MOL Global (NASDAQ: MOLG) and HubSpot (NYSE: HUBS) IPOs

HubSpot

Ticker: (NYSE: HUBS)
Expected to Trade: Thursday, October 9
Price Range: $19.00-$21.00

Business Description

HubSpot is a cloud-based software company based out of Boston. It provides marketing and sales solutions for small to medium-sized businesses.

HubSpot is a software-as-a-service (SaaS) company, meaning it receives recurring revenues through subscriptions rather than one-time installs. This has become the prevalent model in recent years.

http://harry-lewis.blogspot.com/2014/10/the-phony-law-enforcement-panic-over.htmlThe software’s primary features include social media and email markhttp://harry-lewis.blogspot.com/2014/10/the-phony-law-enforcement-panic-over.htmleting, content management, web analytics, and search engine optimization (SEO).

As of June 30, 2014, the company had 11,624 customers, with the majority being located in the U.S. This is compared to just 5,783 customers by the end of 2011.

Our Take

There are a few things worth noting here for anyone looking to invest in HubSpot come IPO.

First, HubSpot lost a major partner in cloud-based marketing last year. In 2013, Salesforce.com, a $35 billion SaaS company, offered to purchase HubSpot for $1 billion, but HubSpot refused.

Prior to the offer, Salesforce was kicking some of its customers over to HubSpot. After the offer was denied, though, Salesforce bought Pardot, a HubSpot competitor. When acquisition was completed, Salesforce began offering discounts for customers to drop HubSpot and use Pardot instead.

No doubt HubSpot botched its relationship with Salesforce, turning its greatest ally into a direct competitor. The company is likely kicking itself now, because a year and a half later, it’s looking at an IPO valued at less than the original offer.

Second is a significant case of brain drain. In July, Chief Product Officer David Cancel and Vice President of Engineering Elias Torres quit to start their own company together. This is a red flag for a few reasons.

One obvious conclusion here is that the company is going to take a hit on the operational side. When you lose your top two technical employees, you’re going to have technical issues in one form or another.

There’s also the reasonable assumption that Cancel and Torres weren’t feeling incredibly optimistic about HubSpot’s technology. You’re just months away from hitting the public market and you decide to bail? Something could be critically wrong here.

Further, Cancel and Torres are reported to have hired most of the company’s current engineering staff. This leaves those employees without the initial guidance that coaxed them into joining HubSpot and raises the chances of further brain drain. If things start to go awry at HubSpot, the talent will follow Cancel and Torres into their new start-up.

From a growth perspective, HubSpot is doing well, but the growth is notably starting to slow.

Total revenue increased from $28.6 million in 2011 to $51.6 million in 2012 and to $77.6 million in 2013. This represents yearly increases of 81% in 2012 and 50% in 2013.

In the first six months of 2014, revenue hit $51.3 million. Compared to $35.1 million for the first six months 2013, that’s a 46% increase.

Between botched partnerships, loss of talent, and slowing growth, investors should be wary of HubSpot right out of the gate. The company is set to lose around $35 million this year compared to just $18.8 million in 2012. Top line increases are great, but not when you’re getting deeper and deeper into the red.

MOL Global

Ticker: (NASDAQ: MOLG)
Expected to Trade: Thursday, October 9
Price Range: $12.50-$14.50

Business Description

MOL Global is an e-payment service provider for online retail in Southeast Asia. The company is the largest in the region by payment volume according to market research firm Frost and Sullivan. In 2010, MOL ranked 23rd in the Deloitte Fast 500 Companies of Asia Pacific and was the fastest-growing Southeast Asia Internet company at the time.

MOL handles over 60 million transactions a year, with annual payment volume over $300 million USD. The company works in a network of 600,000 physical locations and online payment channels. MOL is linked to 88 banks in nine different countries.

In addition to MOL’s e-payment platform, the company owns 100% of Friendster Inc., a social gaming site based in Malaysia. Many remember Friendster as the original social network, but the site was redesigned in the wake of Facebook’s success.

Our Take

MOL is a rapidly growing company in a fast-paced industry. In 2013, consumers spent a total of $352 billion online, thanks in part to the rise of new channels for online shopping.

Smartphones, tablets, and social media are all offering new avenues for e-payments, and retailers are ensuring that purchases arrive to customers quickly and conveniently. We see mobile as one of the most significant catalysts for growth.

In 2012, global mobile e-payment volume alone was $163.1 billion. This figure is expected to reach $721.4 billion USD by 2017.

Credit: Statista

The e-payments market is particularly promising in emerging markets because consumers often can’t get access to credit or credit cards. Additionally, the Asia-Pacific is the largest business to the consumer e-commerce market worldwide. Needless to say, MOL’s positioning in Southeast Asia is a major advantage.

MOL posted revenue of $54 million in 2013, up 79% from 2012. The company also posted a profit of $6 million in 2013, up from approximately $2 million in 2012. Companies that IPO with a positive bottom line consistently fair better than those in the red.

Finally, it’s worth noting that MOL is majority owned by Vincent Tan, one of Malaysia’s richest men. Considering his 69.3% stake in the company, you could safely say insider sentiment is very strong.

With rapid growth in an expanding market and the holiday season around the corner, we like MOL right out of the gate.

Until next time,

Jason Stutman

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