Klarna’s IPO, Ramp’s rise, and the cloud backlog
Welcome to Cautious Optimism, a newsletter on tech, business, and power.
Wednesday! Today we’re talking Klarna’s IPO, Ramp’s rise, cloud backlogs and more. Elsewhere around the world, the United States is asking its allies for some help, which is a bit ironic given how we’ve treated the EU lately. Elsewhere, export regulations are crimping companies like Synopsys, while the tech right is learning that the national conservatives really do not like them.
On the inflation front, the first half of a two-part data week showed that producer prices fell 0.1% in August, leading to a 2.6% gain year-over-year, lower than an expected 3.3% increase. Good news? Yes, but the decline appears to have come at the cost of producer profits, rather than cheaper inputs. Investors expect the news to allow for more rate cutting, stocks indicate. To work! — Alex
📈 Trending Up: Mixed messages … tariff impacts … smartphone sales … intolerant AI … rate cut expectations … central bank indepenence … chances of a NATO-Russia war … state racism … Indian IPOs …
📉 Trending Down: Junk fees … the labor market … the price of labor … media independence … growth in domestic music revenue … US-China relations … I mean it … human intelligence …
SPACs and notes on media-AI economics viz data from TollBit, and an announcement that drops later today from a few players will land tomorrow.
Things That Matter
Ramp reaches revenue milestone: Ramp’s rise from Brex lookalike to the leading startup in the expense management space has been meteoric. Now, the well-funded private company valued at $22.5 billion has announced that it “has achieved $1 billion in annualized revenue,” per TechCrunch’s Julie Bort. A 22.5x multiple for a fintech company is wild (Bill.com p/s is 3.6x, PayPal 2.1x), but understandable.
Ramp added around $300 million worth of annualized revenue in about six months, Bort calculates. At that growth rate, investors will pay a premium. But we will need to see Ramp’s revenue multiple come down before it does eventually list.
I recall rapping several times with Ramp CEO Eric Glyman when his company was much smaller. He’s sharp.
Quantum startups are hot? Today news broke that PsiQuantum has raiesd $1 billion in what the FT calls the “largest funding round for a quantum computing start-up.” Notably, it’s not the only big one we’ve seen recently. Competitor Quantiuum raised $600 million just the other week. PsiQuantum raised more, but has a lower valuation $7 billion post-money), compared to Quantiuum’s $10 billion worth.
For a technology that is making progress but remains far from broad commercial usefulness, those are huge sums. Hardware is, after all, hard.
No, look at my cloud backlog: A few days back, Oracle dropped earnings, noting remaining performance obligations (RPOs) worth $455 billion, up 359% compared to the year before. Cloud RPO was up “nearly” 500%, per CEO Safra Catz. Oracle’s cloud infra business (OCI) saw “consumption revenue” rise 57% with Catz adding that “demand continues to dramatically outstrip supply.” Investors loved the news.
Elsewhere, Google’s cloud boss Thomas Kurian reported that his group has $106 billion worth of “commitments from existing customer contracts,” including $58 billion worth of RPOs that will convert to revenue in the next two years. We can’t precisely compare the two companies’ figures; what matters for our purposes is that both are seeing insane demand for cloud compute in today’s genAI era. Signs of positive demand are always welcome.
Google Cloud has become a key growth driver for Google (and therefore Alphabet) in recent quarters.
A slow-motion divorce: Microsoft and OpenAI have reached the ‘no longer together, still living together to split bills’ era of their relationship. As OpenAI stretches to build its own compute capacity to reduce reliance on Microsoft’s Azure platform, Microsoft is building its own AI models. Now, Microsoft intends to employ Anthropic technology inside its productivity suite. The company is making noise about being committed to OpenAI, but as the two firms fight over the future of the junior player, it’s getting a bit awkward to watch.
Oops: Bloomberg reports that there are efforts afoot to bring the Democratic party and the technology industry back together. The proximate cause is worry that the Democrats will perform well in the midterms, meaning that tech had best have an in that particular fire. The other reason I suspect is that despite many tech leaders tacking right in recent years, their staff hasn’t quite done the same. I think the second point will take on more heft as the business climate worsens, trade tensions escalate, attacks on free speech, attacks on universities, attacks on green power generation, meddling in business affairs, and such worsen.
Secondaries rising: Buying already-issued shares in private-market companies is a booming business. As startups stay private longer, and venture backers need liquidity, the change is no surprise. But PitchBook notes that despite rising secondary fundraising, a handful of firms are dominating the field. Specialization, desperation, or something else?
Klarna’s IPO looks pretty darn good
The IPO market has open arms these days, with good news continuing to roll in after the breakout debuts of Figma, CoreWeave, and others. Most recently, crypto exchange Gemini raised its target IPO price range as Klarna set its final IPO price.
Settling at $40 per share for its listing, Klarna priced above its IPO target range of $35 to $37 per share. At $40 per share, the company is worth $15 billion. That’s a far cry from its peak valuation during ZIRP ($45.6 billion), but more than double its post-ZIRP lows ($6.7 billion).
Annualizing its Q2 revenue ($823 million), Klarna is worth about 4.5x its current run rate. That’s about half of competing BNPL provider Affirm’s price/sales multiple of 9.4x; Affirm is growing more quickly than Klarna.
Regardless of comps, Klarna’s IPO pricing is another example of a tech company pricing ahead of its early public-offering expectations. The implication there is simply that investors are interested in IPO shares. If Klarna trades well post-listing, all the better.
Klarna’s IPO is a reminder, however, that startup pricing must eventually reach parity with public market interest. Ramp’s current valuation and revenue base probably wouldn’t translate directly to a floating market cap. Which is why, of course, Ramp is still private. So long as venture investors are content to pre-purchase growth at a high effective price, Ramp and its truant unicorn cohort are getting a better deal by staying private; why take on more dilution than you have to, if a walking checkbook keeps chasing you down while waving bricks of cash?
The bet that Ramp and company are making— and Klarna is not, in this case — is that the stock market stays hot. Currently, shares are trading like the economy is booming, when in reality strength is far more localized in a few sectors. If we see a general deflation in the value of public shares, Ramp could find itself with a too-high private valuation around its neck when it looks across the transom at the Nasdaq.
A bit like what happened to Klarna back in 2021.
Let’s see how it trades. If well, clasp your hands together that other unicorns will take the hint.