Anaplan, an enterprise software maker focused on cloud-based planning tools, will go public on Nasdaq Friday under the aptly named ticker symbol PLAN. Privately valued at $1.41 billion, the company raised priced its IPO at $15 to $17 per share from $13 to $15 per share. The new IPO price values Anaplan at up to $2.06 billion, or 46 percent higher than its private valuation.
The boosted IPO price range suggests strong investor demand for Anaplan shares, even as the public markets have struggled over the past week. While big consumer unicorns attract most media attention, small-mid-cap SaaS companies like Anaplan are the companies that deliver consistent returns.
Anaplan counts Granite Ventures, Salesforce Ventures, and Baillie Gifford as its investors. Thanks to healthy fundamentals, Anaplan is well positioned to join the growing list of software unicorns that recently went public with strong IPOs.
The company distinguishes itself from competitors having built its cloud architecture from scratch, instead of stacking its code on existing platforms like Oracle. The technology, called Hyberblock, can collect, organize and analyze disparate sets of data - sales, operations, human resources and finance - from across the company.
In fiscal 2018, Anaplan exceeded $168 million in revenue, a 40 percent jump from the previous year, with subscriptions accounting for over 85 percent of the firm’s revenue. Fiscal 2017 saw a 68.5 percent growth over the previous year to $120.5 million from $71.5 million.
From a valuation standpoint, we expect the company to increase revenues at growth rates exceeding 30 percent. In other words, the company’s 2019 revenues could surpass $225 million. If we apply a healthy 10x EV/Revenue multiple on this estimated 2019 revenue, the company’s valuation on IPO could very well exceed $2.25 billion, or more than 50 percent above its private market valuation.
Across the enterprise We believe a truly enterprise-wide product offers strong value to subscribers. The Anaplan platform helps companies make decisions on far reaching tasks ranging from human resources to sales and marketing.
Strong user growth Given the wide use cases provided by the Anaplan platform, the company will quickly attract more users. From Q1 2016 to Q3 2018, Anaplan more than doubled its customer base from 434 to 979 users, a 125.5 percent increase in just 31 months. In addition, Nucleus Research sees another potential 72 million workers who can benefit from the Anaplan platform. We feel comfortable predicting a significant increase in Anaplan’s valuation come IPO.
Market set to grow Not only is Anaplan growing at a robust rate, the market it serves is growing too. The company estimates its addressable market will increase 23.5 percent to $21 billion in 2021 from $17 billion this year.
Will sales effort pay off? Over the last 3 years, Anaplan has nearly doubled its investment in sales and marketing to $100.65 million from $55.3 million. The company has already spent nearly $78 million in the first six months of this year. Despite Anaplan’s strong revenue growth, investors should note the company recognizes revenue over the course of the subscription, which means the expenditure increase in this space may not reward shareholders with future revenue gains.
Corporate culture clash Throughout its prospectus, Anaplan emphasizes its software creates a more decentralized way of making enterprise-wide decisions. However, this approach may run counter to how large organizations conduct their business top to down. If Anaplan cannot convince larger potential accounts they can mesh the software with their customers’ business model and culture, Anaplan faces big problems.
International dependency Anaplan is not immune from the global trade conflicts. The company said 43 percent of their revenue in the first six months of this year came from customers outside of the United States. Anaplan is also vulnerable to swings in emerging market currencies we’ve witnessed this past year. Over 30 percent of Anaplan’s revenue relies on foreign currencies, a problem made worse by the company’s decision not to hedge positions in the FX markets.
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