Olo (OLO), which operates an on-demand e-commerce platform for restaurants, pulled off its IPO this week, with shares jumping 39% to $34.75 on its first day of trading. This came after the company boosted the price range on the deal from $16-$18 to $20-$22. The underwriters of the deal included Goldman Sachs, J.P. Morgan and RBC Capital Markets.
The public offering provided the company with $450 million in capital, but this may not be the main benefit of the deal. After all, Olo has been fairly capital efficient, having raised less than $100 million since the company was founded in 2005.
Rather, the IPO should help provide more visibility. That is, it may help it expand into other categories like groceries.
Let’s take a deeper look at the company.
A Backgrounder
Noah Glass is the founder and CEO of Olo. He quit his job and withdrew his admission to the Harvard Business School in order to start his company. At the time, he saw that there was a huge opportunity to leverage mobile devices and cloud technologies in the restaurant industry.
According to Glass, “What if you could utilize the convenience and technology of the burgeoning e-commerce sector to order and pay for a coffee directly from your mobile phone and have it ready when you got to the restaurant? At Olo, we call that ‘on-demand commerce’: a form of e-commerce that is focused on the restaurant industry and allows a consumer to order and pay on-demand and have a made-to-order product prepared just-in-time for real-time pickup or same-hour delivery.”
The strategy, though, was not about creating a marketplace. Instead, Noah wanted to be a partner to his customers – which would make it easier to get buy-in and revenue traction.
As a result, Olo has been able to build a powerful set of applications, which do the following:
Ordering: This is a white-label system that allows customers to order and pay restaurants through a mobile app, the web, voice, and kiosk. Dispatch: This is a fulfillment system, and with it, a restaurant can manage its own delivery of orders. Rails: This is a channel management system to help control menus, pricing, location data and so on.
The Olo platform has been built for scale. Keep in mind that – on a daily basis – it processes close to 2 million orders. There are also over 100 integrations with payment systems, POS systems and other technology solutions.
As for the growth ramp, it has been impressive. From 2018 to 2020, revenues went from $31.8 million to $98.4 million. What’s more, the company has even been able to generate profits.
Of course, a big catalyst for Olo’s business has been the COVID-19 pandemic. Restaurants have had to scramble to provide digital solutions for customers, and it has really been a matter of survival.
That said, the company’s go-to-market strategy has been a big factor as well. Instead of adding a single location within a restaurant chain, Olo has been focused on selling at the corporate level. True, this has meant a longer sales cycle, but it has also led to deals that have been much more comprehensive.
Just some of the customers include Shake Shack (SHAK), Five Guys, Chili’s and Wingstop (WING).
Conclusion
Olo is certainly an impressive company, and even as the COVID-19 pandemic fades, there will be continued demand from restaurants. The market is massive.
However, in terms of investing in Olo stock, it is probably best to hold off for now. The company is not well-known, and so, it could be tough to sustain the valuation, especially since there will be more hot IPOs that hit the markets. In other words, there will likely be a chance to get a better price on this one. (See Olo stock analysis on TipRanks)
Disclosure: Tom Taulli does not own shares in OLO.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
