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As per Wikipedia: >Qualtrics reported revenue of $190.6 million in 2016 and $289.9 million in 2017 representing year over year growth of 52%. In 2016, Qualtric

As per Wikipedia: >Qualtrics reported revenue of $190.6 million in 2016 and $289.9 million in 2017 representing year over year growth of 52%. In 2016, Qualtrics reported an overall net loss of $12 million with free cash flow of $3.4 million. In 2017, Qualtrics reported a $2.6 million net profit with free cash flow of $21.3 million Is it normal for companies to be bought at 30x their revenue or am I missing something obvious (may be the wikipedia stats are off) ? Edit: 2018 revenue according to this article is $400mil. That would mean a 20x.

sigi45 8y ago
I heard that what you have to pay for a company is something like what the company will be able to make in 20-30 years. Not sure if you couldn't build it your own for that kind of money.
- codingdave 8y ago
  3 years was the standard for a long time. It still is the standard outside of tech as far as I have heard. Tech gets different/higher valuations because of the expected hockey-stick growth pattern, which makes future revenue non-linear, so you pay a higher multiple if you have that level of growth. Even so, Qualtrics got a really good exit here.
- Nasrudith 8y ago
  It is a certain thing vs an uncertainty for one - aside from skill set differences you could get something better or you could burn several times it worth trying and failing to compete as a late mover.
giu 8y ago
From the article: > SAP CEO Bill McDermott preempted the IPO with an all-cash offer that was more than 75 percent higher than the company’s projected valuation. McDermott said in a conference call that SAP had to pay up because Qualtrics roadshow was going well.
- option_greek 8y ago
  Usually IPO will offer 10-20% of shares. So even if the price is slightly higher, it reflects the fact that majority of the shares are non floating. In this case 8 billion seems to be upfront cash deal. This actually seems to be a pretty bad deal for SAP.
astura 8y ago
It's explained in the article >Qualtrics had filed for an initial public offering in the U.S. and was planning to raise about $500 million. SAP CEO Bill McDermott preempted the IPO with an all-cash offer that was more than 75 percent higher than the company’s projected valuation. McDermott said in a conference call that SAP had to pay up because Qualtrics roadshow was going well
mattzito 8y ago
So bear in mind: 1) those are 2017 numbers, so if we assume they grew by the same amount, they’re over 400m this year, which makes it only 20x 2) the article mentions that SAP is paying a 75% premium over the IPO valuation, because the road show was going well, they felt like they had to do it. 3) a 10-12x revenue valuation is not unreasonable for publicly traded companies So, they’re growing like crazy, IPO plans going great, Sap comes calling and qualtrics basically says “why should we sell? We did all the annoying IPO work, what are you going to offer us to make this worth our while?” It’s basically the perfect negotiating position.
- throwaway5752 8y ago
  a 10-12x revenue valuation is not unreasonable for publicly traded companies I know a lot of publicly traded "cloud" companies are in fact valued like this. I suspect very strong that this is because analysts thing that they have cracked a business model that is very easy to predict and expand rapidly: very low capex, very low-churn (earnings calls talking about "retention rates", NPSs), and easy to predict even high growth (ARR retention/expansion). I think several early players like SFDC and Splunk have created this impression. P/S > 3-4 had been pretty unusual up until recently. All companies are worth the discounted sum of their future cashflow, whatever that may be. To see P/Ss 10+ you are projecting both serious growth and very high margins. I wonder if one looked at the whole space if the 5 year projected earnings of all the companies together would make sense, or if we're collectively under-discounting risk (ie, sum total of all cloud SaaS companes far exceeding the reasonable TAM) All that being said I think you entirely nailed the chain of events leading up to the acquisition.
PeterisP 8y ago
It's not normal for stable companies to be bought at 20x their stable revenue. However, if the revenue is $190m followed by $290m followed by $400m, then that shows that the expected future revenue (which matters for the valuation) likely is much larger than $400m, so it takes a much smaller, more reasonable multiplier to reach $8B.
mathattack 8y ago
MongoDB has a similar 20x ratio. I won’t argue if this is warranted, but companies like this have: - Very high gross margins once you take out fixed costs. (80+%) This implies massive profitability once you exceed fixed costs. - Negative net churn. (Their existing accounts grow more than they lose) This implies if they got rid of their sales force, they could still grow. - Their payback on sales investments is quick, usually less than a year. This allows them to heavily invest in topline growth. When you do all this, the math works at 10X in a low interest rate environment, or if you project a very long growth period. Perhaps 20X is Fear Of Missing Out? The stock market’s reaction to SAP (Knocking off 5 non in value) suggests that 8-10X is more reasonable.
bradleyjg 8y ago
I'm not very familiar with IPOs or buy-outs, but for going concerns it's usual to look at the price-earnings ratio rather than the price-revenue ratio. Ford, for example, has revenue of $37.67B last quarter but net income of only $991M. With a market cap of $37.31B, that means a price to earnings ratio of 9.5. Microsoft had less revenue, at $30.08B last quarter, but net income of $8.87B. It has a market cap many times that of Ford, at $841.08B both because it has so much higher earnings and because it has a PE ratio of 23.9, which implies that the market things those earnings will grow at a good clip.
thkim 8y ago
Given $8bn valuation, I think Qualtrics is spending heavily on marketing which keeps their net profit low. I think their operating margin is near 50% (being a software company it is possible), which means about $200mm in operating income. If their growth rate is expected to remain at the same level (40%) for the next two years, $8bn valuation can be justified. It's hard to know whether this is the case, but seems likely.
mbesto 8y ago
M&A guy here and disclaimer, former SAP employee. It's not normal, but you have to define what normal is. A few things worth noting (which are all speculative btw): - SAP doesn't have a solid CX platform, but has tried to push this to the market for years because the demand is there - SAP has arguable the strongest foothold in the top 2000 businesses in the world. - SAP once organically grew their ERP products but decided somewhere around the late 2000's that it couldn't innovate any longer but know cloud/SaaS is the future, so their growth has been largely due to acquisition of cloud/SaaS providers. They want to continue to tell the street they're growing subscriptions and this is one way to do it. - SAP sales is top tier (whether you like it or not). If their revenue is $400m they'll easily be able to sell 2x that in short order to their existing client base. This is what M&A guys often call "synergies". If you assume 30% eventual gross margins, then a potential ROI is foreseeable. That all being said, if the market for this type of service isn't there at enterprise scale ($1B/yr revenue), then it's probably overpriced.

