Castlight Health (CSLT) went public today, and so far, the Castlight IPO has lived up to its frothy expectations.
So far in today’s trading, CSLT stock is up a staggering 145%. That follows a boost to the Castlight IPO earlier this week in which the price range rose to $13-$15 from $9-$11, and an actual pricing above that improved range at $16 per share.
What’s driving the excitement?
Castlight Health leverages Big Data technologies to help enterprises better manage their healthcare costs. This is powered by a cloud-based platform that performs analytics on information from sources like healthcare providers, insurance companies and quality-monitoring organizations. The result is that Castlight Health can provide personalized healthcare options that are grounded in medical spending information of an employee and his or her family.
In other words, CSLT is making it easier for consumers to avoid unnecessary services and procedures while improving the overall quality of care.
Castlight Health has in turn amassed a sterling customer list, which includes 24 members of the Fortune 500. The client roster features names such as Walmart (WMT), Microsoft (MSFT) and Honeywell (HON). Those relationships have helped spur revenue growth; sales of $1.9 million in 2011 exploded to $13 million last year.
They haven’t helped CSLT’s ability to turn a profit, however; the company bled $62.2 million in red ink last year.
A few other important keys for investors that have fueled interest in the Castlight IPO include:
- Market Opportunity: For 2014, U.S. spending on healthcare is projected to reach $3.1 trillion, roughly $620 billion of which is expected to come out of the coffers of employers. That has everyone looking for ways to lower costs, and Big Data should be a big help in this arena.
- Technology Trends: Cloud and Big Data companies have enjoyed some red-hot IPOs over the past couple years, including Splunk (SPLK) and Tableau Software (DATA).
- Founders: Castlight was launched by two business veterans: Former RelayHealth CEO Giovanni Colella and Venrock venture capitalist Bryan Roberts. The latter has previously backed top health tech companies including Athenahealth (ATHN).
Nonetheless, investors are advised to watch the Castlight IPO fireworks from the lawn.
For one, the float is fairly small, with only 11.1 million shares of CSLT stock on the market currently — thus, it doesn’t really take much to boost the stock.
And over the next few months, it’s likely that many more shares will be sold, likely through secondary offerings, which could dilute the value after its quick ramp-up.
So instead, wait out the Castlight IPO for a few months and allow headlines to form and valuations to come down a bit. Eventually, as the hype subsides, you’ll get a better price to jump into this solid long-term bet.
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.