Software valuations are bonkers, which means it’s a great time to go public. Asana, Monday.com, Wrike and every other gosh darn software company that is putting it off, pay attention. Heck, even service-y Palantir could excel in this market.
Let me explain.
Over the past few weeks, TechCrunch has tracked the filing, first pricing, rejiggered pricing range, and, today, the first day of trading for BigCommerce, a Texas-based e-commerce company. You can think of it as a comp with Shopify to a degree.
In the wake of the Canadian phenom’s blockbuster earnings report, BigCommerce boosted its IPO range. Yesterday the company did itself one better, pricing $1 per share above that raised range, selling 9,019,565 shares at $24 per share, of which 6,850,000 came from BigCommerce itself.
Before some additions, there are now 65,843,546 shares of BigCommerce in the world, giving the company an IPO valuation of around $1.58 billion.
Given that the company’s Q2 expected revenue range is “between $35.5 million and $35.8 million,” the company sported a run-rate multiple of 11.1x to 11x, depending on where its final revenue tally comes in. That felt somewhat reasonable, if perhaps a smidgen light.
Then the company opened at $68 per share today, currently trading for $82 per share. Hello, 1999 and other insane times. BigCommerce is now worth, using some rough math, around $5.4 billion, giving it a run-rate multiple of around 38x, using the midpoint of its Q2 revenue range.
That is a hefty multiple for a company that expects to grow between 30% and 31% on a year-over-year basis in the second quarter of 2020. Shopify is worth around twice what BigCommerce per-dollar of revenue that each has, with a price/sales multiple of around 61x (per YCharts).1
But Shopify grew 97% in its more recent quarter, more than three times as fast as BigCommerce, and it’s about 20x as big. So: It’s far larger and growing far quicker, yet investors appear to be valuing BigCommerce as if it is far closer in terms of performance to its larger rival.
What?
Look, I don’t care one way or the other about how any particular company prices. But what is super-obvious from this moment in time is that if you are a software company, you have some growth about you, and you can point — even generally! — at an outperforming public comp, investors want your shares. Badly.
Bear in mind that the Bessemer Cloud Index enterprise value multiple is around 18.4x for public cloud and SaaS companies today. And that is predicated in mean results like growth of 35.8% and gross margins under 72%.
This is a surprisingly golden moment for software IPOs, just check out nCino, which went public in mid-July and has more than doubled since! Gone are the days of trading for 5x ARR. BigCommerce is worth nearly 40x its run-rate! That’s crazy for a company that doesn’t even have market-leading growth or gross margins.
The pool is warm and the drinks are cold, so why aren’t we seeing more software companies jump in?
1We are apples:oranges a bit with trailing P/S metrics stacked against run-rate multiples, but as we’re doing directional math it’s fine. Don’t worry so much!
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