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A first look at Qualtrics’ IPO pricing
Earlier today, Qualtrics dropped a new S-1 filing, this time detailing its proposed IPO pricing. That means we can now get a good look at how much the company may be worth when it goes public later this month.
The debut has been one TechCrunch has been looking forward to since the company announced that it would be spun out from its erstwhile corporate parent, SAP. In 2019, the Germany-based enterprise giant SAP snatched up Qualtrics for $8 billion just before it was to go public.
Qualtrics is either worth less than we would have guessed, or its first IPO range feels light.
That figure provides a good marker for how well SAP has done with the deal and how much value Qualtrics has generated in the intervening years. Keep in mind, however, that the value of software companies has risen greatly in the last few years, so the numbers we’ll see below benefit from a market-wide repricing of recurring revenue.
Qualtrics estimates that it may be worth $22 to $26 per share when it goes public. Is that a lot? Let’s find out.
Qualtrics’ first IPO range
First, scale. Qualtrics is selling just under 50 million shares in its public offering. As you can math out, at more than $20 per share, the company is looking to raise north of $1 billion.
After going public, Qualtrics anticipates having 510,170,610 shares outstanding, inclusive of its 7.4 million underwriter option. Using that simple share count, Qualtrics would be worth $11.2 billion to $13.3 billion.
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SAP latest enterprise software giant to offer low-code workflow
Low-code workflow has become all the rage among enterprise tech giants and SAP joined the group of companies offering simplified workflow creation today when it announced SAP Cloud Platform Workflow Management, but it didn’t stop there.
It also announced SAP Ruum, a new departmental workflow tool and SAP Intelligent Robotic Process Automation, its entry into the RPA space. The company made the announcements at SAP TechEd, its annual educational conference that has gone virtual this year due to the pandemic.
Let’s start with the Cloud Platform Workflow Management tool. It enables people with little or no coding skills to build operational workflows. It includes predefined workflows like employee onboarding and can be used in combination with Qualtrics, the company it bought for $8 billion 2018, to include experience data.
As SAP CTO Juergen Mueller told me, the company sees these types of activities in a much larger context. In the hiring example, that means it’s more than simply the act of being hired and getting started. “We like to think in end-to-end processes, and the one fitting into the employee onboarding would be recruit to retire. So it would start at talent acquisition,” he said.
Hiring and employee onboarding is the first part of the larger process, but there are other workflows that develop out of that throughout the employee’s time at the company. “Basically this is a collection of different workflow steps that are happening with some in parallel, some in sequence,” he said.
If there are experience questions involved like which benefits you want, you could add Qualtrics questionnaires to that part of the workflow. It’s designed to be very flexible. As with all of these kinds of tools, you can drag and drop components and do some basic configuration and you’re good to go. In reality, the more complex these become, the more expertise would be required, but this type of tool is designed with non-technical end users in mind as a starting point.
SAP Ruum is a simplified version of Cloud Platform Workflow Management designed for building departmental processes, and if there is an automation element involved where you want to let the machine take care of some mundane, repeatable tasks, then the RPA solution comes into play. The latter tends to be more complex and require more IT involvement, but it enables companies to build automation into workflows where the machine pushes data along through the workflow and does at least some of the work for you.
The company joins Salesforce, which announced Einstein Workflow Automation last week at Dreamforce and Google Workflows, the tool the company introduced in August. There are many others out there from companies large and small including Okta, Slack and Airtable, which all have no-code workflow tools built in.
The SAP TechEd conference has been going on for 24 years, and usually takes place in three separate venues — Barcelona, Las Vegas and Bangalore — throughout the year. This year, the company is running a single-combined virtual conference for free to all comers. It runs for 48 hours straight starting today with a worldwide audience of over 60,000 sign-ups as of yesterday.
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Alibaba passes IBM in cloud infrastructure market with over $2B in revenue
When Alibaba entered the cloud infrastructure market in earnest in 2015 it had ambitious goals, and it has been growing steadily. Today, the Chinese e-commerce giant announced quarterly cloud revenue of $2.194 billion. With that number, it has passed IBM’s $1.65 billion revenue result (according to Synergy Research market share numbers), a significant milestone.
