Big-data analytics unicorn Databricks is back in the news, disclosing a new revenue figure and its 2021 growth rate. TechCrunch has been tracking the company for years, curious about its growth and what its rising worth said about its market. Today we’re revisiting its last private round measured against its most recent financial data. But to do that, we have to do a little background work first.
When Databricks raised a $1.6 billion round last August of 2021 at a $38 billion post-money valuation, TechCrunch got on the phone with CEO Ali Ghodsi to chat through his company’s latest mega-raise. We had a few questions.
One of mine was how he felt about the inherent pressure that such a huge private-market valuation would seem to engender — after all, startup valuations are estimates until they exit, meaning that higher prices mean greater expectations for future success. Ghodsi wasn’t sweating it.
He said at the time that he didn’t feel much pressure, and that he was sleeping well.
He gave a few reasons for this. First, per our notes from the conversation, was his belief that his company is really building a new category of service. Second, he hadn’t maximized for valuation in the fundraising event, and that in both of his company’s 2021 rounds there was more demand to put capital in than there was room to accept it.
The above is somewhat standard CEO-fare when it comes to startups and unicorns in a hurry. More interesting was his third point, that companies expanding rapidly — he threw out a 75% growth rate as a talking point — can surmount market corrections by growth. In simpler terms, if the market changed its tune about the value of software revenues, so long as Databricks kept growing, things would math out just fine.
Well, the market did change since that conversation, with the value of software revenue being repriced by the public markets starting in late 2021 and continuing into the early-2022 period. And Databricks kept growing.
So we can have a little fun this afternoon, calculating the company’s revenue multiples back in August, and at the end of the year using today’s market data. The experiment will show us how much, if any, ground Databricks has to power through before its private-market valuation can translate on a 1:1 basis to the public markets. I promised myself that I would stop making “when will Databricks go public jokes,” so let’s just get into the math.
Databricks then, Databricks now
To understand the changing value of Databricks, let’s do a little back to the future. So, here’s data culminating in the August, 2021 round:
- Q3 2019: $200 million run rate, $6.2 billion valuation — 31x run-rate multiple
- End of 2020: $425 million ARR, $28 billion valuation — 66x ARR multiple
- August 2021: $600 million ARR, $38 billion valuation — 63x ARR multiple
You can see in the numbers the rising value of software revenues through 2020 and the onset of the COVID-19 pandemic. And Databricks gave back a little when it raised its last round, allowing its multiple to slip modestly to a still-rich figure.
Most recently, the company reported the following metrics, via Bloomberg:
The San Francisco-based company said it ended 2021 with more than $800 million in annual recurring revenue, more than an 80% jump year-over-year. Snowflake had an estimated $530 million in ARR when it went public in 2020. Databricks said it has more than 7,000 customers and a net retention rate — the percentage of recurring revenue from existing customers — of higher than 150%, which is significantly more than the industry average for pre-IPO software vendors.
So $800 million ARR, and greater than 80% growth are the latest from the company.
Notably, that’s faster growth than what Databricks reported at its last fundraise, when it was at a roughly 75% year-over-year growth rate. Accelerating growth at nearly ten-figure ARR is, well, evidence that Ghodsi had some reason to be bullish on his company when it last raised.
Databricks has not been repriced since its last private round, so we can infer that its ARR multiple declined to 47.5x or so by the end of the year, and has continued to decline as, we presume, it kept growing in 2022.
Does that number fit with the new reality of software valuations, or does Databricks have work ahead of it? Let’s find out.
We’ll need to pull some data from market sources. Jamin Ball — a former venture capitalist and present-day partner at Altimeter Capital — details cloud multiples every week in a newsletter. Per the latest issue from last Friday, the value of the top five most richly-valued software companies on the public markets is 38.8x, when measuring next twelve months’ (NTM) revenues compared to enterprise value. Given that Databricks likely has limited to no debt, and its cash position is modest compared to its valuation, we can mostly swap in valuation for enterprise value. Bear in mind that NTM revenues are higher than ARR figures as they incorporate future growth, which means that the Ball figure is a little conservative.
But 38.8x and 47.5x aren’t miles apart even, without qualification. Or more simply, Databricks is growing its way into a multiple that fits with where the most valuable public software companies currently sit. Naturally we’re classifying it at the top of the heap for this comparison, and if you are less bullish on the company you’ll want to caveat our analysis.
Still, Databricks can likely grow into its valuation this year if tech stocks just hold ground. It would have been an easier job for the company if the market had just held steady, but, hey, we’re testing what Ghodsi had to say. And from here it looks just fine.
Even more, the Bessemer cloud index notes that Datadog is growing at around 80% and is worth 41x its current, annualized revenue. That’s ballpark for where Databricks is today, again indicating that the company isn’t valued so richly that it’s going to struggle to stay flat in a debut.
Give the company another two or three quarters, and it should be good to go. Which means, IPO time? Right? Right?