JAMF Holding IPO: What's the Buzz About?

Cloud software company Jamf Holding filed for an initial public offering (IPO) last month and is expected to start trading on the Nasdaq this week under the ticker JAMF. The stock could start trading as soon as July 23^rd.

Although there seems to be a lot of cloud software startups out there these days, Jamf is generating some buzz amongst investors because of its association with Apple (NASDAQ: AAPL).

Based in Minneapolis, Jamf provides software that helps businesses, hospitals, schools, and government agencies manage their Apple devices. Primarily through its flagship Jamf Pro management software, the company has become synonymous with Apple Enterprise Management. An organization's Apple products, apps, and internal resources are connected and protected in the cloud via Jamf's solutions without its employees having to lay a finger on a device.

The company is far from a nascent startup having been around since 2002. It is also not its first rodeo on the IPO circuit having explored the public path back in 2016 before deciding to go the private equity route.

Fast forward four years and the timing of this week's IPO seems curious if not reckless. Jamf is taking a big risk in making its trading debut amid a cautious enterprise IT spending environment in the wake of the COVID-19 pandemic. But is it worth the risk?

How Does Jamf Make Money?

Since Jamf's software allows an employee to be set up automatically and continuously administered it offers value to businesses that are deploying Apple devices to remote workforces. As such Jamf may be perceived by investors to be a "work-from-home" stock even though that is just part of its business. Nevertheless, this perception alone, could get the stock lumped in with the likes of DocuSign (NASDAQ: DOCU) and Zoom (NASDAQ: ZM) and give it an early head start.

While any company that is linked to Apple technology is likely to generate intrigue in the market, there is more to the Jamf story. What has caught investors' attention is the impressive customer base that it has built over the years.

The company has grown to serve more than 40,000 enterprises in over 100 countries, WHICH IS roughly twice its customer total of 2018. Those pairing their Apple devices with Jamf include big tech names like IBM and Salesforce as well as major educational institutions like Ohio State University and the University of Oregon.

Jamf sells software subscriptions to its strong customer base which in turn provides a recurring revenue stream for the company. As with other software-as-a-service (SaaS) models, this is an appealing characteristic from an investment standpoint because it represents revenue stability and visibility. Jamf's business also seems to have that sought after "sticky" quality to it given its net customer retention rate of 120%.

How Are Jamf's Financials?

In 2019 Jamf generated $159 million in sales which was 59% higher than the prior year. Although it reported a narrower net loss of $32.6 million, it delivered the type of revenue growth that gets investors excited.

For the first quarter of this year, the company recorded a net loss of $8.3 million on revenues of $60.4 million. This represented a revenue growth deceleration to 37% that likely related to a slowdown in customer spending in March 2020 but also IT capex seasonality.

Overall, the improving bottom line and robust revenue growth suggest profitability may not be far away.

But not all Jamf's financials are as compelling. The balance sheet is an area of concern especially for investors that prefer to avoid companies with high net debt positions. The company exited the first quarter of 2020 with $201 million in debt compared to $23 million in cash for a net debt position of $178 million.

What Will the Jamf Offer Price Be?

The offering of 16 million shares was originally slated to be priced between $17 and $19 per share. The company recently raised the price to the $21 to $23 range.

Jamf will be selling 13.5 million of the shares and private equity firm Vista Equity Partners, which owns a majority stake in the company, will sell the other 2.5 million shares. The offering also includes an option for the underwriter to purchase up to 2.4 million additional shares.

If it can hit the high end of the new targeted price range Jamf could raise as much as $368 million. Given the hype around the stock it would not be surprising if the price moves beyond the $23 upper range.

In addition to the standard "general corporate purposes", the company plans to use the proceeds to pay down its debt balance which would be a step in the right direction.

They may also be used to fund another acquisition. Last year Jamf bought Netherlands-based education technology company ZuluDesk and iMac security company Digita Security for a combined $40.2 million.

At the midpoint of the IPO range, Jamf would be valued at approximately $2.5 billion. This would place it on par with a software mid-cap like Pluralsight (NASDAQ: PS) which has posted revenue growth of 35% over the past 12 months.

Should growth investors take a bite of the Apple device management software specialist?

The rapid growth in customers and revenue certainly fits the bill. And although the debt load is heavy relative to its size, it appears to be moving towards a healthier balance sheet.

Then there is the elephant in the room that is the gutsy timing of the IPO in a pandemic-led recessionary economy. This has the potential to pause customer software spending and slow Jamf's near-term growth.

The long-term growth potential is there, however, given the prevalence of Apple devices used by individuals and enterprises globally.

As is often the case with buzzworthy technology IPOs, Jamf may move higher out of the gates and trade largely based on emotion. This could be followed by the post-IPO euphoria hangover.

Given the risks around the current economic backdrop it may be best to watch Jamf's early trading days play out from the sidelines. A better entry point is likely ahead.