Recently, Qualtrics filed to go public at a valuation of $14 billion. Two years ago, Qualtrics was acquired by SAP (NYSE: SAP) for $8 billion, while it was in the final stages of making its public debut. At the initial public offering (IPO), SAP is going to sell about 20% of the company and retain 80% ownership.
Qualtrics Background
Qualtrics creates software that allows companies to poll its employees, customers, and other stakeholders in order to gather data to make better decisions. Making better decisions is key to growth, improvement, and survival. However, this is difficult in a corporation as employees and customers have different interests and might not be totally honest when giving feedback. So, Qualtrics' software solves this problem.
In total, Qualtrics has 3,370 employees with revenue of $550 million in the first nine months of the year which is a 31% increase from 2020. It also posted a net loss of $258 million in the first nine months of the year as the company remains focused on the growth of its XM platform. According to Qualtrics' S-1 filing, its "XM Platform helps organizations both design and improve the experiences that turn their customers into fanatics, employees into ambassadors, products into obsessions, and brands into religions."
Qualtrics Outlook
Cloud computing stocks have experienced extraordinary gains in share prices and multiples this year. So, SAP's interest in spinning off Qualtrics is understandable. Maybe the most notable example is Snowflake (Nasdaq: SNOW) which went from a $12 billion valuation earlier this year to $90 billion upon its IPO. Other cloud stocks like DataDog (Nasdaq: DDOG), Twilio (Nasdaq: TWLO), and Fastly (Nasdaq: FSLY) had extraordinary gains this year as well.
However, these companies have given up some of their gains over the past couple of months. Many believe that there could be some reversion in these companies' growth rates especially as 2021 figures will be compared to temporarily COVID-inflated 2020 figures. If the economy does return to normal, there could also be multiple contractions for growth stocks.
The combination of decelerating revenues and multiple contraction could lead to a much less favorable environment for cloud stocks in 2021. Qualtrics' full-year revenue is forecasted to be around $810 million. This gives it a price to sales ratio of 17.2. This type of multiple can only be justified with strong double-digit revenue growth which might be hard to sustain in 2021 if companies choose to invest in other parts of their business.