SurveyMonkey parent SVMK (MNTV) enjoyed a successful IPO last week, with shares closing out the first day of trading 44% higher than the offering price. SurveyMonkey also announced that its underwriters exercised all of their options, purchasing an additional 2.25 million shares at $12. That was quite a bit of hype for a maker of survey software.
However, investor enthusiasm has chilled in the days since, and the stock has started to come back down to Earth. Here are three reasons to stay away after the pop.
Image source: Getty Images.
Growth is slowing
For starters, SurveyMonkey's growth leaves a bit to be desired, both in terms of revenue and paying users. Sales grew 6% in 2017, and the company added just 10,000 paying users in the first half of 2018, ending the second quarter with 616,000 paying users. SurveyMonkey had 575,000 paying users at the end of 2016, meaning it took 18 months to add 41,000 paying users.
Much of the sales growth has been attributable to higher average revenue per user (ARPU), which SurveyMonkey presents on an annualized basis. For the first half of 2018, ARPU was $400.
Costs are rising faster
SurveyMonkey implemented restructurings in 2016 and 2017 in order to better focus on its core survey platform. Restructuring costs are generally considered one-time events; when excluding restructuring expenses, it's clear that most other operating expenses are rising much faster than revenue growth.
|
Income Statement Metric |
2016 |
2017 |
Change (YOY) |
|---|---|---|---|
|
Revenue |
$207.3 million |
$218.8 million |
6% |
|
Research and development |
$38 million |
$53.7 million |
41% |
|
Sales and marketing |
$74 million |
$73.5 million |
(1%) |
|
General and administrative |
$36.8 million |
$47.9 million |
30% |
Data source: F-1. YOY = year over year.
That will make it increasingly difficult to turn out a profit. The company's net loss widened in the first half of 2018 despite sales increasing 14%, for instance.
Deep in debt
Making matters worse, SurveyMonkey is also has a heavy debt load, mostly comprised of term loans and revolvers at big banks. In fact, some of the IPO underwriters are also creditors. At the end of the second quarter, SurveyMonkey was carrying $317.3 million in net debt, but intends to use $100 million of the offering proceeds to pay down a chunk of that debt, effectively swapping out debt financing with equity financing.
There will still be $217.3 million in net debt after that. The offering has helped fill SurveyMonkey's coffers and reduced its debt burden, which will also give it some relief in interest expense -- $26.9 million in 2017, or 12% of revenue -- but the company still has substantial debt at fairly high interest rates. SurveyMonkey is paying an effective interest rate of 6.2% to 6.8% on most of that credit facility.
Additionally, that also means the company is subject to restrictive covenants, which could make it harder to secure more capital in the future.
