ServiceTitan (TTAN) Initial Public Offering
Blockbuster IPOs were a norm in 2020-2021 during times of loose monetary policy, but as interest rates tightened and the economy went into recovery mode, companies who were set to make their public debut decided to hold off till the tides turned. ServiceTitan is one of the largest IPOs since the interest rate hike cycle, initially set to go public at $71 a share, but quickly popped to a high of $105 on their first day of trading (today). This reminded many traders and investors of times in 2020 when IPOs would open 30-50% above their initial estimate, but many learned from those days that early performance is not always an indicator of success in the future.
What really matters:
No matter how anyone frames it, long term survival on the market requires companies to deliver results to their shareholders. ServiceTitan is a fresh company that hasn’t yet dealt with the wrath of the public market, which could turn against it at any given time if not happy. The company is in a competitive field and is only a small fish in the big pond. With an annual revenue of only $614M, their $6.3B valuation is hefty, especially with a balance sheet that reflects from liabilities than assets. The service company is also yet to post positive net income, another weakness in their financial performance; and while investors are willing to overlook early days of not profits, service providers are expected to turn that around quickly as their peers often boast of high profit margins.
ServiceTitan’s revenue growth may be the difference maker, which is often what sets the path for any company. More revenue means more options, but it is up to their leadership to make the right moves. Revenue is young, but improving, and it has a chance for reaching more than $1B annually next year, but that’s still a very small fraction of the industry they’re penetrating. TTAN has a long way to go to before justifying their initial valuation, but it will be a good name to watch develop over the next twelve months.
Final note:
Investing in fresh IPOs comes with the risk of buying a company at a valuation that was derived from “excitement” more than fundamentals. Debuting 42% above their initial offering is already a red flag that maybe markets are too optimistic about this name in the short term, and it will settle at a more reasonable price in the coming months as investors assess the company and how they can publicly perform.