Well-positioned cloud analytics unicorn Anaplan readies for IPO

By Rohit Kulkarni, SharesPost

Anaplan, an enterprise software maker focused on cloud-based planning tools, said it will go public on Nasdaq under the aptly named ticker symbol PLAN. Privately valued at $1.41 billion, the San Francisco unicorn counts Granite Ventures, Salesforce Ventures and Baillie Gifford as its investors.

Thanks to healthy fundamentals, Anaplan is well positioned to join the growing list of software unicorns that recently went public with strong IPOs.

Valuation Grinding Higher On IPO

The company distinguishes itself from competitors by having built its cloud architecture from scratch instead of stacking its code on existing platforms, like Oracle. The technology, called Hyberblock, can collect, organize and analyze disparate sets of data, such as sales, operations, human resources and finance, from across a company.

In fiscal 2018, Anaplan exceeded $168 million in revenue, a 40 percent jump from the previous year, with subscriptions accounting for over 85 percent of the firm’s revenue. Fiscal 2017 saw 68.5 percent growth over the previous year to $120.5 million.

From a valuation standpoint, we expect the company to increase revenue at growth rates exceeding 30 percent. In other words, the company’s 2019 revenues could surpass $225 million. If we apply a healthy 10x EV/Revenue multiple on estimated 2019 revenue, the company’s valuation at its IPO could very well exceed $2.25 billion, or more than 50 percent above its private market valuation.

The Upside Scenario

Across the enterprise. We believe a truly enterprise-wide product offers strong value to subscribers. The Anaplan platform helps companies make decisions on far-reaching tasks, ranging from human resources to sales and marketing.

Strong user growth. Given the wide use cases for Anaplan’s solution, the company will quickly attract more users. From Q1 2016 to Q3 2018, Anaplan more than doubled its customer base from 434 to 979 users, a 125.5 percent increase in just 31 months. Nucleus Research sees another potential 72 million workers who can benefit from the Anaplan platform. We feel comfortable predicting a significant increase in Anaplan’s valuation come IPO.

Market set to grow. Not only is Anaplan growing at a robust rate, but the market it serves is growing, too. The company estimates its addressable market will increase 23.5 percent to $21 billion in 2021, from $17 billion this year.

The Downside Risk

Competition intense and growing. Anaplan faces competitive risks from several players, such as Tableau, Adaptive Insights and several other analytics and workflow-management software companies. These formidable competitors are in addition to in-house solutions and custom consulting services. Further competition has come from the large tech companies, such as SAP, IBM and Oracle, all of which have the ability to cross-sell or upsell related solutions to their existing customers. In our view, the competition will only get tougher.

Will sales effort pay off? Over the last 3 years, Anaplan has nearly doubled its investment in sales and marketing to $100.65 million from $55.3 million. The company has already spent nearly $78 million in the first six months of this year. Despite Anaplan’s strong revenue growth, investors should note the company recognizes revenue over the course of the subscription. That means the expenditure increase may not reward shareholders with future revenue gains.

Corporate culture clash. Throughout its prospectus, Anaplan emphasizes its software creates a more decentralized way of making enterprise-wide decisions. However, this approach may run counter to how large organizations conduct their business. Top down. If Anaplan cannot convince larger potential accounts it can mesh the software with a customers’ business model and culture, the company faces big problems.

International dependency. Anaplan is not immune from global trade conflicts. The company said 43 percent of its revenue in the first six months of this year came from customers outside of the United States. Anaplan is also vulnerable to the swings in emerging market currencies we’ve witnessed this past year. Over 30 percent of Anaplan’s revenue relies on foreign currencies, a problem made worse by the company’s decision not to hedge positions in the FX markets.

Rohit Kulkarni is a managing director and head of research at SharesPost Inc.