As Senior Vice President of sales for AuditBoard, the 3rd fastest growing technology company in North America as ranked on Deloitte Technology’s Fast 500, my focus is on revenue growth because it is one of the most important financial metrics in determining the market valuation of a company. While other factors such as overall revenue, profitability and marketspace considerations are important, top-line revenue growth is direct proof that customers value and successfully use a company’s products.
AuditBoard plays a unique role in the IPO process by helping companies comply with Sarbanes-Oxley requirements. We provide cloud-based SOX compliance software that public companies use to manage and automate their SOX programs. As such, we’re continually working with leading Pre-IPO companies and are very excited when one of our clients goes public. On behalf of AuditBoard, I’d also like to invite you to attend a webinar AuditBoard is hosting on “How ZoomInfo Successfully Navigated the IPO Journey and Beyond.” featuring Casey Atwater and Dave Witty from ZoomInfo.
Here are recent IPO examples that show how year over year quarterly revenue growth and customer growth impacts market valuation.
Zoom Market Cap $141B - Zoom Video Communications cloud-based peer-to-peer software platform provides videotelephony, teleconferencing, and distance learning. Driven by the pandemic, revenue growth for the latest quarter increased 355% year-over-year to $663.5 million in revenue compared to $145.8 million a year ago. Zoom has 370,000 customers with more than 10 employees, an increase of 458 percent year over year.
Snowflake Market Cap $63B - Snowflake offers "data warehouse-as-a-service" cloud-based data storage and analytics platform. Snowflake went public on September 16th and revenue grew 133% year-over-year in the first six months to $242 million in their IPO filing.
DataDog Market Cap $27B - DataDog provides platform-as-a Service cloud monitoring and data analytics to IT departments. Revenue grew by 68% year over year in the second quarter to $140M. Customers increased 37% year over year to12,100.
ZoomInfo Market Cap: $15B - ZoomInfo's cloud-based platform provides business contact and market intelligence information. ZoomInfo went public in February and reported a 62% increase in revenues to $110.9 million and over 15,000 customers in the latest quarter. ZoomInfo estimates its market opportunity is around $24 billion.
Slack Market Cap: $15B - Slack is a business communication platform that provides persistent chat rooms organized by topic, private groups, and direct messaging. Total revenue was $168.7 million, an increase of 60% year-over-year. Slack ended the quarter with over 105,000 paid Customers, up 30% year-over-year.
CloudFlare Market Cap: $12B - CloudFlare is a web-infrastructure and website-security company providing content-delivery-network and Internet security services. Revenues for the most recent quarter increased 48% year over year to $99.7 million while paying customers increased by 24%.
BigCommerce Market Cap: $5B - BigCommerce's revenue for the latest quarter was $36.3 million, up 33% year over year and total annual revenue run-rate was $151.8 million, up 32% compared to the previous year.
PagerDuty Market Cap: $2B - PagerDuty provides software that monitors IT systems and notifies companies of outages. In the most recent quarter revenues rose 25% to $50.7 million. Customer growth was up 10% year over year to 13,346.
Mimecast Market Cap: $2B - Mimecast is an international company specializing in cloud-based email management including security, archiving, and continuity services to protect business mail. Revenue for the latest quarter was $115.2 million, an increase of 16% year over year. Mimecast added 600 net new customers in the latest quarter and now serves 38,600 organizations.
The figure below illustrates how year over year revenue growth correlates to market value. The market cap and growth rates are highest for Zoom, Snowflake, and DataDog. As the growth rates decrease, so does the market cap.
Another growth consideration is the age of the company. Goldman Sachs analyzed more than 4,400 IPOs over 25 years and the median firm founded 0-5 years before an IPO reported sales growth of nearly 50% five quarters after the offering compared with 30% revenue growth for firms aged 5 to 15 years and 19% for firms older than 15 years. For example, Mimecast was founded in 2003, Pager Duty in 2009, and Snowflake in 2012.
Steve W. Martin is Senior Vice President of Sales at AuditBoard and an Adjunct Professor at the University of Southern California Marshall School of Business MBA Program. He is the author of seven books and thirty-five Harvard Business Review articles. His latest book is titled “Sales Strategy Playbook: The Ultimate Guide to Solve Your Toughest Sales Challenges.”
