Yesterday, said in the IPOPlaybook that the Castlight Health IPO should be this week’s top offering, and today we got more of an indication that it indeed will be the case. The cloud operator just boosted the range on its 11 million-share deal to $13 to $15, up from $9 to $11.
Folks, the Castlight Health IPO is going to be red-hot. But why all the excitement?
Castlight Health plays to a couple of huge megatrends: healthcare and Big Data. Castlight operates a platform that helps enterprises better manage their healthcare costs. At the core is a sophisticated Big Data system powered by a team of top-notch engineers, economists and clinicians that pulls from sources like healthcare providers, insurance companies and quality-monitoring organizations to detect trends and provides feedback on actions to take.
With the data, Castlight provides personalized healthcare options that also are grounded in medical spending information of an employee and his or her family. For example, the system has alerts that help patients avoid unnecessary services, as well as recommendations on steps to take in preventative care. According to the S-1:
“By empowering employees and their families with the ability to simultaneously search price, quality and relevant content on health care services and providers, we enable them to make informed ‘market-based’ decisions that avoid excessive prices and low quality or unnecessary care, creating significant value for employers.”
For the most part, Castlight Health is a young company; its solution has been on the market for only two years. But two years has been more than enough time to pick up significant traction. Castlight has signed more than 95 customers, 24 of which are in the Fortune 500, including Walmart (WMT), Microsoft (MSFT) and Honeywell (HON).
Because Castlight Health is an early mover in the market, it has an opportunity to build a powerful database. And because Castlight’s system generally gets better as more enterprises use it, this could result in a substantial barrier to entry.
More importantly, the market opportunity is massive. For 2014, U.S. spending on healthcare is projected to reach about $3.1 trillion, about $620 billion of which is expected to come out of the coffers of employers. So there’s a huge built-in need to drive down costs while still providing for quality care — a seemingly natural fit for a helping hand from Big Data.
Plus, the industry has already seen some standout IPOs. For example, Tableau Software (DATA) is up 193% since its offering in May and Splunk (SPLK) has gained about 400% since coming live in April 2012.
So while revenues are still small — Castlight Health only brought in $13 million last year — the Castlight IPO still should reflect a huge valuation.
Castlight Health IPO Details
- Expected Offering Date: Thursday
- Ticker: NYSE:CSLT
- Lead Underwriters: Goldman Sachs (GS) and Morgan Stanley (MS)
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.