But while $2 billion is a large figure, it’s one worth keeping in perspective. For example, Amazon announced $11.6 billion in cloud infrastructure revenue for its most recent quarter, while Microsoft’s Azure came in second place with $5.9 billion.
Google Cloud has held onto third place, as it has for as long as we’ve been covering the cloud infrastructure market. In its most recent numbers, Synergy pegged Google at 9% market share, or approximately $2.9 billion in revenue.
While Alibaba is still a fair bit behind Google, today’s numbers puts the company firmly in fourth place now, well ahead of IBM . It’s doubtful it could catch Google anytime soon, especially as the company has become more focused under CEO Thomas Kurian, but it is still fairly remarkable that it managed to pass IBM, a stalwart of enterprise computing for decades, as a relative newcomer to the space.
The 60% growth represented a slight increase from the previous quarter’s 59%, but basically means it held steady, something that’s not easy to do as a company reaches a certain revenue plateau. In its earnings call today, Daniel Zhang, chairman and CEO at Alibaba Group, said that in China, which remains the company’s primary market, digital transformation driven by the pandemic was a primary factor in keeping growth steady.
“Cloud is a fast-growing business. If you look at our revenue breakdown, obviously, cloud is enjoying a very, very fast growth. And what we see is that all the industries are in the process of digital transformation. And moving to the cloud is a very important step for the industries,” Zhang said in the call.
He believes eventually that most business will be done in the cloud, and the growth could continue for the medium term, as there are still many companies that haven’t made the switch yet, but will do so over time.
John Dinsdale, an analyst at Synergy Research, says that while China remains its primary market, the company does have a presence outside the country too, and can afford to play the long game in terms of the current geopolitical situation with trade tensions between the U.S. and China.
“Alibaba has already made some strides outside of China and Hong Kong. While the scale is rather small compared with its Chinese operations, Alibaba has established a data center and cloud presence in a range of countries, including six more APAC countries, U.S., U.K. and UAE. Among these, it is the market leader in both Indonesia and Malaysia,” Dinsdale told TechCrunch.
In its most recent data released a couple of weeks ago, prior to today’s numbers, Synergy broke down the market this way: “Amazon 33%, Microsoft 18%, Google 9%, Alibaba 5%, IBM 5%, Salesforce 3%, Tencent 2%, Oracle 2%, NTT 1%, SAP 1% – to the nearest percentage point.”
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Qualtrics CEO Ryan Smith is buying majority stake in the Utah Jazz for $1.6B
The Utah Jazz, an NBA basketball team based in Salt Lake City, announced today that Qualtrics CEO and co-founder Ryan Smith was buying a majority stake in the team, along with other properties. ESPN is reporting the deal is worth $1.6 billion.
Smith can afford it. He sold Qualtrics, which is based in Provo, Utah, in 2018 to SAP for $8 billion just before the startup was about to go public. Earlier this year, SAP announced plans to spin out Qualtrics as a public company.
In addition to The Jazz, he’s also getting Vivint Smart Home Arena, the National Basketball Association (NBA) G League team Salt Lake City Stars and management of the Triple-A baseball affiliate Salt Lake Bees. Smith is buying the properties from the Miller family, who have run them for more than three decades.
Smith was over the moon about being able to buy into a franchise he has supported over the years. “My wife and I are absolutely humbled and excited about the opportunity to take the team forward far into the future – especially with the greatest fans in the NBA. The Utah Jazz, the state of Utah, and its capital city are the beneficiaries of the Millers’ tremendous love, generosity and investment. We look forward to building upon their lifelong work,” he said in a statement.
The deal is pending approval of the NBA Board of Governors, but once that happens, Smith will have full decision-making authority over the franchise.
Qualtrics, which makes customer survey tools, was founded in 2002 and raised more than $400 million from firms like Accel, Insight Partners and Sequoia before selling the company two years ago to SAP.
