Is ServiceTitan Inc. IPO a Good Buy?

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Contributor, Benzinga
March 3, 2022

One of the more vexing issues of the post-COVID-19 landscape — the much-discussed labor shortage — has many politicians, analysts and media pundits offering one answer or another. From individuals demanding improvements in employment quality to suggestions that workers got soft from government stimulus programs, no shortage of opinions exist.

However, the so-called blue-collar industry had been suffering from a gradual decline in interest and participation well before the SARS-CoV-2 virus became the international community’s everyday reality. According to the Society for Human Resource Management, during the late pre-pandemic years, companies incurred greater difficulty in finding skilled tradespeople than white-collar workers.

Initially, the impact of the pandemic did little favor to the trade industry, which was unable to offer at-home solutions to its workers for obvious reasons. In contrast, office workers merely deployed various connectivity solutions at their home, barely skipping a beat.

Nevertheless, the crisis later sparked a surge in home purchases, organically facilitating downwind demand for blue-collar services such as plumbing and electrical work. With so many new buyers entering the homeownership arena, the upcoming new listing for ServiceTitan Inc. could intrigue forward-thinking investors.

What Does ServiceTitan Do?

An operating system for the professional trade industry, ServiceTitan provides a one-stop shop for blue-collar specialties, such as landscape renovation, pest control, water treatment services, HVAC (heating, ventilation, air conditioning) system installation and more. Essentially, the company is the PayPal Holdings Inc. (NASDAQ: PYPL) of the residential and commercial services sector, allowing business owners to enjoy a consolidated command center to handle all operational, financial and administrative needs.

What makes ServiceTitan stand out is its versatility. Unlike other platforms that may handle only a portion of a company’s business needs, ServiceTitan addresses everything. In addition to core operational functions such as dispatching tradespeople to job sites, the platform handles frontend roles such as sales, marketing and customer service. As well, it streamlines reporting responsibilities like accounting, payroll and inventory management.

ServiceTitan delivers to its clients solutions across four main business categories:

  • Service and replacement: Allows service and replacement shops to modernize their business, including dispatcher-driven communication APIs that allow customers to book services and track their tech specialists.
  • Construction: Enables contractors to implement workflow spreadsheets for their projects, identifying key performance indicators such as productivity metrics and profit-margin monitoring.
  • Residential: Boosts return on investment through consolidating outreach, operational and customer service roles under a single point of command.
  • Commercial: Streamlines business operations by providing an all-seeing control center, allowing project leaders to understand how each cog in the chain is operating, thus accurately keeping enterprise-level clients in the loop.

While an intriguing business in an often-overlooked sector, investors will want to conduct their due diligence before participating in its new listing.

When is the ServiceTitan IPO Date?

Though no official word has yet arrived, analysts expect ServiceTitan to launch its initial public offering (IPO) — or the first time a private enterprise releases its equity shares to retail investors — sometime within the first quarter of 2022. Given that the IPO calendar has flipped its page to March, interested participants should keep their eyes glued for further confirmation.

Back in September 2021, Reuters broke the news that ServiceTitan kicked off preparations to go public, citing people familiar with the matter. In the weeks leading up to the Reuters story, the trade industry software startup “invited investment banks and law firms to pitch for roles in its IPO.” Additionally, the inside sources revealed that management was seeking “as much as double the nearly $9.5 billion valuation it commanded in a private fundraising round in June.”

More recently, a report circulated in late January of this year that ServiceTitan confidentially filed for an IPO with the U.S. Securities and Exchange Commission (SEC). One of the main reasons for the secrecy is that it allows enterprises to keep critical information quiet for a longer period than usual. Otherwise, the firm in question would have to reveal its Form S-1 prospectus, which would disclose key financial data.

Based on the latest rumors and rumblings, ServiceTitan is aiming for a valuation of around $18 billion. However, both the timing and valuation is subject to change. As of this writing, no details are available regarding ServiceTitan’s intended ticker symbol, exchange listing or financial underwriter.

Interestingly, if the company decides to launch by the end of this month, the timing would present both upside opportunities as well as downside risks. On the positive side, the Reuters article mentioned that demand for house improvement services buoyed ServiceTitan’s business, which also includes training and tech support.

