A first look at Qualtrics’ IPO pricing

Earlier today, Qualtrics dropped a new S-1 filing, this time detailing its proposed IPO pricing. That means we can now get a good look at how much the company may be worth when it goes public later this month.

The debut has been one TechCrunch has been looking forward to since the company announced that it would be spun out from its erstwhile corporate parent, SAP. In 2019, the Germany-based enterprise giant SAP snatched up Qualtrics for $8 billion just before it was to go public.

Qualtrics is either worth less than we would have guessed, or its first IPO range feels light.

That figure provides a good marker for how well SAP has done with the deal and how much value Qualtrics has generated in the intervening years. Keep in mind, however, that the value of software companies has risen greatly in the last few years, so the numbers we’ll see below benefit from a market-wide repricing of recurring revenue.

Qualtrics estimates that it may be worth $22 to $26 per share when it goes public. Is that a lot? Let’s find out.

Qualtrics’ first IPO range

First, scale. Qualtrics is selling just under 50 million shares in its public offering. As you can math out, at more than $20 per share, the company is looking to raise north of $1 billion.

After going public, Qualtrics anticipates having 510,170,610 shares outstanding, inclusive of its 7.4 million underwriter option. Using that simple share count, Qualtrics would be worth $11.2 billion to $13.3 billion.

Normally at this juncture, we’d add up the rest of the shares that might count, vested options and the like. But reading the S-1/A filing finds no more shares that we’d normally include.

Yes, there are more shares, but they seem to be for 2021 compensation and beyond. So they haven’t vested and thus don’t count. In this case, the simple share count appears to be not only accurate, but whole. That saves time!

Now we need to figure out what those numbers feel like stacked up against performance. Here are the company’s most recently reported financial results, which we’ll use to ask the question, should we expect Qualtrics to price its IPO above its current range? Note that as we’re using the company’s preliminary results, we’re employing the middle of its shared range:

  • Qualtrics Q4 2020 revenue, midpoint: $213 million.
  • Qualtrics Q4 2020 revenue midpoint, annualized: $852 million.
  • Qualtrics Q4 2020 midpoint revenue growth, compared to Q4 2019: 23.2%.

This is useful. Now, at that company’s annualized revenue result, it’s looking at a revenue multiple of between 13.1x and 15.6x. Those are far lower than the mean and median Bessemer Cloud Index’s benchmarks, namely a mean and median of 21.1x and 17.9x for current-generation public software companies.

Qualtrics, however, is growing lower than both the mean and median revenue expansion figures, which land at 38.2% and 27.5%. Still, if we account for how far under the median multiple figure that the market has offered companies that are only growing a little bit faster, it could be that Qualtrics’ range is conservative.

Especially if you think that the company can grow faster next year, and weigh in its near-breakeven profitability. (After years of losing lots of money thanks to how SAP settled employee stock options, Qualtrics expects to have lost around $10 to $13.5 million in Q4 on an operating basis. That’s not bad at all and is down from $145 million in the year-ago quarter.)

Qualtrics is either worth less than we would have guessed, or its first IPO range feels light. Which means that the company may raise its range before it formally prices. Doing so will lift its valuation and help mark-up the SAP deal from a few years ago even more. SAP is going to walk out of this owning the majority of a company that will have jumped by 50% or more in value in just a few years. And one that will soon be liquid.

That’s a win, I reckon.

There’s nuance lost in the above, including enterprise value calculations for the Bessemer numbers against market cap figures for Qualtrics. But as the company intends to use a chunk of its IPO proceeds to limit debt, I’d probably wait to see how the final accountancy works out before betting specific with enterprise value figures. For our purposes the above is sufficient for directional purposes.

The Qualtrics debut is going to be huge, and that matters. Can the bankers get its IPO price closer to what retail investors are willing to pay? Let’s see.