Smith is not the first tech billionaire to buy a basketball team. He joins Mark Cuban, who bought the Dallas Mavericks in 1999 after selling Broadcast.com to Yahoo for $5.7 billion that same year, and former Microsoft CEO Steve Ballmer, who bought the Los Angeles Clippers in 2014 for $2 billion.
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SAP shares fall sharply after COVID-19 cuts revenue, profit forecast at software giant
SAP announced its Q3 earnings yesterday, with its aggregate results down across the board. And after missing earnings expectations, the company also revised its 2021 outlook down. The combined bad news spooked investors, crashing its shares by more than 20% in pre-market trading, and the stock wasn’t showing any signs of improving in early trading.
The German software giant has lost tens of billions of dollars in market cap as a result.
The overall report was gloomy, with total revenues falling 4% to €6.54 billion, cloud and software revenue down 2% and operating profit down 12%. The only bright spot was its pure-cloud category, which grew 11%, to €1.98 billion.
SAP’s revenue result was around €310 million under expectations, though its per-share profit beat both adjusted and non-adjusted expectations.
While SAP’s big revenue miss might have been enough to send investors racing for the exits, its revised forecast doubled concerns. Even though the company said that its customers are accelerating their move to the cloud during the pandemic — something that TechCrunch has been tracking for some time now — SAP also said the pandemic is slowing sales and large projects.
Constellation Research analyst Holger Mueller says this is resulting in an unexpected revenue slow-down.
“What has happened at SAP is a cloud revenue delay as customers know that SAP is only investing into cloud products, and they have to migrate to those in the future. The news is that SAP customers are not migrating to the cloud during a pandemic,” Mueller told TechCrunch.
In a sign of the times, SAP spent a portion of its earnings results talking about 2025 results, a maneuver that failed to allay investor concerns that the pandemic was dramatically impacting SAP’s business today and in the coming year.
For 2020, SAP made the following cuts to its forecasts:
- €8.0 – 8.2 billion non-IFRS cloud revenue at constant currencies (previously €8.3 – 8.7 billion)
- €23.1 – 23.6 billion non-IFRS cloud and software revenue at constant currencies (previously €23.4 – 24.0 billion)
- €27.2 – 27.8 billion non-IFRS total revenue at constant currencies (previously €27.8 – 28.5 billion)
- €8.1 – 8.5 billion non-IFRS operating profit at constant currencies (previously €8.1 – 8.7 billion)
So, €300 million to €500 million in cloud revenue is now gone, along with €300 million to €400 million in cloud and software revenue, and €600 to €700 million in total revenue. That cut profit expectations by up to €200 million.
The company, however, is trying to put a happy face on the future projections, believing that as the impact of COVID begins to diminish, existing customers will eventually shift to the cloud and that will drive significant new revenues over the longer term. The trade-off is short-term pain for the next year or two.
“Over the next two years, we expect to see muted growth of revenue accompanied by a flat to slightly lower operating profit. After 2022 momentum will pick up considerably though. Initial headwinds of the accelerated cloud transition will start to turn into tailwinds for revenue and profit. […] That translates to accelerated revenue growth and double digit operating profit growth from 2023 onwards,” SAP CFO Luka Mucic said in a call with analysts this morning.
The question now becomes can they meet these projections, and if the longer-term approach during a pandemic will placate investors. As of this morning, they weren’t looking happy about it.
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Equity Monday: SAP’s warning, and IPO updates for both Airbnb and Databricks
Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast where we unpack the numbers behind the headlines.
This is Equity Monday, our weekly kickoff that tracks the latest big news, chats about the coming week, digs into some recent funding rounds and mulls over a larger theme or narrative from the private markets. You can follow the show on Twitter here and myself here — and don’t forget to check out last Friday’s episode that includes some high-quality Quibi jokes, if I recall correctly.
This was a busy morning, with lots to talk about it. Here’s what we got into:
- Headlines this morning that caught our eye included falling global stock markets in the wake of rising COVID-19 cases; SAP torched tens of billions of market cap by missing earnings expectations and cutting its forecast; and Ant Group will raise a bajillion dollars in its impending IPO.