Better yet, housing sales figures continue to be strong, with the momentum showing no sign of waning. Due to soaring consumer inflation and the prospects of higher interest rates which would raise the cost of borrowing, desperate homebuyers may decide to lock in favorable mortgage rates now, thus fueling the fire.

But on the other side of the equation, the worrisome conflict in eastern Europe risks boiling over. With western powers across the board sanctioning Russia for invading Ukraine, the ruble collapsed, possibly leaving the Russian economy on the brink of catastrophe.

Cornered, the Kremlin may not see any way forward except through further violence and retaliatory responses, thus spooking global investors.

What Analysts are Saying About ServiceTitan IPO

Without the Form S-1 IPO prospectus, it’s difficult for analysts to gauge the viability of this new listing. However, per the Reuters report, ServiceTitan represents one of the most heavily supported companies within the private-equity sphere.

Much of the enthusiasm stems from the software provider’s dominance in a niche market that has suddenly become extraordinarily relevant because of the unique dynamics associated with the COVID-19 pandemic. As homebuying surged, more people sought out residential services such as HVAC installers.

Bolstering demand for ServiceTitan is desperation among those looking for real estate. According to the National Association of Realtors, bidders are waiving contingencies to compete against a roaring crowd, with the most common contingency waived being appraisals (28%) followed by inspections (25%).

Such actions bring more homebuyers to the table much more quickly, thus leading to an outsized addressable market for ServiceTitan. When combined with the lack of interest in blue-collar work, companies in the trade find ServiceTitan’s platform indispensable.

Still, no investment is without risk. The primary concern for jumping onboard the software firm is viability once the real estate sector normalizes. At any point in time, only so many homebuyers exist. It’s possible, then, that demand that would have materialized in 2023 or 2024 got pushed up into 2021 and 2022.

Therefore, once the calendar arrives a year or two later, the demand that would have been available would no longer be present, imposing an unexpected revenue crunch.

ServiceTitan Financial History

Though financial details are scant because of a lack of publicly available information, ServiceTitan did disclose in March 2021 that it generated annual recurring revenue of more than $250 million, representing growth of nearly 50% from the year-ago period. Given growing consensus that the housing shortage will not be fixed until much later, some analysts reason that the company’s growth trek is sustainable.

Certainly, private-equity investors can’t seem to get enough of the software provider. Across eight funding rounds, ServiceTitan has raised $1.1 billion, making it one of the more desirable unicorn IPOs. Its latest funding round occurred on June 30, 2021, resulting in a $200 million raise. During that time, private-equity firm Thoma Bravo led the proceedings.

While undoubtedly exciting, it’s again important that individual investors conduct their own due diligence. Sometimes, even the big dogs of the capital markets get things wrong. However, they can afford their mistakes, which may not always be the case for retail buyers.

ServiceTitan Potential

Though the housing boom has greatly benefited ServiceTitan, it’s not just the buying side that lifted demand. Rather, sellers who aimed to maximize profits sought renovation experts, thus necessitating ServiceTitan’s platform to streamline customer requests. With no sign yet that the appetite for housing is declining, this IPO could pleasantly surprise early bird participants.

Nevertheless, you should be aware that many of the same arguments that purportedly justify the present housing boom — hot labor market, lack of inventory, demographic trends — are similar or identical to arguments forwarded in early 2005. Again, it’s imperative that you take a sober approach to assessing any IPO, particularly one connected to real estate.

Where to Buy ServiceTitan IPO Stock

For those interested in acquiring ServiceTitan shares, you have some time to consider your options. First, you may decide to participate at the open, which would necessitate knowing how to buy stocks. Second, investors can explore the pre-IPO route, with more information at bottom.

No matter your choice, you will need to pick a brokerage to conduct your trades. Below is a list of best brokers to consider.

ServiceTitan Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

ServiceTitan Pre-IPO

For investors interested in acquiring ServiceTitan shares at their pre-IPO (initial offering) price, you should apply for access at EquityZen. Keep in mind that while acquiring pre-IPO shares may afford you a discount relative to the market rate, it’s not unusual for a public market debut to disappoint, especially in this chaotic environment.

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