sigi45 8y ago

I heard that what you have to pay for a company is something like what the company will be able to make in 20-30 years. Not sure if you couldn't build it your own for that kind of money.

codingdave 8y ago
3 years was the standard for a long time. It still is the standard outside of tech as far as I have heard. Tech gets different/higher valuations because of the expected hockey-stick growth pattern, which makes future revenue non-linear, so you pay a higher multiple if you have that level of growth. Even so, Qualtrics got a really good exit here.
Nasrudith 8y ago
It is a certain thing vs an uncertainty for one - aside from skill set differences you could get something better or you could burn several times it worth trying and failing to compete as a late mover.

giu 8y ago

From the article: > SAP CEO Bill McDermott preempted the IPO with an all-cash offer that was more than 75 percent higher than the company’s projected valuation. McDermott said in a conference call that SAP had to pay up because Qualtrics roadshow was going well.

option_greek 8y ago
Usually IPO will offer 10-20% of shares. So even if the price is slightly higher, it reflects the fact that majority of the shares are non floating. In this case 8 billion seems to be upfront cash deal. This actually seems to be a pretty bad deal for SAP.

astura 8y ago

It's explained in the article >Qualtrics had filed for an initial public offering in the U.S. and was planning to raise about $500 million. SAP CEO Bill McDermott preempted the IPO with an all-cash offer that was more than 75 percent higher than the company’s projected valuation. McDermott said in a conference call that SAP had to pay up because Qualtrics roadshow was going well

mattzito 8y ago

So bear in mind: 1) those are 2017 numbers, so if we assume they grew by the same amount, they’re over 400m this year, which makes it only 20x 2) the article mentions that SAP is paying a 75% premium over the IPO valuation, because the road show was going well, they felt like they had to do it. 3) a 10-12x revenue valuation is not unreasonable for publicly traded companies So, they’re growing like crazy, IPO plans going great, Sap comes calling and qualtrics basically says “why should we sell? We did all the annoying IPO work, what are you going to offer us to make this worth our while?” It’s basically the perfect negotiating position.