- In unicorn news, Databricks is prepping an IPO that we already know a lot about. And Airbnb’s shares are splitting ahead of its own IPO, a deal that we are expecting any day now.
- The PrimaryBid round was super cool, with TechCrunch covering the $50 million deal. I spoke with the company’s CEO last week about the deal, sharing some of those notes on the show. And VSPN raised nearly $100 million in an esports round that was more than cool.
- On the SAP front, here’s the question: Is the earnings miss and forecast miss a one-off, or something that a number of tech companies are going to suffer from? If the former, it’s not that big of a deal. If the latter, SAP could be the harbinger of a reset in tech valuations.
Shout-out to Lewis Hamilton and that G2 series. OK, chat Thursday!
Equity drops every Monday at 7:00 a.m. PT and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.
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SAP continues to build out customer experience business with Emarsys acquisition
SAP seemed to be all in on customer experience when it acquired Qualtrics for $8 billion in 2018. It continued on that journey today when it announced it was acquiring Austrian cloud marketing company Emarsys for an undisclosed amount of money.
Emarsys, which raised over $55 million according to PitchBook data, gives SAP customer personalization technology. If you spoke to any marketing automation vendor over the last several years, the focus has been on using a variety of data and touch points to understand the customer better, and deliver more meaningful online experiences.
With the pandemic closing or limiting access to brick and mortar stores, personalization has taken a new urgency as customers are increasingly shopping online and companies need to meet them where they are.
With Emarsys, the company is getting an omnichannel marketing solution that they say is designed to deliver messages to customers wherever they are, including e-mail, mobile, social, SMS and the web, and deliver that at scale.
When SAP announced it was spinning out Qualtrics a couple of months ago, just 20 months after buying it, it left some question about whether SAP was fully committed to the customer experience business.
Brent Leary, founder and principal analyst at CRM Essentials, says that the acquisition shows that SAP is still very much in the game. “This illustrates that SAP is serious about CX and competing in a highly competitive space. Emarsys adds industry-specific customer engagement capabilities that should help SAP CX customers accelerate their efforts to provide their customers with the experiences they expect as their needs change over time,” Leary told TechCrunch.
As an ERP company at its core, SAP has traditionally focused on back-office kinds of operations. But Bob Stutz, president, SAP Customer Experience, sees this acquisition as a way to continue bringing back-office and front-office operations together.
“With Emarsys technology, SAP Customer Experience solutions can link commerce signals with the back office and activate the preferred channel of the customer with a relevant and consistently personalized message, allowing customers the freedom to choose their own engagement,” Stutz said in a statement.
The company, which is based in Austria, was founded back in 2000, when marketing was a very different world. It has built a customer base of 1,500 companies with 800 employees in 13 offices across the globe. All of this will become part of SAP, of course, and come under Stutz’s purview.
As with all transactions of this type it will be subject to regulatory approval, but the deal is expected to close this quarter.
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ServiceNow updates its workflow automation platform
ServiceNow today announced the latest release of its workflow automation platform. With this, the company is emphasizing a number of new solutions for specific verticals, including for telcos and financial services organizations. This focus on verticals extends the company’s previous efforts to branch out beyond the core IT management capabilities that defined its business during its early years. The company is also adding new features for making companies more resilient in the face of crises, as well as new machine learning-based tools.
Dubbed the “Paris” release, this update also marks one of the first major releases for the company since former SAP CEO Bill McDermott became its president and CEO last November.
“We are in the business of operating on purpose,” McDermott said. “And that purpose is to make the world of work work better for people. And frankly, it’s all about people. That’s all CEOs talk about all around the world. This COVID environment has put the focus on people. In today’s world, how do you get people to achieve missions across the enterprise? […] Businesses are changing how they run to drive customer loyalty and employee engagement.”
