Today: San Francisco health-care software startup Castlight Health goes bonkers in IPO and first day of trading, ending with a valuation of more than $3 billion despite only $13 million in annual revenues.
The Lead: Castlight Health rakes in millions in IPO, shoots higher in debut
Castlight Health walked onto Wall Street amid investors' unquenched thirst for cloud software companies and health care startups that address the changing landscape in that department, and walked away with millions in fresh capital and a valuation topping $3 billion, roughly 250 times its annual revenue.
The San Francisco company, which offers a cloud software platform to businesses that employees can use to compare and evaluate health care services and prices, sold 11.1 million shares for $16 apiece, the end of a run-up from an original price range of $9 to $11, raking in $178 million. On the open market, that increase seemed puny: Shares jumped more than 160 percent and never traded for less than $37.10 in its debut day on the New York Stock Exchange, closing with a 148.8 percent increase at $39.80.
The price is even more shocking when taking into account the financial performance of the firm so far. Castlight lost $62.2 million in 2013 on revenues of $13 million, and that small revenue total was more than double the sales the company generated in the previous two years combined. At Friday's closing price, the company is valued at $3.4 billion, roughly 265 times its 2013 revenue total, though the company does boast more than $100 million in agreements that have yet to reach its books, as Fortune's Dan Primack reported.
"Investors are building very optimistic assumptions into the stock price and are of the opinion that it has a technology business model that they can protect from competition and earn big profits," Jay Ritter, a University of Florida professor who specializes in IPOs, told Reuters.
The company's ability to offer a one-stop subscription service that can help employers make sense of the changing health-care landscape for their workers has been backed up by one co-founder's recent employment change: Todd Park was recently given the title of chief technology officer of the United States, tasked with fixing the government's health care website by the president.
"It's a real solution to a huge intractable problem that has defeated the best efforts of the self-anointed geniuses in Washington," Rett Wallace, co-founder of private-company analysis firm Triton Research, told The Wall Street Journal.
The company also counts one of President Obama's top advisers on the new health insurance law, Dr. Robert Kocher, as a member of its board, which is led by Chairman Bryan Roberts, a company co-founder who has moved on to Venrock Associates, the venture capital firm with the largest stake in Castlight Health. Castlight received a total of $181 million in venture funding and went public with a dual-class stock structure that will give early investors and stakeholders more say in how the company is run.
Castlight's third co-founder is the software company's CEO, Giovanni Colella, who said Friday that his company's success lies in its ability to solve issues caused by "the only industry in America that's been failed by capitalism."
"Health care [costs] are a major problem because the data used is all over the map," Colella said, according to Marketwatch. "It's an industry with a lack of transparency. We create a software [platform] that provides a look at the system and is designed in a consumer friendly way."
Castlight's performance caps off a huge week for Silicon Valley IPOs, with Mountain View based Coupons.com raking in $168 million and then surging in its debut last Friday, and South San Francisco biotechnology company Achaogen continuing a hot streak for its sector earlier this week, raising $72 million and also gaining on the open market. Next week is also expected to feature a technology and biotech debut, as San Jose's A10 Networks and Redwood City's Versartis should sell their first batches of shares.
SV150 market report: Elon Musk goes on the attack, Yahoo gains on Alibaba moves
Wall Street fell again Friday, ending a down week for stocks ahead of Sunday's key vote in the Ukrainian area of Crimea. Silicon valley technology stocks had an even rougher day than the broader market, falling 0.9 percent amid broad weakness.
Tesla Motors dropped 2.9 percent to $230.97 as CEO Elon Musk fought the state of New Jersey, which banned Tesla's direct-sales model earlier this week, and Bloomberg News, which reported that Tesla was causing environmental problems in China. In a blog post, Musk fought back at New Jersey, after a spokesman for Gov. Chris Christie's office said earlier this week, "Since Tesla first began operating in New Jersey one year ago, it was made clear that the company would need to engage the legislature on a bill to establish their new direct-sales operations under New Jersey law." In Friday's response, Musk said that Gov. Christie had promised a legislative vote on the needed law change, but that instead, the state's car dealers "cut a backroom deal with the Governor to circumvent the legislative process and pass a regulation that is fundamentally contrary to the intent of the law." Musk also said that the New Jersey stores will become galleries, where customers can learn about Tesla's cars but not purchase them. Musk plans another blog post this weekend in response to Bloomberg's story that contended the mining of graphite, a key component in Tesla's batteries, was befouling China. Musk tweeted Friday, "Working on a Model S environmental impact blog this weekend to counteract BS like the @Bloomberg graphite story. Beyond ridiculous..."
Yahoo was one of the few companies to endure Friday's weakness, gaining 1 percent to $37.60 as Bloomberg reported that Chinese e-commerce giant Alibaba -- in which Yahoo has a substantive stake -- was preparing to file for an initial public offering in the United States as early as April, which seemed to outweigh China blocking Alibaba's mobile payment system. Alibaba isn't the only large Chinese Web company expected to come to the U.S. for an IPO: Sina, which owns Twitter rival Weibo and counts Alibaba as an investor, filed for a $500 million offering.
U.S. Twitter rival Facebook dropped 1.6 percent to $67.72 despite a price target increase from Nomura Equity research analyst Anthony DiClimente, while Twitter itself fell 3.1 percent to $51.92. San Jose networking giant Cisco declined 0.8 percent to $21.35 after disclosing an investigation into possible bribery by the company and its resellers in Russia and the surrounding region. Google fell 1.4 percent to $1,172.80 after successfully stopping Asus from offering a computer that would dual-boot Windows and Android, and Apple fell 1.1 percent to $524.69. Oakland streaming-radio company Pandora Media reversed a recent downturn, gaining 2.1 percent to $35.44 after a report from Pacific Crest Securities noted, "In a business where scale matters, Pandora has more users than its three closest competitors combined."
Up: Pandora, Juniper, VMware, Yahoo, Hewlett-Packard, Symantec, Nvidia, Adobe, eBay
Down: Gilead Sciences, Twitter, Tesla, Facebook, NetApp, Salesforce, Google, Netflix, Apple, Zynga, Applied Materials, Cisco, Yelp
The SV150 index of Silicon Valley's largest tech companies: Down 13.04, or 0.85 percent, to 1,527.98
The tech-heavy Nasdaq composite index: Down 15.02, or 0.35 percent, to 4,245.4
The blue chip Dow Jones industrial average: Down 43.22, or 0.27 percent, to 16,065.67
And the widely watched Standard & Poor's 500 index: Down 5.21, or 0.28 percent, to 1,841.13
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.