Finally, one of the most hotly anticipated market debuts is not a special purpose acquisition company (SPAC), but rather a traditional honest-to-goodness initial public offering (IPO). Alkami Technology, a cloud-based Software as a Service (Saas) platform focused on delivering digital banking solutions to its clients, is receiving significant investor interest and could very well make good on the hype.
According to the company’s filing with the Securities and Exchange Commission, Alkami Technology plans to sell six million shares, priced between $26 and $28 a pop. Previously, management disclosed intentions to sell shares at a range between $22 to $25, demonstrating a significant uptick in demand. Shares will be listed on the Nasdaq exchange under the ticker symbol ALKT.
Alkami Technology is entering the IPO space at the right time. Though initially disrupted by the novel coronavirus pandemic, the trailing year has proven very lucrative for technology-based debuts. That’s especially the case for software IPOs, such as Palantir Technologies (NYSE:PLTR). Though PLTR has come off significantly from its highs, shares are still well up from their first public day of trading.
Though no one can say for sure whether ALKT will be the next Palantir, it’s difficult not to feel the urge to take a bite. First, the company generated revenue of $112.1 million in 2020, up from the prior year’s haul of $73.5 million.
Second, the tech firm shows an increasing SaaS subscription service revenue mix. In 2018, subscriptions represented 90.8% of total revenue. Last year, this metric bumped up to 93.7%, confirming banking client interest toward its platform.
Indeed, from a Reuters report, more than 160 financial institutions use Alkami’s cloud-based banking service. Further, the company served 9.7 million users in 2020, up 34% from the year prior.
Alkami Technology Is a Necessity for the Banking World
One of the strange dichotomies in the broader technology space is that while advanced innovations have sparked massive changes in how we do business, our financial infrastructures remain mired in legacy platforms and anachronistic thinking. For instance, the rise of neobanks, or online-only institutions that provide many of the services associated with banks, have sprouted up everywhere.
The reason? People want them – they’re convenient and they speak the language of millennials and Generation Z (as in as minimal human contact as possible). Further, digitized banking promotes the democratization of finance, allowing innovative platforms like neobanks to reached unbanked or underbanked individuals. It’s this democratization of service (to all needs) that makes Alkami Technology relevant.
It also makes it a necessity. According to banking industry experts, the total number of global “online and mobile banking users will exceed 3.6 billion by 2024.” Moreover, rising competition from fintech players like Square (NYSE:SQ) and PayPal (NASDAQ:PYPL) threaten to steal market share from banks and credit unions, particularly the smaller outfits. To level the playing field, these organizations need access to digitalized software solutions, which is the calling card of Alkami Technology.
Further supporting the case for its IPO is that financial institutions recognize the circumstances and are making efforts to adapt – but there’s still plenty of room for integration. For instance, 70% of financial firms are just now incorporating cloud-based solutions for their businesses. And over 90% “of the world’s top 100 banks still use physical mainframes,” which is yesteryear stuff.
As well, the financial sector must take into account the paradigm shift that may forever impact work in America. In my opinion, millions of younger people who got a taste of the gig life may make independent contract work their fulltime career. In that case, not having digital solutions will be a nightmare for the banking industry.
Of course, Alkami Technology can help, which is why so many are enthused about its upcoming debut.
Don’t Forget Cryptocurrencies
Another wildcard that could swing the needle in favor of the Alkami Technology IPO is the cryptocurrency revolution. With everyone tuning into the blockchain, billions of people across the world are coming to the realization that virtual currencies are quicker, cheaper and more convenient than fiat-based financial infrastructures.
The one area where the traditional realm is superior, in my view, is insurance and security. Cryptocurrencies remain a wild west type of market, which doesn’t cater to everyone’s needs or preferences. Therefore, by shoring up digital solution weaknesses for banking firms, Alkami is in prime position to dominate a burgeoning growth market.
Still, the old risks of IPOs apply to Alkami Technology; namely, you don’t want to take a bet you can’t afford to lose. However, the fundamental catalysts are very strong for the company, justifying a speculative wager.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.