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SendGrid has a Successful IPO

Posted on Monday, Nov 20th 2017

According to a 2017 Radicati Group report, an estimated 125 billion commercial emails are sent every day, and the number of email users is expected to grow from 3.7 billion in 2017 to 4.1 billion by 2021. Email delivery and performance platform SendGrid went public last week on the New York Stock Exchange under the ticker SEND.

SendGrid’s Offerings

Denver, Colorado-based SendGrid was founded in 2009 by Isaac Saldana, Jose Lopez, and Tim Jenkins in 2009. It is a customer communication platform for sending transactional and marketing emails without the cost and complexity of maintaining email servers.

SendGrid manages the technical details of email delivery, like infrastructure scaling, ISP outreach, reputation monitoring, and real-time analytics. Its Email API service pricing plans start at $9.95 per month for up to 40,000 emails. It offers a Pro plan at $79.95 per month for up to 100,000 emails. For over 2.5 million emails, it offers Premier plans that have custom pricing.

Since its inception, the company has processed over a trillion emails. Its clients include Glassdoor, Spotify, Uber, Airbnb, LinkedIn, and FourSquare. As of September 30, 2017, it had over 58,000 customers globally, an increase of 36% year over year and employed 408 full-time employees.

Its competitors include companies that offer transactional email services, including Amazon, Mailgun, Oracle, and SparkPost as well as companies that offer email marketing services, including Adobe, Campaign Monitor, Endurance, IBM, MailChimp, Oracle, and Salesforce.

SendGrid’s Financials

As per the SEC filings, SendGrid generated revenue of $79.9 million in 2016, up 36% from $58.5 million in 2015 and from $42.7 million in 2014. For the first nine months of 2017, revenue was $80.1 million, up 41% y-o-y.

Net loss has steadily declined from $12.9 million in 2014 to $5.8 million in 2015 to $3.9 million in 2016. However, for the first nine months of 2017, net loss increased 36% y-o-y to $4.7 million. Its gross margin is 73% and it is profitable on an adjusted net income basis.

SendGrid was incubated through the TechStars accelerator program. Prior to listing, it had raised over $80 million from investors including Bain Capital Venture Investors, Bessemer Venture Partners, Byron Deeter, Foundry Group Funds, Highway 12 Ventures, Techstars Ventures, 500 Startups, Uncork Capital, and FF Angel. In its last funding round before the IPO, it raised $33 million at an undisclosed valuation. Analysts estimate its valuation at $578 million.

In its recent IPO, it raised $131 million at a list price of $16. Its anticipated range was $13.50 to $15.50 at an implied mid-point valuation of $700 million. It also upsized its IPO, selling an additional 1.2 million shares. It plans to use the net proceeds from the offering for working capital and other general corporate purposes, developing and enhancing its technical infrastructure, expanding its R&D and marketing operations, and expanding into new markets. It may also use a portion of the net proceeds to make acquisitions.

Early this year in March, SendGrid had acquired San Francisco email startup Bizzy to help its expansion in marketing. In June 2015, it had acquired Message Bus to expand its customer base.

Its stock price popped almost 14% on the first day of trading. Its stock is currently trading at $18.24 with a market cap of about $725 million.

While its high gross margin and profitability are its strengths, some analysts were worried that SendGrid might be too small for an IPO and its revenue growth rate of 36% might not be appealing enough. SendGrid’s successful IPO has definitely proven them wrong.

I feel its fundamentals are far better than overhyped and overfunded companies like Blue Apron that are struggling to find viable business models.

SendGrid, however, also faces significant risks. Lower-priced competitors with much lower cost structures could come in and take market share away in its core products. Also, the company needs to expand its product line to be able to deliver satisfactory growth quarter after quarter in the public market that tends to be quite merciless.

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