There have been quite a few technology related IPOs over the past two years or so and most have had varying degrees of success.
One company that has outperformed, however, has been iSentia Group Ltd (ASX: ISD). The company listed in June 2014 at an IPO price of $2.04, before hitting a high of $4.95 in December 2015.
Since then, the shares have pulled back to more reasonable levels and are currently trading at around $3.85 a share – still a rise of more than 60% in under two years.
For those investors unfamiliar with iSentia, here is a quick overview of its operations.
In a nutshell, iSentia is the Asia-Pacific region's leading media intelligence and monitoring company.
It monitors all forms of media, including radio, television and internet. It also provides valuable data to end users in real-time using cloud-based, software-as-a-service solutions (SaaS). iSentia also provides a number of value-added services such as media influencer databases, social media, content consultancy, and media insight reports.
For example, iSentia has been tracking the various political topics throughout the Federal election so far on radio, TV and social media and has been able to determine which side of politics is getting a more favourable response from the public. The various political parties can then adjust their strategies based on this information.
But it is not just governments that utilise the company's services. In fact, iSentia services more than 5,000 clients including 92 of the top 100 brands in the world.
It collects and interprets around 282 stories per second across the Asia Pacific region including 8,000,000 social media posts daily. That is a huge amount of information that can be made available to clients and is only expected to increase with digital content growing exponentially.
Importantly, iSentia is the market leader in the region and there are very few substitutes for the services it can provide.
So how exactly does it make money?
iSentia uses a subscription model to generate annuity-style revenue from its SaaS platforms, but then also charges an additional fee for clients wishing to access one-off value added services for specific projects or campaigns.
The company's cost base is largely fixed which means any increase in revenues will generally flow through to the bottom line as profit.
So are the shares a buy right now?
The shares trade on a price-to-earnings ratio of around 24 – not particularly cheap when compared to traditional metrics. I think this valuation, however, is justified when you consider that the company is likely to deliver revenue and profit growth of more than 20% in FY16.
Furthermore, I think iSentia's longer term prospects are even more exciting as its services will become even more valuable to clients as the amount of digital content increases. Business and governments will want to cut through the noise and have valuable information quickly at their fingertips.
What are the risks?
Although iSentia is the market leader in the Asia Pacific region, it does have the potential to be hurt by new and existing players in the market. This could come from companies like Google, which already monitor a huge amount of digital information or other specialised social media monitoring companies.
Foolish takeaway
iSentia is one of the most exciting companies on the ASX and its long term prospects look quite bright.
Its current valuation might seem a little high, but I think this it is justified considering its market position and sticky customer base.
