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The Reality of IPO Pops
Congrats to the folks at OneStream on a successful IPO. They gifted SaaS fans with a rare sighting - a day one IPO pop!

On a day the larger tech market was red, their stock painted a lot of green. As
points out, the company traded up 34% in day one from it’s issue price of $20 to ~$27.But this pop doesn’t change the $490 million in proceeds the company raised to bolster their balance sheet and fund future growth. Contrary to popular belief, IPO pops do not make the company itself any richer. Their upside is capped at the issue price.
Yes, employees benefit in a big way. But it’s a form of delayed, and non guaranteed, gratification - most IPOs come with 180 day lockup periods. So for the moment they are sitting pretty on paper, and will have to wait a minimum of six months to turn any upswing in stock price into real cash gains.
The ultimate winners are the institutional investors who received pre IPO allocations. They get a super quick return on their cash, buying in at issue price (and sometimes even a little bit less) and can flip it immediately for a profit (even if they say they won’t, lol). The original VCs on the cap table (in OneStream’s case, KKR) also make out like bandits, marking up their valuations.
The investment banks underwriting the IPO also do great. Pops are viewed as a big win, and enhance their reputation, attracting future IPO business. And the not so widely known benefit is that banks on the cover usually get an allocation for their private wealth management clients, as the rich get richer from access to an oversubscribed IPO that immediately pops.
There’s certainly an art and a science to pricing an IPO to pop.
A nice pop can create positive buzz and media coverage. It also does wonders for employee morale. But setting it too low leaves the company thinking they left too much money on the table. Afterall, this is a fundraising event.
Perhaps the most historic day one IPO pop belongs to Snowflake.
To go back in time to September 16, 2020, pricing the IPO was a huge point of contention. Lead left banker Goldman kept telling Snowflake to raise the price. But (allegedly) the company didn’t want the per share price to be over $100, for fear of it looking absurd. As veterans of the game, their management team already knew they were dealing with historically high enterprise value to forward revenue multiples.
They finally set it at $120, a steep increase from the $75 to $85 per share range originally floated.
Check the press clippings at the time:
“These are multiples, frankly, that the world hasn’t seen since the internet bubble in 1999.”
-Brad Zelnick, an analyst at Credit Suisse
Added Srini Nandury of Summit Insights Group, who had a rare sell rating on Snowflake:
“They’ve clearly shown they can execute, but I can’t justify this valuation by any means. This stock is being completely driven by the Robinhood crowd.”
They proceeded to notch the largest software IPO ever, raising nearly $3.4 billion on a valuation of $33.2 billion. But it gets better.
SNOW stock opened at $245 that Wednesday, already 104% above its IPO price.
The stock peaked at $275 before lunch, and closed at $254 on day one, giving the company a mind boggling valuation of $60 billion.
That represented a 112% day 1 pop.
That means the company hypothetically left more than $3 billion in additional proceeds on the table.
To put that in perspective, they went out looking to sniff a roughly 40x forward revenue multiple and closed at 80x.
For historical context, the crappiest of software companies were trading at 10x at the time, good growing companies at 20x, and high growth at 30x. But still. That’s nuts.
Snowflake’s market cap currently sits below $45 billion nearly four years later. They’re estimated to do $3.7 billion in revenue on an NTM basis, meaning they’ve grown topline by roughly 7x since IPO. And their total customers have 10x’d. But they’re still below their day one close by a decent margin.
In fact, if you invested $1,000 in Snowflake at the top of day one, you’d be holding onto about ~$700 right now, which is wild to think.
The IPO market today, as small as it might be, is much more reasonably priced.
Nonetheless, it’s a reminder that day one is just that - the first day of a new journey. Congrats to OneStream on the strong start.
TL;DR: Multiples are UP week-over-week.
Top 10 Medians:
EV / NTM Revenue = 13.6x (+0.6x w/w)
CAC Payback = 15 months
Rule of 40 = 49%
Revenue per Employee = $515K
Figures for each index are measured at the Median
Median and Top 10 Median are measured across the entire data set, where n = 109
Population Sizes:
Security: 17
Database and Infra: 14
Backoffice: 15
Marcom: 16
Marketplace: 15
Fintech: 16
Vertical SaaS: 16
If you’d like the company level metrics used in these reports, upgrade to paid and you can download the excel sheet at the bottom of this post
Revenue Multiples
Revenue multiples are a shortcut to compare valuations across the technology landscape, where companies may not yet be profitable. The most standard timeframe for revenue multiple comparison is on a “Next Twelve Months” (NTM Revenue) basis.
