by Scott Denne
Investors clamored for shares of Elastic in the search software vendor’s public debut on Friday as the market for tech IPOs appears ready to bounce back after a slow summer. After pricing at $36 per share, the company’s valuation nearly doubled when trading opened at $70, giving it a market cap that’s just shy of $5bn and the kind of multiple that shows an unflagging faith in growth on Wall Street.
The developer of open source search software for IT log analysis, security analytics and other applications nearly doubled its top line in its fiscal year (ending April 30) to $160m, up from $88m a year earlier, while increasing the share of subscription revenue in its mix. That trajectory propelled the company to a 26.5x trailing revenue multiple – well beyond the $1bn valuation on its last private round, a $58m series D in mid-2016.
Few other unicorns have galloped onto the street with quite as much glamor. This year has now seen 11 enterprise tech companies enter the public markets with valuations north of $1bn, often at heated multiples, although not quite as high as Elastic’s. Zscaler came to market with a similar 26x multiple (it trades just shy of 24x now) and Smartsheet currently commands north of 20x. Longer is the list of 2018 IPOs that trade above 10x, including DocuSign, Zuora and Tenable.
The latter firm was one of just two enterprise tech providers to go public in the third quarter – a dry spell that followed an unusual burst of activity as 10 such companies debuted in the first two quarters (almost the same number that did so in all of 2017). Judging by Elastic’s offering, the dry spell had little impact on investor appetites, setting up a favorable environment for Anaplan and SolarWinds as both look to price this month.