🚀 India's IT firms are soaring

Coinbase surprises investors, India's IT firms beat earnings, growth trends, Amount raises Series D, and some more updates.

May 18, 2021

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There’s so much to cover today so let’s get started.

First up,

Market Snapshot 📈

Sensex: 50,193.33 (+1.24% ) ↑

Nifty 50: 15,108.10 (+1.24% ) ↑

Dow Jones: 34,327.79 (-0.16% ) ↓

Nasdaq 100: 13,312.91 (-0.60% ) ↓

Bitcoin: $45,670.50

Top Stories 📰

1. Coinbase announces convertible debt deal 💵

Cryptocurrency exchange Coinbase said that it's planning to raise $1.25 billion in a convertible bond sale, a month after listing its stock at a $250 reference price — a number that’s a requirement for the stock to begin trading, but not an indicator of the company’s potential market capitalization.

The company said in a statement that the offering will help Coinbase bolster its balance sheet, and the cash will be earmarked for "general corporate purposes, which may include working capital and capital expenditures, and to pay the cost of the capped call transactions." A capped call essentially limits the dilution of the company by limiting the number of shares issued.

The news received some pushback from investors who feared that the move would increase stock dilution and hinder arbitrage opportunities. Shortly after the announcement, shares of Coinbase fell 4% to $248.24.

Coinbase, whose primary users deal in Ethereum and Bitcoin, published strong first-quarter results on May 13, reporting $1.8 billion in revenue compared to last year's $191 million.

Why it matters? While Coinbase's stocks have been plummeting ever since its debut in April, several analysts still remain bullish on the company as they feel that the stock embeds high expectations and can exceed it given its growth trajectory.

2. M-cap of India's five IT firms beat earnings, growth trends 📈

India's top five IT companies — Tata Consultancy Services, HCL Technologies, Infosys, Wipro, and Tech Mahindra — reported a whopping 87% rise in their combined market cap since the end of March 2020. The valuation for these companies stood at Rs. 23.2 trillion against last year's Rs. 12.42 trillion.

But, despite their ballooning market cap, these companies saw a minor increment in their earnings growth for the year, which was 6.8% as compared to non-IT companies' 34% year-on-year figure. Additionally, their revenue growth and sales also grew in low single digits.

During the same period, the companies' combined non-employee operating costs went down 7.9% as the pandemic imposed a work-from-home policy that reduced staff commute, executive travel, and catering cost.

Salary and wages continue to remain the biggest expense for IT companies as they try to decrease growing staff attrition, thereby squeezing their margins. Recently, several IT firms distributed the second round of hikes and promotions to their employees to compensate for deferring increments due to the pandemic.

Why it matters? Some investors have raised questions regarding the recent rally in the IT space, saying that the industry's been reporting declining profits for years. Meanwhile, others remained bullish as their respective managements estimate higher revenue growth in FY22.

3. Today’s big deals 🎉

Egypt's delivery startup Bosta raises $6.7 million 🚚
Bosta, an Egyptian e-commerce logistics startup that offers last-mile delivery services, has raised $6.7 million in a Series A funding round, a year after raising $2.5 million. The round was led by global VC firm Silicon Badia, with participation from Plug and Play Ventures, 4DX, Wealthwell VC, and Khawarizmi VC, along with some global and regional investors. The company plans to use the capital to navigate Egypt's fragmented e-commerce market and expand its operations in the Middle East and North Africa (MENA), Africa, and Gulf Cooperation Council (GCC). Bosta was founded by Mohamed Ezzat and Ahmed Gaber in 2017 and currently serves over 2,200 businesses across Egypt.
Amount raises $99 million in Series D funding 🏦
Amount, a Chicago-based technology provider for financial institutions, has raised $99 million in a Series D funding round, five months after raising $86 million in its Series C round. The latest round values the company at just over $1 billion. Led by WestCap, the fundraiser saw participation from Hanaco Ventures, Invus Opportunities, Goldman Sachs, and Barclays Principal Investments. Amount, which was formed out of Avant — an online lending firm — right before the pandemic hit, partners with financial institutions to help them “go digital in months — not years.” The company serves big players like HSBC, TD Bank, Regions, and Banco Popular. Amount has over 50 million US customers and collectively manages more than $2 trillion in US assets. The company now plans to use the capital to bolster acquisitions and advance R&D into its products and technology to compete against fintech firms.