Speculation around the Qualtrics public offering is nothing new. All the way back in 2016, CEO Ryan Smith was dropping not-so-subtle hints about his intentions to file for IPO. After a decade bootstrapping, and growing to $50 million in annual revenue, the company was swayed into taking outside capital from Sequoia, and then again from Sequoia, Accel, and Insight Venture Partners.
TechCrunch has written about the entire journey, and considering the unusual circumstances of the public offering paired with Qualtrics' position outperforming its peer group, we thought it smart to take a look back at how the whole thing came together.
After years of dodging the question, or offering up vague answers, Smith said the following in an interview with TechCrunch back in 2017:
We know that there’s a huge opportunity here and we’re being very thoughtful about it because it’s not about going public. Going public is super easy to do. Just file the S-1 and we’re out,” Smith told [TechCrunch]. “It’s about being public and how that works and getting the house in order to make sure that that’s the case. We’re going to be a great public company. We’re going public.
Just a couple days later, literally, Qualtrics raised $180 million at a $2.5 billion valuation, again from Sequoia, Accel, and Insight Venture Partners. At the time, it was the biggest investment Accel had ever made. The growth of the company was staggering — the experience management startup had gone from $50 million in revenue in 2012 to $250 million in revenue in 2017.
TechCrunch and many others speculated that the massive raise may not signal a delayed IPO, but rather a final financial push before listing on the public markets.
Smith was coy about whether that speculation was warranted:
We raised the money because we can. An IPO isn’t an exit. It should be the beginning and we wouldn’t be going out if we didn’t think that more wealth could be created post-IPO.
The company also launched its XM platform in 2017, an experience management platform that Smith implied would one day be as ubiquitous as Workday or Salesforce software in every office, but for managing internal feedback and helping organizations uncover key business drivers, predict future customer needs, and retain employees.
Sequoia Capital partner Bryan Schreier said at the time:
Qualtrics is an outlier. They have delivered outstanding, accelerating growth at nine-digit revenue numbers all while staying cash flow positive. That is practically unheard of. It’s an incredible sign of confidence in Qualtrics’ continued growth trajectory and the huge market for its new XM Platform that all of its investors have come back to buy as many shares as they could at this new valuation.
In October of 2018, Qualtrics filed its S-1, which included third quarter results for the firm. Revenue was more than $100 million (up $8 million from the quarter before) and nearly 75 percent of that was gross profit. It was a strong quarterly performance and the perfect primer for a public offering.
The original plan was to sell 20.5 million shares in its debut for $18 to $21, which would have grossed up to $495 million, putting its valuation between $3.9 billion and $4.5 billion.
And then the unexpected happened.
SAP swooped in with an $8 billion acquisition offer. An offer that Qualtrics did not refuse. Its public offering was delayed (or scrapped, depending on how you look at it) yet again.
The idea was that SAP's operational data combined with Qualtrics' customer and user data would be a devastating blow to the competition and give the duo an unmatched level of power. Think Facebook's acquisition of Instagram. Think Eye of Sauron.
SAP CEO Bill McDermott said at the time:
The legacy players who carried their ‘90s technology into the 21st century just got clobbered. We have made existing participants in the market extinct.
If it wasn't clear, he was talking about competitors like Oracle, Salesforce, Microsoft and IBM.
As part of the acquisition announcement, Qualtrics offered yet another revenue update, saying it expected excess of $400 million in revenue for 2018 and a forward growth rate of more than 40 percent, synergies from the acquisition notwithstanding.
Post-acquisition Qualtrics was a quieter Qualtrics, so we'll skip past 2019 to 2020. Just 20 short months after being acquired, another twist in the plot: SAP announced it would spin out Qualtrics in a new IPO.
Noting the company's cloud growth had been in excess of 40 percent, SAP said the company would continue to be run by founder Ryan Smith and, interestingly, mentioned that Smith intends to be Qualtrics' largest individual shareholder. SAP, of course, would retain majority ownership of the company.
Though the announcement lacked much meat with its potatoes, it implied that Qualtrics could grow even more rapidly if not encircled by SAP's corporate arms.
The spin-out strategy was a rare move for a company like SAP.
As my colleague Danny Crichton wrote at the time:
While private equity firms will take a company private and sometimes quickly turn it around in an IPO, it is rare to see a large company like SAP make such a dramatic last-minute bid for a company only to reverse that decision just months later.
Here at TechCrunch we were excited about the impending IPO. Here was a company that had nearly gone public, now going public again.
And just as the year was coming to a close, Qualtrics dropped its first (second, technically) S-1 filing. After digging through the numbers this was our takeaway from the data:
Qualtrics is growing at over 30%, and after enduring some post-acquisition costs that appear at least partially related to how SAP handled equity compensation, is back to a more acceptable level of losses on a GAAP basis and is doing perfectly fine when we observe its adjusted (non-GAAP) results.
As often happens when a company goes public while having a large corporate owners, Qualtrics' accounting was harder to parse the second time around, but the bones of a nicely growing software company at scale were still there. How investors would value Utah's giant was the next question.
A few weeks later, Qualtrics dropped what would prove to be its first IPO pricing interval, targeting a range of $22 and $26 per share, giving the company a far larger value than it had targeted during its first run at the public markets. Of course, Qualtrics was not only benefiting from its own growth and whatever boost it received from synergies with SAP, but also from frothy SaaS valuations and a frenetic public market.
At that price, with 50 million shares up for grabs, the target raise was north of $1 billion. If that sounds high recall that Qualtrics posted a revenue run rate of around $800 million. The company's growth has kept up as well, with the company's Q4 2020 midpoint revenue expanding more than 23% compared to its Q4 2019 performance.
All said and done, the S-1/A pegged Qualtrics' early 2021 valuation at anywhere from $11.2 billion to $13.3 billion. Alex Wilhelm is much better at breaking down the numbers than me (or anyone, really) so I urge you to take a look at his coverage.
Wilhelm was also astute enough to recognize that the share pricing for Qualtrics' IPO would likely be adjusted higher. And it was!
Yesterday, Qualtrics raised its share price from $22 - $26 to between $27 and $29, putting the valuation range between $13.8 billion to $14.8 billion. Yowzah!
New Qualtrics low-end IPO run rate multiple: 16.2x.
New Qualtrics high-end IPO run rate multiple: 17.4x.
Wilhelm noted that the Qualtrics share price may go up yet again, but also explained that while the multiples in play may feel low, it's tough to be certain:
Those do not seem to be particularly high multiples for Qualtrics, given recent market norms. However, trying to decipher the public market lately has been similar to reading the Rosetta Stone, but written in Wingdings. While on acid. So, you never know what is going to happen when a company starts to trade.
There is one thing we know for sure: Qualtrics has showed growth in revenue and more profitability than most software companies during its entire existence. We've been waiting for this IPO for years now, literally, and while many pieces of the puzzle are uncertain, we'll get our answers soon enough.
Unless of course some giant firm swoops in with a $20 billion acquisition offer. Now wouldn't that be fitting?