Cvent - Another Expensive, But Successful Cloud Public Offering

Aug.12.13 | About: Cvent, Inc. (CVT)

Cvent (NYSE:CVT) made its public debut on Friday, August the 9th. Shares of the cloud-based enterprise event management platform, ended their first day with gains of 56.8% at $32.92 per share.

As investors in today's public offering market bid up shares of all companies which engage in "cloud" activities, the current valuation has become too expensive to me.

The Public Offering

Cvent has a mission to transform the events and meetings industry. With its cloud-based software platform it will disrupt the traditional planning system, creating more value for event planners. The cloud-based solutions address the entire lifecycle of the event, from agenda to venues. Event planners have access to a proprietary database of hotel and venue information, accessible online.

Cvent sold 5.6 million shares for $21 apiece, thereby raising $118 million in gross proceeds. All shares will be sold by the company with no shares being offered by selling shareholders.

The public offering values the equity of the firm at $813 million. The offering took place above the high end of the preliminary $17-$19 offer range.

Some 14% of the total shares were offered in the public offering. At Friday's closing price of $32.92 per share, the firm is valued around $1.27 billion.

The major banks that brought the company public were Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS), Stifel, Pacific Crest Securities and Needham & Company.

Valuation

With it solutions, Cvent creates value for both event and meeting planners by making their lives a lot easier. Cvent makes it easier for hotels and other venues to advertise their capabilities to organize and host meetings or events.

At the end of 2012, Cvent had some 6,200 event and meeting customers. In total some 7.3 million people subscribed for some 139,000 events through 2012 which were facilitated by the company.

According to research company Frost & Sullivan, the events and meetings industry, totaled some $5.6 billion over the past year. This is according to a section within Cvent's S1-Filing. The traditional market for non-software event and meeting management was $22 billion, which Cvent hopes to make much more efficient with is proprietary platform.

Key customers of Cvent include large companies like Visa (NYSE:V), Wal-Mart (NYSE:WMT) and Hyatt Hotels (NYSE:H), among others.

For the year 2012, Cvent generated annual revenues of $83.5 million, up 37.2% on the year before. Net income totaled $4.3 million compared to a $0.2 million loss in 2011.

First quarter revenues were up by 33.5% to $24.4 million. Net income fell from $0.9 million to $0.3 million.

Cvent operates with $40.9 million in cash and equivalents. The company operates without the assumption of debt, or preferred stock investments. Factoring in the $118 million in gross proceeds from the public offering and the company will operate with a net cash position of almost $150 million.

As such operating assets of the firm are valued around $1.12 billion. This values the operations of Cvent at 13.4 times annual revenues and an incredible 260 times annual earnings.

Investment Thesis

As noted above, the offering of Cvent has been a huge success. Shares were offered above the high end of the preliminary offering range. On top of that came opening day returns of almost 57%. At Friday's close, shares are trading some 83% above the midpoint of the preliminary offering range.

Cvent generates some 70% of its total revenues from its platform solutions, through licenses generated from planner customers. Some 30% of revenues are generated through marketing solutions, predominantly as hotels and other venues advertise to end up high on the search list of CVT's online market place. The market place hosts some 200,000 venues at the moment across 175 countries.

The company, which has been founded back in 1999, has shown steady growth in recent yeas. Yet there are some risks to Cvent's operations. This includes the lack of current profitability, the vulnerability to a deterioration of general economic conditions, technological changes, and the fact that over half of its employees are based in India.

I remain a bit skeptic. Cvent guides for second quarter revenues of $26.7-$26.9 million, implying revenues will be up 35-36% compared to last year. Net losses are expected to come in between $2.0 and $2.5 million as the company is preparing for its public offering. At this pace full year revenues of $110-$120 million are possible, while the company will most likely roughly break-even. After the successful debut, shares are way too expensive on sales multiples, even accounting for 35% growth in revenues.

I remain on the sidelines.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.