SendGrid Takes Home Mostly Glowing Sell-Side Opinions

The IPO quiet period for email marketing company SendGrid Inc SEND expired Monday, and the sell-side offered its take on the investability of the stock.

Volume-Driven Growth

Growth at SendGrid is driven by increased email volume and will benefit as overall email usage improves over the next few years, said William Blair analyst Bhavan Suri.

The company's platform has best-in-class delivery rates of 94 percent due to strong sender reputation and close relationships with inbox service providers, Suri said. The analyst projects scope for operating leverage, as the company's self-service onboarding process allows it to acquire customers at a reasonable cost and maintain below-average sales and marketing expenses.

Continued new customer wins in the wake of a large market opportunity; increased wallet share from existing customers; international expansion; the expansion of partner channels; and potential strategic acquisitions will serve as growth drivers, helping the company sustain over 30 percent top-line growth over the next few years, according to William Blair. 

William Blair initiated coverage of SendGrid with an Outperform rating.

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Unique Model Supports Growth and Profitability

SendGrid's unique business model, with a net dollar retention rate of 116 percent, supports high growth and profitability, said KeyBanc Capital Markets analyst Brent Bracelin.

SendGrid has multiple avenues to further expand into adjacent segments of the broader $11 billion email total addressable market, Bracelin said. KeyBanc projects expansion through both internal development and complementary M&A.

Despite the 34-percent gain notched by the shares of SendGrid from their $16 IPO offer price — compared to the mere 1 percent rise by the NASDAQ 100 Index in the same period — KeyBanc sees a favorable risk/reward profile on the company looking out to 2019.

The firm initiated coverage of SendGrid with an Outperform rating and $26 price target.

Valuation Trims Morgan Stanley's Optimism

Morgan Stanley analyst Stan Zlotsky sees a $9 billion total addressable market supporting a long runway of growth coupled with margin expansion. The upside to Morgan Stanley's base case price target of $23 is limited, Zlotsky said. 

SendGrid stands out from the pack in delivering email on a massive scale with a very low probability of failing to deliver, the analyst said. In the recent third quarter, the company delivered 115 billion emails for more than 58,000 customers, with a best-in-class delivery rate of 94 percent, he said.

Current valuation levels price in much of the possible growth potential and margin expansion at SendGrid, leaving limited upside, the analyst said. 

Morgan Stanley initiated coverage of SendGrid shares with an Equal-weight and $23 price target.

The Price Action

SendGrid ended Monday down 5.71 percent at $20.41. 

The shares are still up over 31 percent from their $16 offer price. 

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