NTM is a generous cut, as it gives a company “credit” for a full “rolling” future year. It also puts all companies on equal footing, regardless of their fiscal year end and quarterly seasonality.
However, not all technology sectors or monetization strategies receive the same “credit” on their forward revenue, which operators should be aware of when they create comp sets for their own companies. That is why I break them out as separate “indexes”.
Reasons may include:
Recurring mix of revenue
Stickiness of revenue
Average contract size
Cost of revenue delivery
Criticality of solution
Total Addressable Market potential
From a macro perspective, multiples trend higher in low interest environments, and vice versa.
Multiples shown are calculated by taking the Enterprise Value / NTM revenue.
Enterprise Value is calculated as: Market Capitalization + Total Debt - Cash
Market Cap fluctuates with share price day to day, while Total Debt and Cash are taken from the most recent quarterly financial statements available. That’s why we share this report each week - to keep up with changes in the stock market, and to update for quarterly earnings reports when they drop.
Historically, a 10x NTM Revenue multiple has been viewed as a “premium” valuation reserved for the best of the best companies.
Efficiency Benchmarks
Companies that can do more with less tend to earn higher valuations.
Three of the most common and consistently publicly available metrics to measure efficiency include:
CAC Payback Period: How many months does it take to recoup the cost of acquiring a customer?
CAC Payback Period is measured as Sales and Marketing costs divided by Revenue Additions, and adjusted by Gross Margin.
Here’s how I do it:
Sales and Marketing costs are measured on a TTM basis, but lagged by one quarter (so you skip a quarter, then sum the trailing four quarters of costs). This timeframe smoothes for seasonality and recognizes the lead time required to generate pipeline.
Revenue is measured as the year-on-year change in the most recent quarter’s sales (so for Q2 of 2024 you’d subtract out Q2 of 2023’s revenue to get the increase), and then multiplied by four to arrive at an annualized revenue increase (e.g., ARR Additions).
Gross margin is taken as a % from the most recent quarter (e.g., 82%) to represent the current cost to serve a customer
Revenue per Employee: On a per head basis, how much in sales does the company generate each year? The rule of thumb is public companies should be doing north of $450k per employee at scale. This is simple division. And I believe it cuts through all the noise - there’s nowhere to hide.
Revenue per Employee is calculated as: (TTM Revenue / Total Current Employees)
Rule of 40: How does a company balance topline growth with bottom line efficiency? It’s the sum of the company’s revenue growth rate and EBITDA Margin. Netting the two should get you above 40 to pass the test.
Rule of 40 is calculated as: TTM Revenue Growth % + TTM Adjusted EBITDA Margin %
A few other notes on efficiency metrics:
Net Dollar Retention is another great measure of efficiency, but many companies have stopped quoting it as an exact number, choosing instead to disclose if it’s above or below a threshold once a year. It’s also uncommon for some types of companies, like marketplaces, to report it at all.
Most public companies don’t report net new ARR, and not all revenue is “recurring”, so I’m doing my best to approximate using changes in reported GAAP revenue. I admit this is a “stricter” view, as it is measuring change in net revenue.
Operating Expenditures
Decreasing your OPEX relative to revenue demonstrates Operating Leverage, and leaves more dollars to drop to the bottom line, as companies strive to achieve +25% profitability at scale.
The most common buckets companies put their operating costs into are:
Cost of Goods Sold: Customer Support employees, infrastructure to host your business online, API tolls, and banking fees if you are a FinTech.
Sales & Marketing: Sales and Marketing employees, advertising spend, demand gen spend, events, conferences, tools
Research & Development: Product and Engineering employees, development expenses, tools
General & Administrative: Finance, HR, and IT employees… and everything else. Or as I like to call myself “Strategic Backoffice Overhead”
All of these are taken on a Gaap basis and therefore INCLUDE stock based comp, a non cash expense.
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