Olo (NYSE: OYO), the New York-based food ordering software company, went public earlier this week as the company rated the shares at $ 25 per share, raising about $ 450 million for a valuation of $ 3.6 billion. Olo plans to use the proceeds of the initial public offering (IPO) for “general business purposes” and potential acquisitions.

It is S-1 deposit made an interesting read, as well as her fundraising story.

Olo was founded in 2005 by Glass to help customers order food via text message. It has since grown into one of the largest providers of e-commerce services for 64,000 restaurants across 400 brands such as Five Guys, Wingstop, Shake Shack and Chili’s. The company offers online ordering, delivery integration, personalization and other software services. Olo can be integrated with over 100 other technology platforms.

The company pursues a strategy of adding large and / or fast growing restaurant chains to its platform and expanding its business with existing customers.

In the letter to potential shareholders, founder Noah Glass said, “We believe there is an incredible opportunity to add more restaurant customers, sales volumes and product offerings. It’s our not-so-secret formula, ”Glass wrote in a letter included in the dossier.

Olo goes against the trend for companies to go public at a time when they are growing rapidly and are unprofitable. This is because most venture capital funded IPOs are not profitable. Olo is both growing fast and profitable, which makes it a very interesting business. This combination explains why Olo managed to launch its IPO so successfully. Investors were clearly prepared to pay a premium for profitability.

The company initially aimed an IPO price range of $ 16 to $ 18 per share. This was raised at $ 20 to $ 22 per share. Eventually, this amount was raised to $ 25, or 56.25% more than the company’s initial estimate.

This is to be expected, but also reflects Olo’s combination of rapid growth and profitability. Revenue growth in 2019 was 59.4% year-on-year, reaching 94.2% in 2020. Revenue comes from the subscription fees it charges to best wedding venue restaurant chains such as Brinker International’s Shake Shack and Chili’s to access its digital ordering software, as well as transaction fees for delivery orders.

Meanwhile, GAAP profits were $ 3.06 million, after a net loss of $ 8.3 million in 2019. The business became profitable thanks to the increase in online restaurant orders during the pandemic of coronavirus. In 2018, the company lost money.

At $ 25 per share, the company is valued at $ 3.62 billion, including underwriters’ options. The valuation rises to $ 4.6 billion when you calculate a diluted valuation.

The company is largely unknown to investor circles, while it is well known in restaurant circles. Indeed, it only raised $ 100 million in private funding, unlike companies like DoorDash, which raised $ 2 billion before going public in December.

At first glance, Olo is not a competitor to companies like DoorDash: after all, there is nothing to buy on Olo.com. And yet, the Olo platform oversees an average of 2 million orders per day, peaking at 5,000 orders per minute. This is because most people who order online through the Olo platform don’t even know the company exists. The gross market value of orders processed on the platform was around $ 14.2 billion in 2020.

Olo is a platform. It does not interface directly with customers: more than 64,000 restaurants and 400 brands are located at the top of Olo and are responsible for attracting customers themselves.

Restaurants and brands on the platform must stand out, not in search results on a platform like DoorDash, or, by offering the lowest price, but, by winning customers through differentiated products, advertising. , etc. Many restaurants and brands will fail this conference: Olo doesn’t show its churn rate, but it is likely to be very high.

Yet that is the point.

He doesn’t have to spend huge sums of money tackling traditional restaurants, in a zero-sum game where you win or lose. Olo is incredibly diverse. The beauty of a platform like Olo is that you win (or lose) overall.

At this point, a high churn rate would be both a positive and a negative signal: the easier it is to start a restaurant online or on the Olo platform, the more failures. Still, the chances that emerging winners increase and that Olo captures and sustains that success.

In this way, Olo competes with DoorDash, UberEats and other food platforms, without these companies being able to compete with it. Platforms like DoorDash and UberEats sue customers and bring restaurants and brands to their platforms on their own terms; Olo gives traders the opportunity to differentiate themselves while taking no risk in the event of failure.

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