2018 tech IPOs have had strong returns. In particular, every enterprise software IPO this year has popped. Pluralsight is up next, though its relative valuation implies less upside than recent tech IPOs.
This year, 8 enterprise software IPOs have offered investors fast growth at attractive valuations. That formula has resulted in very strong initial returns: the average deal has popped 41% on the first day and the average return is 46%. The 6 VC-backed deals each raised the range prior to pricing.
Pluralsight (PS) will be the latest IPO to join this group. Scheduled to begin trading on Thursday, May 17, it priced above the upwardly-revised range at $15.
| 2018 Enterprise Software IPOs Average +46% from IPO |
||||
|---|---|---|---|---|
| Issuer |
Trade Date | LTM Rev (YoY) F. Cash Flow % |
Deal Size IPO Mkt Cap |
1st-Day Pop 05/15 Return |
| Pluralsight (PS) |
05/17/18 | $179m (+30%) -20% |
$311m $2,081m |
TBD |
| Carbon Black (CBLK) |
05/04/18 | $162m (+39%) -9% |
$152m $1,519m |
+26% | +25% |
| Smartsheet (SMAR) |
04/27/18 | $111m (+66%) -18% |
$175m $1,668m |
+30% | +37% |
| DocuSign (DOCU) |
04/27/18 | $519m (+36%) 7% |
$629m $5,460m |
+37% | +57% |
| Ceridian HCM (CDAY) |
04/26/18 | $751m (+7%) -12% |
$462m $3,048m |
+42% | +68% |
| Pivotal Software (PVTL) |
04/20/18 | $509m (+22%) -25% |
$555m $4,278m |
+5% | +28% |
| Zuora (ZUO) |
04/12/18 | $168m (+30%) -18% |
$154m $1,643m |
+43% | +37% |
| Dropbox (DBX) |
03/23/18 | $1,107m (+31%) 23% |
$756m $9,437m |
+36% | +41% |
| Zscaler (ZS) |
03/16/18 | $154m (+57%) -13% |
$192m $2,056m |
+106% | +71% |
Pluralsight is going public with a great technical backdrop
In addition to strong returns from 2018 software IPOs, virtually every stock in its peer group has outperformed during the past 1-month, 3-month, and 1-year periods. Perhaps more convincing, of the 124 tech IPOs that have priced above their initial range during the past decade, the average first-day gain is 47%, and with the exception of the group's smallest IPO, not a single one had a negative first-day return.
Accelerating growth, helped by high S&M spend
Pluralsight's recent shift to enterprise has been well executed. In 2017, it boasted 120% dollar-based retention, and accelerating growth (+43% billings in the MRQ). That growth came at a high cost, as S&M spend doubled in 2017.
Valuation leaves less room for upside than previous tech IPOs
At $15, Pluralsight's valuation is not a slam dunk. Based on our analysis and price targets (available to IPO Intelligence clients), that leaves less upside than recent tech IPOs. Though we note that several have initially traded above the average peer multiple.
Another consideration
Pluralsight's deal size is 16% of its basic market cap, higher than the year's other enterprise software IPOs. Low floats have been known to prop up early trading.
IPO PRO EXCLUSIVE:
The chart below shows the valuations of each of the year's enterprise software IPOs at the time of the offering (blue bar), and today (green bar), based on LTM sales. At $15, Pluralsight is coming at a sales multiple below only two others, and they had higher sales growth. Pluralsight's losses are also greater.
