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Samsara stock goes public this week on the NYSE under the ticker IOT. The young tech company looks to hit a high valuation of $11.5 billion by selling 35 million shares between $20 and $23 per share.
But is the Samsara IPO worth investing in? That's what we're here to tell you...
One of the most notable aspects of Samsara is how it pushed the Internet of things (IoT) further into the commercial market. The company is focused on specific applications of IoT, which allows the company to focus on specific niches and retain customers in this growing industry - one expected to be worth $740 billion in 2025.
Because of the potential within the IoT industry, some investors have high hopes for Samsara. After all, the company's financials are trending in the right direction.
But while there's a lot to like about the company, its valuation is incredibly expensive. The average value of a company before the IPO in 2020 was $577 million. And Samsara absolutely crushes that average.
So, before we get to whether you should invest in Samsara stock or not, let's go over what exactly what the company does...
What Is Samsara?
Founded in 2015, the California-based IoT company provides cameras, sensors, and software to provide data about fleet management and physical operations within warehouses via its Connected Operations Cloud. The Cloud combines data into an easy-to-access place for customers, which helps them improve safety, efficiency, and reduce costs.
Using a software-as-a-service business model, Samsara has been able to increase the number of customers from 255 in 2019 to 715 in October 2021. The company has a retention rate of 115% - which shows how valuable customers find its services. And this retention of customers helps to drive the company's annual recurring revenue of more than $100,000.
In some ways Samsara is a pioneer within the IoT market, which attaches commercial machines and equipment with cloud-connected sensors that relay data to the respective operators. And the company continues to improve its tech.
When it comes to IoT integration, it's expected to continue to expand. This sets Samsara up for further success. Financial Times even dubbed it the second fastest growing company between 2016 and 2019.
And IoT is becoming more of a necessary tool to improve the quality of life for workers within many companies by providing these efficient, safe, and ultimately cheap solutions to sometimes complicated problems.
Samsara's platform is able to identify risk factors in a commercial workplace, which can prevent accidents before they happen - something that could be a lifesaver for companies such as Amazon. In 2020, there were 6.5 injuries for every 100 employees in 2020 compared to all non-Amazon warehouses at 4.0.
Samsara offers a product that is innovative and has great utility. And the company's financials are moving in the right direction.
Is Samsara Profitable?
As it turns out, this young tech company is not yet profitable, but it's moving in the right direction - and presents real potential in the future.
Samsara grew its total revenue. In the nine months ending in Oct. 30, 2021, revenue was up 73% compared to the same period in 2020. But this does show a decline for the overall 2021 fiscal year, where revenue more than doubled from $119.9 million to $249.9 million. And the company grew its total assets from $631 million in February 2020 to $839.5 million as of October 2021.
But while revenue growth might be slowing, it's still pretty high. It shows that Samsara is heading in the right direction when it comes to overall profitability.
Net losses for the October 2021 period were down to $102 million from $210 million in 2020. And the company's gross margin increased from 59% in 2019 up to 71% in 2021, alongside its recurring revenue. Free cash flow is in the red for the time being, but it is moving in a more positive direction - with losses of $153 million and $129 million in that nine-month period of 2020 and 2021, respectively.
Overall though, Samsara is moving in the right direction. And investors have taken notice of this, helping the company to raise at least $930 million in funding over the years. In 2020, Samsara landed a $5.4 billion valuation.
Now, Samsara expects to hit a $11.5 billion valuation. So, is the Samsara stock worth investing in at the IPO?
Wait and See Before Buying Samsara Stock After the IPO
As of now, it might be best to take a "wait and see" approach to the Samsara stock after the IPO.
The company does have a decent bit working in its favor: It's well-positioned in a growing market, and it has high customer retention while continuing to grow. Samsara has strong financials and is moving in the right direction toward profitability.
Overall though, Samsara stock is simply too expensive. It's overvalued before even hitting the market.
And the market environment isn't great for tech IPOs at the moment.
HashiCorp (NASDAQ: HCP) is one cloud-based IoT stock that went public last week we can look to for insight.
The cloud software market is highly competitive, and HashiCorp's unprofitability made the stock a gamble.
Highly anticipated tech stocks usually perform well on the first day of trading, then experience a dip within the first week. That's what HashiCorp is experiencing right now, down almost 2% from its IPO price.
By waiting to buy shares of Samsara, you'll be able to get in at a discount since the dip mostly happens when stocks that aren't profitable go public.
So, you'll be better off waiting for a cheaper price or further profitability before investing in Samsara stock.
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