In fact, only four top performers were profitable at time of IPO. Lastly, at the time of IPO the majority of software companies are not profitable. Operational efficiency ranges widely across recent IPOs, but top performers typically also have a higher OpEx spend than peers, with total operating spend as a percentage of revenue ranging from 53% to 194%. While software companies see a median growth rate of ~40% YoY prior to IPO, these top performers saw a median growth rate of ~73% with certain companies seeing as high as 138% YoY growth in the last twelve months prior to IPO. Looking at what differentiates top software performers from their peers, we find that they are not always larger than their peers at time of IPO, but they typically have stronger growth in the years leading up to IPO and are also able to maintain healthy growth trajectories post IPO. This was perhaps driven by volatile markets and the rising importance of business predictability to investors. When refreshing our analysis this year, one of the most interesting findings was that while revenue growth remained the leading indicator of IPO performance, profitability did become slightly more correlated to IPO performance. (In this case, we looked at forward multiple at time of IPO.) However, revenue growth and net retention have historically been most closely correlated to IPO performance. However, we believe our approach is a somewhat holistic and objective way to assess a company’s performance beyond the traditional method of looking at a company’s first day “pop.”Įxamining the top quartile companies across each of these metrics, a group of 21 companies rose to the top in this year’s analysis.Ī variety of factors spanning scale, growth, retention, and profitability will drive initial IPO performance. Methodologies for assessing IPO success have historically varied. Indication of value creation: The ratio of the change in stock price (from Day 1 close to 1/31/22) divided by the percent change in S&P over the same time period. Indication of success post-IPO: The current forward revenue multiple (as of 1/31/22). Indication of success at IPO: A company’s forward revenue multiple (EV / NTM Revenue) at IPO. So what does a “best in class” software IPO look like? Our annual study dives into the detailed profile of both average and top performing software IPOs by analyzing the business performance of SaaS companies that went public between 2013 and year-end 2021 as reported in their 424B4s.Īs outlined in our first post on IPO performance, we use three distinct metrics to measure an IPO’s “success”:
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