Tableau IPO: Let The Gold Rush Begin For Enterprise Software IPOs!

The year 2013 is going to be the year of enterprise software IPOs.  That is not a prediction but well discussed point in Silicon Valley.  Everybody believes that there is a pent-up demand from return hungry investors for the enterprise software IPOs.  Consumer software IPOs have failed to live up to their promise in the last couple of years but the enterprise software IPOs have continued to deliver (examples: WDAY, NOW, SPLK), case-in-point.   

In the last couple of days, two of my favorite companies, Marketo and Tableau have announced plans to go public.  Here are the links to Marketo's S1 and Tableau's S1.  I have had the good fortune to study, evaluate and follow both companies since 2010.  Both the companies have done very well in their respective segments, SaaS marketing automation and on-premise self-serve BI.  They have both exceeded expectations on all fronts (employees, customers, analyst  markets, competitors) after a long hard slog.  

To all my friends, colleagues, investors and readers of this blog, enterprise software is a hard slog, you are in it for a long-haul.  Tableau is a 10-year old company and Marketo is 7 years old (Source:  SEC Filings).

Valuation

Since Tableau ("DATA") has announced its plan to go IPO this year, I decided to put the striped-down version of my due-diligence, performed in early 2011, on my slide-share account.  Back then, I used relative valuation using QlikView ("QLIK") as a close proxy to put a number on Tableau.  I used PE (earnings multiple) and PS (revenue multiple) of QLIK and assessed a market value of $380million based on Tableau's 2010 revenues of $40 million (from their press release in 2011, this number has been revised down to $34million in S1, huh, strange!)

Now, if one were to use QLIK's current revenue multiple of 5.5 (Source: Yahoo Finance), Tableau could be valued between $700million (based on trailing revenue of $128million) and 1.4billion (based on  $256million in expected revenue for 2013 assuming that they grow their revenue YET AGAIN by 100% in 2013.)

I personally don't think that the street should use QLIK as a proxy instead apply Splunk's ("SPLK") lens to value Tableau.  So using SPLK's multiple of ~19.7 (Source: Yahoo Finance), Tableau will be valued at $2.5billion based on their 2012 revenues.  ServiceNow ("NOW") also has a PS multiple of ~19. 

I have strong reasons to believe that street will be valuing Tableau in this range based on a great growth story till this point and amazing opportunities ahead as we are just starting to drill the BigData mountain.  I will not be surprised to see the valuation range from $2.5billion to $5billion. Amazing!

Tableau's S1

I studied Tableau's S1 filing briefly looking for information on valuation and offering on number of shares.  Not much is disclosed there just yet.  It will likely be disclosed in the subsequent filings as they hit the roadshow to assess the demand from the institutional investors.  Just like Workday, Tableau will also have dual class shares (Class A and Class B) with different voting rights.  The Class A will be offered to investors by converting the Class B shares. 

The last internal valuation of employee options priced the stock at ~$15.  To raise $150million, Tableau will at least be putting 10 million shares of Class A on the block.  Now of course, this will change as the demand starts to build up following their road-show.  One thing is certain that the stock will be definitely priced above $15.  Now, how many points above $15, we will find out in the next few months.  

Let the mad rush begin!!!

Besides Facebook's Botched IPO, IPO Market Returns 20% in 2012

Facebook (Ticker: FB) is down ~47% since its IPO in May.  Now, it is not the most botched IPO ever unfortunately as the infamous record belongs to BATS Exchange (Ticker: BATS) which operates an alternate stock exchange to NYSE and NASDAQ.  (Read the Business Insider story here: 8 Unforgettable IPO Disasters)

Also, FB is not the worst performing IPO either.  Groupon (Ticker: GRPN) and Zynga (Ticker: ZNGA, proudly led by Mark Pincus), are down 77% and 74% respectively since their IPO.  In comparison, FB has done ok, it could be worst but a rapid strategy shift by FB including the emphasis on mobile and a decision to allow e-commerce transactions (Facebook Gifts) on Facebook have provided some kind of a floor under its stock.  Here is a chart comparing the three (not-so) darlings of the Web 2.0.

Anyhow, below is a table of the best IPOs for this year.  Guidewire (Ticker: GWRE) and Demandware (Ticker: DWRE) are the two cloud technology companies in the list that have done very well returning 137% and 108% till date.

IPO Top Performers (YTD)

Company		Offer Date	Under	Industry	Deal Size (mm)	Offer Price	First Day Close	Closing Price	First Day Return	Total Return
Supernus Pharmac		4/30/12	Citi	Health Care	$50	$5.00	$5.37	$12.77	7.4 %	155.4 %
Nationstar Mortg		3/7/12	Merrill	Financial	$233	$14.00	$14.20	$33.29	1.4 %	137.8 %
Guidewire Softwa		1/24/12	JPM	Technology	$115	$13.00	$17.12	$30.84	31.7 %	137.2 %
Annies		3/27/12	CS	Consumer	$95	$19.00	$35.92	$44.87	89.1 %	136.2 %
Demandware		3/14/12	GS	Technology	$88	$16.00	$23.59	$33.31	47.4 %	108.2 %

Palo Alto Network (Ticker: PANW) is up 16% since IPO with returns of 48% over its IPO price of $42.  Splunk (Ticker: SPLK) is down about 10% since IPO but still giving returns of 90% over its IPO price of $17.  Both these companies didn't make the cut in the table above.

Here is a list of the worst performing IPOs till date.  If one were to change the time period from YTD to 12-months, Zynga shows up in the list, no surprise there.  Social gaming is a fast changing environment and ZNGA faces crisis in confidence with so many departures.

IPO Worst Performers (YTD)

Company		Offer Date	Under	Industry	Deal Size (mm)	Offer Price	First Day Close	Closing Price	First Day Return	Total Return
Envivio		4/24/12	GS	Technology	$70	$9.00	$8.49	$2.15	-5.7 %	-76.1 %
Audience		5/9/12	JPM	Technology	$90	$17.00	$19.10	$5.65	12.4 %	-66.8 %
CafePress		3/28/12	JPM	Technology	$86	$19.00	$19.03	$8.07	0.2 %	-57.5 %
Ceres		2/21/12	GS	Materials	$65	$13.00	$14.80	$5.77	13.8 %	-55.6 %
Renewable		1/18/12	UBS	Energy	$72	$10.00	$10.10	$5.16	1.0 %	-48.4 %

Take a closer look, FB is barely staying away from this infamous list.  On a similar note, LinkedIn (Ticker: LNKD) is up approximately 80% till date.  What a contrasting tale of the two social network companies!

So far in 2012, IPOs have resulted in 20% returns which is better than the -11% returns IPO market yielded in 2011.  Since there are about 2.5 months more to go before the curtains drop on 2012, the 2012 IPO return might beat the 25% returns the year 2010 produced.

One very encouraging signs for the IPO investors this year has been the 13% average first day pop in IPOs that is line with what IPO market observed before the great recession (~13%).  And to all the naysayers out there who claim that tech-stocks are in a bubble, take a look at the average opening day pop in 1999 (72%) and 2000 (56%) and compare it to 2012, you will hold your peace for few more years at least!






Workday (Ticker: WDAY) is on the deck for this week.  Do you due-diligence before investing.

Happy IPO Investing!
Jitender

Source: Renaissance Capital, Greenwich, CT (www.renaissancecapital.com).