throwaway5752 8y ago
a 10-12x revenue valuation is not unreasonable for publicly traded companies I know a lot of publicly traded "cloud" companies are in fact valued like this. I suspect very strong that this is because analysts thing that they have cracked a business model that is very easy to predict and expand rapidly: very low capex, very low-churn (earnings calls talking about "retention rates", NPSs), and easy to predict even high growth (ARR retention/expansion). I think several early players like SFDC and Splunk have created this impression. P/S > 3-4 had been pretty unusual up until recently. All companies are worth the discounted sum of their future cashflow, whatever that may be. To see P/Ss 10+ you are projecting both serious growth and very high margins. I wonder if one looked at the whole space if the 5 year projected earnings of all the companies together would make sense, or if we're collectively under-discounting risk (ie, sum total of all cloud SaaS companes far exceeding the reasonable TAM) All that being said I think you entirely nailed the chain of events leading up to the acquisition.

PeterisP 8y ago

It's not normal for stable companies to be bought at 20x their stable revenue. However, if the revenue is $190m followed by $290m followed by $400m, then that shows that the expected future revenue (which matters for the valuation) likely is much larger than $400m, so it takes a much smaller, more reasonable multiplier to reach $8B.

mathattack 8y ago

MongoDB has a similar 20x ratio. I won’t argue if this is warranted, but companies like this have: - Very high gross margins once you take out fixed costs. (80+%) This implies massive profitability once you exceed fixed costs. - Negative net churn. (Their existing accounts grow more than they lose) This implies if they got rid of their sales force, they could still grow. - Their payback on sales investments is quick, usually less than a year. This allows them to heavily invest in topline growth. When you do all this, the math works at 10X in a low interest rate environment, or if you project a very long growth period. Perhaps 20X is Fear Of Missing Out? The stock market’s reaction to SAP (Knocking off 5 non in value) suggests that 8-10X is more reasonable.

bradleyjg 8y ago

I'm not very familiar with IPOs or buy-outs, but for going concerns it's usual to look at the price-earnings ratio rather than the price-revenue ratio. Ford, for example, has revenue of $37.67B last quarter but net income of only $991M. With a market cap of $37.31B, that means a price to earnings ratio of 9.5. Microsoft had less revenue, at $30.08B last quarter, but net income of $8.87B. It has a market cap many times that of Ford, at $841.08B both because it has so much higher earnings and because it has a PE ratio of 23.9, which implies that the market things those earnings will grow at a good clip.

thkim 8y ago

Given $8bn valuation, I think Qualtrics is spending heavily on marketing which keeps their net profit low. I think their operating margin is near 50% (being a software company it is possible), which means about $200mm in operating income. If their growth rate is expected to remain at the same level (40%) for the next two years, $8bn valuation can be justified. It's hard to know whether this is the case, but seems likely.

mbesto 8y ago

M&A guy here and disclaimer, former SAP employee. It's not normal, but you have to define what normal is. A few things worth noting (which are all speculative btw): - SAP doesn't have a solid CX platform, but has tried to push this to the market for years because the demand is there - SAP has arguable the strongest foothold in the top 2000 businesses in the world. - SAP once organically grew their ERP products but decided somewhere around the late 2000's that it couldn't innovate any longer but know cloud/SaaS is the future, so their growth has been largely due to acquisition of cloud/SaaS providers. They want to continue to tell the street they're growing subscriptions and this is one way to do it. - SAP sales is top tier (whether you like it or not). If their revenue is $400m they'll easily be able to sell 2x that in short order to their existing client base. This is what M&A guys often call "synergies". If you assume 30% eventual gross margins, then a potential ROI is foreseeable. That all being said, if the market for this type of service isn't there at enterprise scale ($1B/yr revenue), then it's probably overpriced.