NEW YORK (TheStreet) - Castlight Health (CSLT) is one of the more controversial $200 million initial public offerings, according to one IPO expert, given the company's $3.9 billion day-one market cap, its meager $13 million in annual revenue and negative gross margins. But before pundits use Castlight as a proxy for a new bubble, the offering may shed light on the businesses that investors are willing to pay for in current markets.
Ted Tobiason, a managing director in the equity capital markets division at Deutsche Bank, said in a Wednesday client note that Castlight Health should give investors "sufficient reason" to seriously question an IPO bubble. Tobiason, however, also said Castlight's IPO was indicative of a willingness to invest earlier in a company's life-cycle if it possesses a new solution to a large addressable market.
Deutsche Bank wasn't listed an underwriter of Castlight's IPO. Tobaison also didn't directly dispute the notion that the deal's pricing could be indicative of a bubble.
Castlight Health provides enterprise healthcare cloud software that could allow employers to lower their overall healthcare costs, which have spiraled upwards in recent decades and hit corporate bottom-lines. The company priced its $200 million IPO at $16 a share, valuing Castlight at about $1.4 billion. Shares more than doubled in Castlight's first day of trading.
Currently, shares are trading at around $30 a share. That valuation comes in spite of the company's marginal 2013 earnings, and forecasts of $120 million in 2016 revenue and a $50 million net loss, according to Tobiason. "To some the fact that a company with only $13 million in 2013 revenues and negative gross margins can get a $1.4 billion valuation at IPO only to trade to a $3.9 billion IPO its first day is an indicator that we're in another IPO bubble," Tobiason wrote. "There are sufficient reasons to look at this seriously," he said.