Duck Creek seeks $3B valuation for its software IPO

The Boston-based company now wants as much as $25 per share

American software company Duck Creek has upped the stakes in its impending IPO, raising its price target from a range of $19 to $21 per share to $23 to $25 per share.

The bump comes as software and cloud stocks have fallen more than 10% from recent highs, putting them in technical correction territory.

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The good news for the Boston-based startup focused on the insurance market, however, is that recent technology IPOs have seen strong performance at similar stock market levels. So, the recent market chop for its future cohort of public software companies may not prove too deleterious to its public offering hopes.

This morning let’s calculate an updated valuation range for Duck Creek, re-run our math on its implied revenue multiples and compare those figures to today’s public market averages.

Duck Creek’s products target the property and casualty insurance provider space, serving companies that sell coverage for automobile, rental and homeowners insurance.

When tinkering with Duck Creek’s first IPO price range ($2.44 billion to $2.70 billion), the company appeared to be reasonably priced. Let’s see what happens when it raises its share-price targets.

A new valuation

As before, Duck Creek is selling 15 million shares, a figure that rises to 17.25 million if its underwriters exercise their option to purchase more stock at the IPO price. So, at its new $23 to $25 per-share IPO price range, the company could raise between $396.75 million and $431.25 million.

For a company that had revenue of $153.35 million in the three quarters ending May 31, 2020, it’s a large sum.

Discounting the shares up for purchase by its underwriters, Duck Creek is worth between $2.95 billion and $3.21 billion. Including the extra equity, the figures rise to $3 billion and $3.26 billion.

So, are those prices cheap? Expensive? Recall that the company’s IPO filing is a bit light on details regarding its recent quarterly performance. So, a few days ago, we ran some math that turned the company’s most recent reported period — the nine months ending May 31, 2020 — into an annual run rate of sorts.

It’s a far from perfect way to get a grip on how large Duck Creek is today, or how to value it, but it provides some footing all the same. Using the same set of calculations, updated with new multiples at the firm’s new IPO valuation range:

  • Duck Creek nine-months’ revenue for period ending May 31, 2020: $153.35 million.
  • That figure, annualized: $204.5 million.
  • Implies revenue multiple at its two IPO valuations, discounting underwriter’s shares: 14.4x, 15.7x.

Those numbers are a little high given that we’re reaching back into Duck Creek’s past to set a run rate for its present scale; normally we’d multiply its most recent quarter alone by four to get a fairer run rate. (Recall that a lot of Duck Creek’s revenue is legacy software spend and services, so we are not using a full-ticket ARR number for its business.)

And notably they are getting close to the average numbers for a SaaS business, according to EMCLOUD. In fact, when compared to the median results for the SaaS and cloud companies that make up the index, Duck Creek is actually a little expensive. Though, again, we’re comparing numbers directionally, and not absolutely.

It appears that Duck Creek is doing a fair job extracting value pre-IPO for its shares, provided that it does manage to price inside its raised range. Even if it does manage a first-day pop, the company should feel pretty reasonable about the transaction, we reckon.

Finally, if you’ve been watching SaaS and cloud stocks in recent days you might have started to worry a little. A correction of 10% or more should catch your attention. So what we’ll see when Duck Creek prices tomorrow after the bell and starts to trade Friday morning, should tell us how much early optimism there is for software debuts. If Duck Creek has a more muted debut, it could mean that some of the geyser-like pressure that we’ve seen from nCino and BigCommerce on their IPO day could be lessening.

But if shares of Duck Creek shoot up like some of its predecessors, the game is still afoot. And more companies will, we hope, take part.