He argues that at this point, “technology is no longer supporting the business, technology is the business,” but at the same time, the majority of companies aren’t prepared to meet whatever digital disruption comes their way. ServiceNow, of course, wants to position itself as the platform that can help these businesses.
“We are very fortunate at ServiceNow,” CJ Desai, ServiceNow’s chief product officer, said. “We are the critical platform for digital transformation, as our customers are thinking about transforming their companies.”
As far as the actual product updates, ServiceNow is launching a total of six new products. These include new business continuity management features with automated business impact analysis and tools for continuity plan development, as well as new hardware asset management for IT teams and legal service delivery for legal operations teams.
Image Credits: ServiceNow
With specialized solutions for financial services and telco users, the company is also now bringing together some of its existing solutions with more specialized services for these customers. As ServiceNow’s Dave Wright noted, this goes well beyond just putting together existing blocks.
“The first element is actually getting familiar with the business,” he explained. “So the technology, actually building the product, isn’t that hard. That’s relatively quick. But the uniqueness when you look at all of these workflows, it’s the connection of the operations to the customer service side. Telco is a great example. You’ve got the telco network operations side, making sure that all the operational equipment is active. And then you’ve got the business service side with customer service management, looking at how the customers are getting service. Now, the interesting thing is, because we’ve got both things sitting on one platform, we can link those together really easily.”
Image Credits: ServiceNow
On the machine learning side, ServiceNow made six acquisitions in the area in the last four years, Wright noted — and that is now starting to pay off. Specifically, the company is launching its new predictive intelligence workbench with this release. This new service makes it easier for process owners to detect issues, while also suggesting relevant tasks and content to agents, for example, and prioritizing incoming requests automatically. Using unsupervised learning, the system can also identify other kinds of patterns and with a number of pre-built templates, users can build their own solutions, too.
“The ServiceNow advantage has always been one architecture, one data model and one born-in-the-cloud platform that delivers workflows companies need and great experiences employees and customers expect,” said Desai. “The Now Platform Paris release provides smart experiences powered by AI, resilient operations, and the ability to optimize spend. Together, they will provide businesses with the agility they need to help them thrive in the COVID economy.”
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SAP decision to spin out Qualtrics 20 months after spending $8B surprises industry watchers
When SAP announced it was spinning out Qualtrics on Sunday, a company it bought less than two years ago for an eye-popping $8 billion, it was enough to make your head spin. At the time, then CEO Bill McDermott saw it as a way to bridge the company’s core operational with customer data, while acquiring a cloud company that could help generate recurring revenue for the ERP giant, and maybe give it a dose of innovation along the way.
But Sunday night the company announced it was spinning out the acquisition, giving its $8 billion baby independence, and essentially handing the company back to founder Ryan Smith, who will become the largest individual shareholder when this all over.
It’s not every day you see founders pull in a windfall like $8 billion, get sucked into the belly of the large corporate beast and come out the other side just 20 months later with the cash, independence and CEO as the largest individual stockholder.
While SAP will own a majority of the stock, much like Dell owns a majority of VMware, the company will operate independently and have its own board. It can acquire other firms and make decisions separately from SAP.
We spoke to a few industry analysts to find out what they think about all this, and while the reasoning behind the move involves a lot of complex pieces, it could be as simple as the deal was done under the previous CEO, and the new one was ready to move on from it.
Bold step
It’s certainly unusual for a company like SAP to spend this kind of money, and then turn around so quickly and spin it off. In fact, Brent Leary, principal analyst at CRM Essentials, says that this was a move he didn’t see coming, and it could be related to that fat purchase price. “To me it could mean that SAP didn’t see the synergies of the acquisition panning out as they had envisioned and are looking to recoup some of their investment,” Leary told TechCrunch.
Holger Mueller, an analyst with Constellation Research agreed with Leary’s assessment, but doesn’t think that means the deal failed. “SAP doesn’t lose anything in regards to their […] data and experience vision, as they still retain [controlling interest in Qualtrics] . It also opens the opportunity for Qualtrics to partner with other ERP vendors [and broaden its overall market],” he said.
