Contact: Brenon Daly
In what’s shaping up to be a bit of a test case for late-stage financings, a rather richly valued Apptio plans to go public. The company, which sells software that helps clients manage their IT spending, has revealed paperwork for an IPO with a placeholder amount of $75m. However, as Apptio makes its way to Wall Street, one of its existing backers on Wall Street has already trimmed the value of the company.
Institutional investor T. Rowe Price led Apptio’s $50m series D round in March 2012. At the end of 2015, the mutual fund had reduced the value of its investment by 24% compared with the previous year, according to the prospectus of the fund that holds Apptio equity. T. Rowe also marked down by a similar amount its holding of Apptio shares from a financing a year later. Fellow mutual fund Janus led the $45 series E in May 2013, Apptio’s last private round. According to Apptio’s prospectus, the company sold shares to Janus and other investors in that round at $22.69 per share.
Of course, valuations rise and fall every day on Wall Street. And startups that have drawn big money from mutual funds only to see their shares get marked down after the purchase often say the downgrades are mere ‘accounting’ moves made by people who don’t really understand Silicon Valley finance. However, in the case of Apptio, some of the discount may be warranted because it is currently growing only half as fast as it was when it raised its big slugs of capital from the so-called crossover investors.
In the first two quarters of 2016, Apptio has increased revenue a solid-but-not-spectacular 22%. That’s the same pace as its full-year 2015, but just half the rate of 2014. At the same time as Apptio’s growth has slowed, losses have mounted. It lost $41m in 2015, up from $33m in 2014. Although losses have eased so far this year, Apptio still very much runs in the red.
Part of the reason for the deep losses is that Apptio’s software is a rather heavy implementation, which can take several months to set up. For its software to be useful, clients need to have an IT budget that runs in the hundreds of millions of dollars, and some customization of the software is typically required. (Roughly 20% of the vendor’s revenue comes from professional services.)
Although Apptio has collected an enviable roster of clients, it counts just 325 total customers. As a point of reference, that’s roughly the same number of customers that Workday had when it went public in 2012. Further, the two companies were roughly the same size, recording about $130m in revenue in the fiscal year leading up to their mid-summer filings. However, at the time of their IPOs, they were on very different trajectories: Workday was doubling revenue, compared with 22% growth for Apptio. Obviously, for growth-focused Wall Street, that is almost certain to result in very different valuations for the companies. Workday hit the market at an astonishing 40x trailing sales, while Apptio would probably count itself fortunate to garner a double-digit valuation.
Enterprise tech IPOs* over the past 12 months
|
*Includes Nasdaq and NYSE listings only