There aren’t many companies in the investing world that get more hype than the unicorns. Usually defined as private start-ups valued at $1 billion or more, these companies were once thought to be mythical – harder than find than the elusive unicorns of yore. But in recent years they have been multiplying, and more pertinently, they have been going public.
In fact, last year proved to be a record for the Israeli unicorns. They entered the US public markets in high numbers, to a field of acclamations and high expectations. And then they stumbled.
Slowing growth was the root of the problem. These Israeli tech unicorns are not generating profits in their early stages, and investors are seeking higher revenue generation – and in some cases, requiring it – to justify the sky-high stock valuations. As the revenue forecasts fell, so did the unicorn’s share prices.
A closer look at some of these companies, using data drawn from the TipRanks platform, may give us a better idea of where Israel’s unicorn start-ups, and their investors, now stand.
Hippo Holdings (HIPO)
First up on our list is Hippo Holdings, a tech firm that brings AI and data technology to the homeowner’s insurance market. Hippo’s systems permit agents and customers to ‘fine-tune’ the policy, based on neighborhood statistics and contents of the property. Hippo draws its income from both underwritten policy premiums and sales agency commissions.
Hippo entered the public trading markets in August of last year through a business combination with Reinvent Technology Partners – but shortly before the transaction closed, 83% of the new capital raised was withdrawn. Hippo, which had been looking at a $5 billion valuation and more than $780 million in cash, suddenly had to make do with a capital raise of approximately half a billion, and a stock issuance of 19.2 million shares, instead of 23 million.
We should also note that Hippo’s 1Q22 numbers missed analyst expectations. The quarterly net loss came in at 12 cents, 33% worse than the 9 cents predicted, while revenues, at $24.5 million, were down sequentially for the first time since the IPO.
Unfortunately for investors, shares in HIPO have fallen 85% over the past 12 months. A look at the TipRanks Smart Score on this stock shows that it has several negative metrics, including recent selloff from both hedge fund managers and retail investors. This would suggest a broad-based worry in the markets on the stock.
Talkspace (TALK)
The next unicorn we’re looking at is Talkspace, a telehealth firm focusing on mental and behavioral issues. The pandemic crisis, and the lockdown policies, threw health matters into sharp relief – and gave a new importance to both telehealth and matters of mental health. Talkspace aims to connect those two fields, offering therapies for individuals, couples, and adolescents, along with psychiatric consults and medication prescription and management, all through remote video links. The company offers its users lists of licensed mental health providers, all approved by relevant state and local regulators.
Talkspace made its public debut last summer through a SPAC transaction, a deal that netted the company some $250 million in new funds and moved it from the private to the public realm. Since last June’s public trading start, TALK shares are down 87%, and the company now has a market cap of only $184 million.
At base, the biggest problem facing the company is simple: it’s losing out in direct competition with its peers. Talkspace’s B2C numbers collapsed in 2021, coming in 50% below expectations at the end of the year. Even worse, competitor Teledoc brought in more than 10x Talkspace’s B2C revenue. Facing a cash crunch, Talkspace pulled back on its marketing budget, and watched its membership numbers drop.
A look at the consensus breakdown does not inspire much confidence either. TALK stock’s Hold consensus rating is based on 3 Hold ratings and a single Buy. (See TALK stock forecast on TipRanks)
Riskified (RSKD)
Moving on, we come to Riskified, a company that has turned risk mitigation into an SaaS package. Using a combination of AI, machine learning, behavioral analysis, and elastic linking, Riskified has developed a ‘smart’ platform for digital loss prevention and the detection of online fraud. Riskified’s customers can realize a higher margin from their sales, secure in the knowledge that their transactions are on the up-and-up.
Nevertheless, Riskified’s shares have fallen sharply since the IPO at the end of July last year. The stock is down 80%, a drop that has pushed this unicorn’s market cap to $840 million.
In its recent 1Q22 report, Riskified beat the revenue estimates, posting $58.8 million against a $56.1 million forecast, but reported a $33.3 million net loss for the quarter. At 20 cents per share, the net loss was a deeper than the previous quarter, and 25% worse than had been predicted.
While Riskified still has a positive Smart Score from TipRanks, we should also note that the retail investors are showing a highly negative sentiment here.
Similarweb (SMWB)
The next Israeli unicorn we’ll examine is Similarweb, a digital intelligence and web analytics firm, with its feet firmly in the small- to mid-sized business world. While this customer base hasn’t got the appeal of the huge tech firms, Similarweb offers them the ability to see the details in their digital footprints, with access to a proprietary analytic tech. Similarweb can bring that analysis to bear on 100s of millions of websites, mobile apps, and brands in scores of industries, gathering a huge warehouse of data that can be used to refine keywords, search terms, and other analytic tools.
Similarweb’s data analytic approach brought it into partnership with the alternative data company App Annie, now called data.ai. The partnership combines mobile app market data with analytic web insights, with advantages on both sides.
While data services are in demand, and Similarweb’s revenues have been growing since it went public in May of last year, the stock is still down by 60% since that time. The market cap, which started out at $1.4 billion, is now down to $670 million.
It’s important to mention that the company’s earnings loss has been increasing. Net loss for 1Q21 came to $25.6 million, the worst since the IPO, and the 26-cent EPS loss was the second worse in the same period.
Overall, Similarweb’s low Smart Score is depressed from poor fundamentals, including a -359% return on equity for the past year, a powerfully negative retail investor sentiment.
Kaltura (KLTR)
Last on our list is Kaltura, a software company offering online and digital video services. Kaltura’s products include meetings, virtual events, town halls, video portals, and video messaging, all offered over four main division: for educational institutions, for media, for enterprise customers, and for content developers.
While these video services are typically in high demand, Kaltura’s revenue has been relatively flat since going public. In its first publicly released quarterly report, for 2Q21, the company showed $41.6 million at the top line; in the current report, for 1Q22, Kaltura reported $41.7 million. Revenue peaked at $42.9 million in 3Q21. At the same time, Kaltura’s net losses have been deepening. Kaltura reported a 5-cent EPS loss in 3Q21, and that has deepened to a 9-cent loss in each of the last two quarters.
The biggest ‘squeeze factor’ facing Kaltura is the crowded nature of the online video networking space. Kaltura’s selling point is cheap – but in a market dominated by companies like Microsoft, Zoom, and Cisco, cheap simply isn’t enough. Zoom offers a higher tech, better quality solution and Microsoft’s Teams can beat on price; with these ‘big three’ taking up 84% of Kaltura’s potential market, the upstart start-up is having trouble finding traction.
Kaltura is another of the many unicorns that went public during last year’s bull market. The company entered the public markets in July, putting 15 million shares on the market at $10 each. The shares closed at $12 on their first day’s trading, and since then have fallen 86%. This is a steep fall that has investors concerned.
The key point here, connecting all five of these companies, is a slow-down in revenue growth, with several firms missing forecasts altogether, combined with continued, deepening, EPS losses. There is only so long that investors will put up with that, even from a unicorn.
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