty

An important period is upon us with three important IPOs with Zoom Video Communications, Tufin and PagerDuty.

Moving to Silicon Valley - I couldn't honestly tell you who these companies were.

Now I have had some experience with each firm and wanted to shed some light on the investor situation.

Zoom - Buy

Target Price of $28 - $32 a share

Max value $8.25 billion

Summary

Ever since I met Eric S. Yuan (Zoom CEO) I knew it was going to be winner. Conferencing has been a pain point at every firm I have ever visited and there has only been positive feedback amongst my network. Other competitors have also admitted defeat and chosen to partner with Zoom vs compete (Atlassian, Google) with Salesforce even pledging $100 million in the public IPO.

What I like about Zoom is that the majority of its revenue comes from accounts with more than 10 users (over 90%). This means that it is sheltered from most of the season vulnerability that can affect businesses that target both the SMB and the Enterprise markets.

At a 16.5x multiple its an expensive buy, but the numbers look good and I expect investors to make around 15-20% on the first day of trading

Pagerduty - Neutral, Buy if target price is less than $23 per share

Target Price of $21-$23

Max value: $1.7 billion

Summary

I tried sending a handwritten letter to the CEO, Jennifer Tejeda every week for two months in order to partner with this firm a few years ago, but sadly to no avail :)

I do however look forward to participating in the IPO - although there are a few risks. The first is that whilst Pagerduty offers a product with many features it is still a single product. I forsee the company trying to diversify into offerings related to it's core business in incident response.

The second is that the market may have already priced in the return I was expecting to receive by investing in this stock.

A price of $19 dollars would have made this a no brainer. With trailing revenue in the last twelve months at $107 million, this would have placed the company at roughly a 13x earnings to price multiple. Now with the target being as high as $23 - this margin has already eroded.

Given this I would tread with caution - as will other investors leading to increased volatility. Perfect for high frequency traders!

Tufin - Strong Buy

Target Price of $12- $14

Max value: $450 million

Summary

I become quite familiar with Tufin after specializing in this particular area of IT security in my last role. I have been impressed with their overall revenue in 2018, at $85 million and how it has managed to make an offshore team a successful strategy where many other companies fail.

On the downside, almost half of Tufin's revenue comes from services which makes it vulnerable to reductions in profitability as more customers transition to the cloud or adjust to more modern pricing mechanics where service is packaged inside of a fixed SaaS fee.

That being said, I think money is to be made here particularly by way of acquisition also and think this is a very under rated opportunity.