Jeanne Bliss, founder and president at CustomerBLISS, a company that helps clients deliver better customer experiences sees this as a positive step forward for Qualtrics. “This spin off enables Qualtrics to focus on its core business and prove its ability to provide essential technology executives are searching for to enable speed of decision making, innovation and customization,” she said.
Show me the money
Patrick Moorhead, founder and principal analyst at Moor Insight & Strategy sees the two companies moving towards a VMware/Dell model where SAP removes the direct link between them, which could then make them more attractive to a broader range of customers than perhaps they would have been as part of the SAP family. “The big play here is all financial. With tech stocks up so high, SAP isn’t seeing the value in its stock. I am expecting a VMware kind of alignment with a strategic collaboration agreement,” he said.
Ultimately though, he says the the move reflects a cultural failure on the part of SAP. It simply couldn’t find a way to co-exist with a younger, more nimble company like Qualtrics. “I believe SAP spinning out Qualtrics is a sign that its close connection to create symbiotic value has failed. The original charter was to bring it in to modernize SAP but apparently the “not invented here” attitudes kicked in and doomed integration,” Moorhead said.
That symbiotic connection would have involved McDermott’s vision of combining operational and customer data, but Leary also suggested that since the deal happened under previous the CEO, that perhaps new CEO Christian Klein wants to start with a clean slate and this simply wasn’t his deal.
Qualtrics for the win
In the end, Qualtrics got all that money, gets to IPO after all, and returns to being an independent company selling to a larger potential customer base. All of the analysts we spoke to agreed the news is a win for Qualtrics itself.
Leary says the motivation for the original deal was to give SAP a company that could sell beyond its existing customer base. “It seems like that was the impetus for the acquisition, and the fact that SAP is spinning it off as an IPO 20 months after acquiring Qualtrics gives me the impression that things didn’t come together as expected,” he said.
Mueller also sees nothing but postivies Qualtrics. “It’s a win […] for Qualtrics, which can now deliver what they wanted [from the start], and it’s a win for customers as Qualtrics can run as fast as they want,” he said.
Regardless, the company moves on, and the Qualtrics IPO moves forward, and it’s almost as though Qualtrics gets a do-over with $8 billion in its pocket for its trouble.
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Why is SAP spinning Qualtrics out via an IPO?
Over the weekend, software giant SAP announced that it will take Qualtrics public, with the German software company retaining a majority stake in the Utah-based “experience management” firm after its forthcoming debut.
SAP paid $8 billion in cash for Qualtrics back in 2018, right before the smaller firm was set to go public. Chatting with the CEOs of both companies around the time of the deal, they were pretty pumped about the combination. Since then, SAP has swapped CEOs.
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At the time, the deal not only made waves within the business realm, it also helped put Utah’s startup scene on the map. (An $8 billion deal makes an impact.)
Current commentary on the spin-out idea seems to rotate on the idea of unlocking value: That if SAP can float a good chunk of Qualtrics’ shares, the market may give that equity a good price. Then, the value of Qualtrics that SAP will retain will gain implicit value, perhaps boosting the value of its own shares. Making the point, CNBC quoted analysts from Bernstein Research, which said it believes “many SAP investors do not fully understand Qualtrics,” and that the spin-out might “help at least as it relates to better understanding its value.”
What is Qualtrics worth? If we can understand that, we’ll know if the current commentary regarding the spin-out makes sense. So this morning, let’s remind ourselves how big Qualtrics was heading into its IPO, what it might have been worth, how much it has have grown since and what that might be worth at today’s super-high software valuations.
Did SAP overpay? Did it get a deal? Let’s find out what Qualtrics might look like in 2020.
2018
Before SAP stole it from the public markets, Qualtrics was looking for $18 to $21 per share on the public markets, valuing the company at around $3.9 billion to $4.5 billion. SAP had to pay up for Qualtrics stock, obviously, to get the deal done given how hot the Utah-based firm was at the time.
Qualtrics had growth and profits, two things that combine to create lots and lots of market value. Here are some key Qualtrics numbers from the time:
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