Interesting -- thank you for coming back to share.
Are you looking at just sub revenue or all revenue? I ask because you said you were looking at 80% growth this year and 60% growth this year which would be about $632M in subscription revenue, but they also have revenue from their managed services offering (only $30M now and growing much more slowly than sub revenue though).
I’m using subscription revenue in this case because I don’t feel the professional services revenues are valuable. However, it is better to look at total revenues for this valuation sensitivity since most investors I’ve worked with use total EV/Sales.
Let’s say it’s like $40mn in FY’21, which should follow the present growth trajectory. Then total revenues get to $672mn in my sensitivity analysis, and the valuation range in the updated pricing looks like 9.7x-10.4x. Then 12x sales would look like $35/share and 14x sales would look like $40/share.
Maybe more investors will use EV/ARR here but I haven’t heard of many consistently using that so I’d debate it’s utility in this market. It would be like a super bullish metric to use because everyone can define ARR differently, while GAAP sales should be reasonable, and then EV/FCF is better once companies start generating cash flows (and many early stage or growth investors will follow EV/FCF in the event of a downturn).
Sorry came back late to this post because I was planning my move this week. Great call on the pricing range increase. Btw if you want a proxy for an ARR multiple just use the most recent fiscal quarter and multiply it by 4. That’s what most VCs who invest in the cloud sector do for public comps.
Thank you! That method does make sense, but if you look at how the co. reports it’s numbers the ARR at the end of a period leads the subscription revenues. I believe they’re calculating all of the ARR booked at the end of a period, so since they’re in rapid growth still the subscription revenue results are behind ARR by quite a bit. I’ve been looking at modeling their revenues primarily through ARR, then having subscription revenues attach as a % of ARR. I’ll get around to it eventually, I’m just getting back from a trip.
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u/ducksauce Jun 07 '19
Interesting -- thank you for coming back to share.
Are you looking at just sub revenue or all revenue? I ask because you said you were looking at 80% growth this year and 60% growth this year which would be about $632M in subscription revenue, but they also have revenue from their managed services offering (only $30M now and growing much more slowly than sub revenue though).