Cloudy with a chance of gain. That sums up the listing hopes of Ionos. The web-hosting business announced its intention to float on Tuesday. News of the initial public offering should hearten a Frankfurt market which, like London, envies New York’s plethora of tech stocks. The mooted €5bn valuation is certainly aspirational.
A dash of cloud-related glamour should help the deal, albeit that global tech spending looks weak. Moreover, Ionos, like its customers, is itself in the process of switching on to the cloud.
Ionos has been helping businesses go digital for more than three decades. Converting clients’ software packages into lower-cost, cloud-based applications should be its next big growth opportunity. This market could expand by 29 per cent per annum on a compounded basis in the five years to 2026, says Ionos.
That sounds possible, given that nearly all of Amazon’s ebitda growth since 2018 stems from its AWS web services division, some $23bn. Scrappy Ionos believes it can take on market leaders AWS, Microsoft and Google by focusing on service and price for underserved German businesses and smaller enterprises everywhere.
The business currently earns parent United Internet just over €300mn of ebitda annually. It hopes this figure will grow at 10 per cent per annum to at least 2026 on a steady margin of 30 per cent. We can crudely forecast €500mn in ebitda by then. This exceeds analyst expectations for Ionos within its parent.
News reports feature the customary unattributed deal price, in this case €5bn. That would be 10 times 2026 ebitda. That looks pricey against an AWS-dominated Amazon on 7.5 times its own forward 2026 ebitda and smaller US rival GoDaddy at 9.
Ionos says it has an asset-light business, and can boast solid financials as it has so far invested within its cash flow. But capital spending has doubled in the past three years.
Taking on cloud titans AWS and Microsoft will surely require plenty more capex. Investors should demand a discount on the mooted price, given that competitive risk.
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