On its $13 million revenue base last year, it spent $34 million on sales and marketing, $15 million on R&D and $9 million on administrative costs. Meanwhile with all the competition for Castlight, the company is spending like crazy on marketing, R&D and the like. Next week the bubble may inflate further when a couple more cloud service providers are expected to price their IPOs, including banking specialist Q2 and HR benefits provider Paylocity. In early trading, Castlight's $3.5 billion valuation is more than double the value of Benefitfocus though it has about 1/10 the revenue. It’s pretty clear a bubble is inflating in this sub-sector of Internet stocks and Castlight makes that incredibly obvious. Investors who agreed to pay $16 a share for Castlight Thursday night seem more focused on the inspiring performance of other cloud-service stocks, such as Benefitfocus ( BNFT), which went public at $26.50 a share last September and currently trades at $58, off its all-time high of $77 in January.
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Castlight seems far more likely to end up as the next Netscape, which got obliterated when Microsoft decided to give away an Internet browser for free and wipe out Netscape’s whole business model of charging. Castlight and its competitors collect vast amounts of data and display relevant bits in a more clear and simple way to help consumers make smarter choices.īut there’s no way to tell who will win this theoretically huge potential market in the future, nor is there any way to predict how profitable it will end up. It’s hard to be a smart shopper when you can’t compare the quality of different providers or even know how much they’ll end up charging. One of the biggest hurdles to controlling healthcare costs is the complexity and obfuscation in the market. And the big health insurers themselves, Aetna ( AET) and UnitedHealth Group ( UNH), for example, are already experimenting with similar services and giving them away free to major customers. Try the numerous private competitors, companies such as Change Healthcare, backed by investors including Blue Cross Blue Shield, and Healthsparq, which recently said it served 60 million consumers. That’s probably true but it’s also obvious to a lot more folks than those at Castlight. With trillions spent on health care and everyone trying to save money, surely there’s a big market for Castlight’s services? Investors have been attracted by the siren song of market potential. Of the prior 13 deals priced at 100 times revenue or more and sales of at least $10 million, the average 3-year return was -92%.
Anthem, a long-standing customer of Castlight ( CSLT), has agreed to invest in the combined company, which will be led by former Aetna CEO Ron Williams as its Chairman.Ĭastlight ( CSLT) shares have lost more two thirds in value over the past five years, and currently the company has only Neutral ratings on Wall Street.Jay Ritter, a professor at the University of Florida and my go-to source on IPOs for the past few decades, tells me that Castlight's insane level of valuation – 107 times revenue (not profits, as they had huge losses last year) – of the original IPO pricing hasn’t been seen for a tech deal since the year 2000, the twilight of the 20th century.