IPO Report: SailPoint valued at more than $1 billion as shares surge after IPO

November 18
01:05 2017

SailPoint Technologies Holdings Inc. rallied on their first day of trading Friday, after the enterprise identity management software company priced its initial public offering late Thursday, promising a more traditional business model to its “unicorn” cousins.

SailPoint SAIL, +13.33%  shares surged 14% to $ 13.63, after touching an intraday high of $ 15, on volume of more than 13 million shares by midday trading.

The Austin, Texas-based company priced its IPO at $ 12 a share late Thursday, above the expected range of $ 9 to $ 11 a share, offering 14.3 million shares, with private-equity firm Thoma Bravo and insiders offering 5.7 million additional shares. The stock is trading on the New York Stock Exchange under the ticker symbol “SAIL”. An additional 1.5 million shares were made available to underwriters to cover overallotments.

All told, with 91.1 million shares outstanding including overallotments, Friday’s price move certainly values the company at “unicorn” levels with a $ 1.24 billion market cap. Following the offering Thoma Bravo will own 62% of shares, or 59% if overallotments are exercised in full, SailPoint said in its filing with the Securities and Exchange Commission.

The SailPoint IPO comes seven months after Okta Inc. OKTA, -0.44%  launched its IPO in April. While both companies inhabit the identity management space, they have different concentrations: SailPoint focuses on identity governance services for businesses, while Okta provides identity access services. Okta shares currently trade 76% above their April IPO pricing of $ 17.

SailPoint’s offering follows a string of other recent hot tech IPOs like SendGrid Inc. SEND, -0.28%  on Wednesday, MongoDB Inc. MDB, -0.25% and Switch Inc. SWCH, -2.79%  in October, and Roku Inc. ROKU, -1.99%  in late September.

In an interview, SailPoint co-founder and Chief Executive Mark McClain likened SailPoint and Okta to a badge reader and a security badge, where SailPoint focuses more on being the gatekeeping logic behind who gets to access to what at a given company, rather than the identity on the badge.

Still, investors are going to be drawing comparisons between the two companies, said Forrester Research analyst Merritt Maxim in an interview. One big question for investors is: How sustainable is SailPoint’s growth rate?

“It’s good to date, but you can’t sustain that level of growth indefinitely,” Maxim said. “That’s always a question for investors: What’s the long-term horizon?”

In 2016, SailPoint reported an operational profit of $ 2.3 million and a net loss of $ 3.2 million on revenue of $ 132.4 million. That compares with an operational loss of $ 8.2 million, a net loss of $ 10.8 million on revenue of $ 95.4 million in 2015.

SailPoint’s December quarter will likely be closely scrutinized by investors. For the nine months ended Sept. 30, SailPoint reported $ 118.3 million in revenue, a 34% rise from the year-ago period, and an operational loss of $ 577,000 with a net loss of $ 13 million.

Another big question, Maxim said, is how much is being spent on sales and marketing to achieve growth? Okta spent 65% of revenue on sales and marketing in its last reported quarter.

For its reported full-year periods, SailPoint said it spent $ 58.6 million in 2016 and $ 46.8 million in 2015 on sales and marketing, or 44% and 49% of revenue, respectively. In its SEC filing, SailPoint said it expects “sales and marketing expenses to increase on a dollar basis and continue to be our largest operating expense category for the foreseeable future.” SailPoint reported having 829 customers at the nine months ended Sept. 30, compared with 695 customers at end of 2016.

McClain said about two-thirds of the company’s transactions are with new customers and that it has a 95% renewal rate with existing customers and opportunities to expand product offerings. McClain said the company is committed to a more “traditional,” as opposed to “unicorn,” model of balancing profitability—on an adjusted basis—while maintaining a healthy growth rate, adding that investors who like that model are the ones driving the stock’s Friday debut.

“We’re investing into marketing and sales at a level a little above our revenue growth rate because at a company that has a mixture of licensed software as well as [Software-as-a-Service] software, you do have to kind of book business ahead of the curve to get the revenue growth you want.” McClain said.

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