Inside Anaplan’s IPO Filing

Morning Report: Late Friday Anaplan dropped its S-1, filing to go public. Here’s what you need to know about the latest tech IPO.

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Anaplan, a San Francisco-based cloud planning shop, was born in 2006. The firm raised just under $300 million during its life as a private company. Its most recent funding round, a $60 million Series F from December 2017, valued the company at $1.36 billion, according to Crunchbase data.

So Anaplan is another unicorn IPO. That makes it doubly interesting. It’s notable due to its scale. But Anaplan’s debut will also help us understand how the public markets value yet another increasingly unprofitable unicorn. The company has a $100 million placeholder figure in its S-1 for the amount of capital it intends to raise.

Let’s see what we can ferret out from the numbers.

The Numbers

As intimated before, Anaplan loses quite a lot of money. But it’s also growing quickly, and will do more than $200 million in revenue this year.

Top Line

We’ll start with revenue. Anaplan posted 68.5 percent growth, from $71.5 million to $120.5 million, during the fiscal periods roughly equating to calendar 2015 and 2016. The firm grew 39.7 million over the next twelve months, ending its fiscal year that roughly corresponded to calendar 2017 with $168.3 million in top line.

During the first 6 months of its current fiscal year (the period ending July 31, 2018), Anaplan posted $109.4 million in revenue, up from $77.8 million in the year-ago period. That growth works out to a 40.6 percent gain, faster than the pace that it posted in the preceding full fiscal year.

Anaplan’s growth rates are pretty good. The firm grew very quickly into the $100 million range and has reaccelerated growth in recent quarters is likely heartening to its investors. However, that pace-quickening came at a steep cost.

Losses

In its fiscal period closely aligning with calendar 2017, Anaplan lost $47.6 million against that year’s $168.3 million in revenue. That works out to a roughly negative 28.2 percent net margin. In its most recent half-year period, Anaplan lost $47.2 million, a net margin of negative 43.2 percent.

That’s worse.

Notably, Anaplan’s net loss of $47.2 million in the first half of its current fiscal year was effectively triple its year-ago net loss from the same period of $16.0 million.

So Anaplan’s growth acceleration has come at a high cost. Notably, Anaplan’s operating costs grew sharply in every category year-over-year, comparing the firm’s most recent six months compared to the year-period. But the firm’s sales and marketing spend growth was the largest—from  $42.3 million in the six months ending July 31, 2017, to $77.9 million during the six months ending July 31, 2018.

The firm lost over $2 per share during the period.

Net Expansion

Anaplan, like most software companies today, sells its wares on a subscription basis. In its two most recent fiscal quarters more than 86 percent of the firm’s revenue came from subscription sales.

That means we care quite a lot about its recurring metrics. Companies that sell software on a subscription basis (so-called ‘software as a service’ companies, commonly shortened to ‘SaaS’) track how much more of their product customers consume over time, keeping tabs as revenue expands.

More simply, customers that use SaaS products tend to use more over time, leading to more revenue per extant customer as time passes. Here’s how Anaplan defines the concept, called “dollar-based net expansion rate:”

Given the denominator, it doesn’t seem that Anaplan is accounting for customer churn in its expansion rate. But, among customers that the firm keeps, Anaplan has managed a 122 to 123 percent expansion pace over the past 2.5 years.

Why does that matter? That built-in growth helps the company spend more to acquire customers, as those customers tend to become larger over time, provided that they don’t churn (cancel). And, that expansion helps the firm grow organically, bolstering its top line expansion without sales and marketing spend.

But, as we’ve seen Anaplan still spends heavily on sales and marketing, to the detriment of its profitability.

So What

There’s much more in the company’s S-1: rising operating cash burn in the last two quarters compared to their year-ago equivalents, rising investing cash burn over the same period, falling subscription gross margin, rising services gross margin. Most of that is poor.

But Anaplan does deliver growth at nine-figure scale. Using a strict Rule of 40 calculation, the firm is unimpressive. But it’s up to investors to now value the company. And in today’s market when NIO is a runaway success, who knows what will happen.

More when it prices.

Illustration: Li-Anne Dias