SaaS Pre-IPO Revenue Growth (2013)

While curating the daily and weekly news releases of public SaaS companies, I began to think about what pre-IPO life was like for them.  Naturally, my first questions centered on pre-IPO revenues.  So, I dug through their financials and found some pretty neat things.  

Just three footnotes before pressing on –

  1. In the figure below, the years are labeled as IPO-2, IPO-1, and Year of IPO.  For clarification, the IPO-2 data point should be understood to be the percent (%) change of revenues in dollars ($) from IPO-3 to IPO-2.  This same method applies to IPO-1 and Year of IPO.
  2. The list of 39 companies below does not represent the entire batch of traditional SaaS companies.  I intentionally removed Concur, Ultimate Software Group, and LivePerson from the analysis.  Their IPOs–1998 (Concur), 1998 (Ultimate Software), 2000 (LivePerson)–occurred during a period when the SaaS space had yet to be conceived as a monetizable model; not to mention that the IPO macro-environment at the time was performing less rigorous analysis than it applies today.  Basically, it didn’t take as much market and revenue validation to IPO pre-2000.  (Except in the case of Concur which was already on its way to being a high performing public company.)
  3. This list can grow to well over 50 companies if we add traditional on-premise and pure consumer internet that are becoming very SaaS-y.  Through acquisitions, Adobe, Oracle, Microsoft, and IBM have all SaaSified their product portfolios.  Acquisitions and continuous innovation at Google, Amazon, and Yahoo! have caused me to rethink the traditional categorization of these consumer internet companies.  Are the lines between traditional SaaS companies and Consumer Internet companies getting blurred?  That seems to be a question with some need for further inquiry and will be something I dive into at some point during H2-2013.

 The following are some pertinent notes from the public filings of current SaaS companies –

  1. Key statistics.  The mean and median pre-IPO revenue growth (from IPO-2 to IPO) for this batch of companies was 56.8% and 41.5%, respectively.  The mean was boosted especially by Palo Alto Networks, Servicenow, Workday, and Dealertrack, with average percent growth statistics of 174.5%, 133.7%, 133.6%, and 127.7%, respectively.
  2. Palo Alto Networks!  Putting the rest of the field to the side, Palo Alto Networks was the leader in the cream-of-the-crop group by an order-of-magnitude.  Key question to think about: How did they generate such incredible revenue traction to dominate their colleagues?
  3. The laggards.  Wageworks, E2open, Intralinks, and Solera Holdings demonstrated unimpressive growth statistics in the pre-IPO years at 18.2%, 16.7%, 15.3%, and 9.4%, respectively.  This is evidence that deep revenue traction is not always the key driver in preparation towards IPO.  Perhaps investors have an appetite for companies expanding product delivery in niche spaces, such as Wageworks and it’s on-demand benefits and flex-spending account solutions.
  4. Most Revenues does not equal the most valuable.  If we peg the Enterprise Value / Revenue multiple as the key driver of valuations, then Palo Alto Networks and Servicenow are not the most valuable companies today.  Instead that award goes to: 1) Workday at 35.9x; 2) Splunk at 20.8x; and 3) Netsuite at 19.5x.  Sans Workday, Splunk and Netsuite demonstrated very good pre-IPO growth versus the field; however, nothing that screamed most valuable companies in the set.  Post IPO, SaaS companies are in the driver’s seat when it comes to articulating and driving their worth.

In conclusion, if your revenue is growing at a clip of 41.5% annually and for the foreseeable future, then you may be on to something that very few SaaS companies have been able to accomplish.  You may want to begin typing out your S1 filing this year!

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