Procore IPO: Valuation Doubling and Market Recovery

Procore Technologies Announces IPO Price Range

Procore Technologies, a leading construction technology company, has announced the proposed price range for its initial public offering (IPO) this morning.

This development follows the company’s original filing for an IPO in February 2020, which was subsequently postponed due to the global pandemic. A substantial financial infusion was secured during this period to support the company through the delay, as previously reported by TechCrunch’s Mary Ann Azevedo.

Previous IPO Attempts and Market Conditions

Procore refiled for an IPO in March 2021, but encountered a less favorable market for new public offerings.

Further amendments to the S-1 filing were submitted in April and early May. Today’s announcement marks the first instance where a specific price range has been established for the Carpinteria, California-based software company.

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IPO Pricing and Market Context

Procore has set a price range of $60 to $65 per share for its stock.

Notably, Procore isn’t alone in reviving IPO plans that were previously paused. Kaltura, a video distribution software provider, has also recently resumed its efforts to go public.

This raises the question: are we witnessing a renewed momentum in the IPO market?

Analyzing Procore’s Valuation

Today, we will analyze Procore’s valuation based on its new IPO price range.

We will calculate relevant revenue multiples, consider the implied multiples, and assess whether the combined activity of Procore and Kaltura is sufficient to definitively declare a resurgence in the public offering market.

Understanding these factors is crucial to determining the current state of the IPO landscape.

Procore’s Initial Public Offering Price Expectations

Despite securing over $500 million in funding from investors like ICONIQ, Dragoneer, Tiger Global, and D1 Capital Partners – as reported by Crunchbase – Procore’s IPO was initially postponed. The company subsequently raised $150 million last year, resulting in a post-money valuation exceeding $5 billion.

The latest S-1/A filing indicates Procore intends to offer 9,470,000 shares during its IPO. This will establish a post-IPO share count of 128,134,774. A share price of $60 would yield a straightforward valuation of $7.69 billion. Should the price reach $65 per share, the valuation would increase to $8.33 billion.

Understanding Fully Diluted Valuation

When evaluating the IPO valuation of a rapidly expanding private entity, many analysts favor examining the fully diluted valuation. This metric incorporates shares that have been earned through vested options and similar arrangements, even if not yet converted to equity.

The rationale behind this approach is that a public listing potentially makes these options and restricted stock units (RSUs) liquid, incentivizing their exercise. Consequently, including them in the IPO valuation provides a more comprehensive assessment.

According to Renaissance Capital, Procore’s fully diluted valuation stands at $8.9 billion, irrespective of the chosen share count.

This figure represents a substantial gain for Procore’s existing private shareholders, nearly doubling the company’s final private market valuation from approximately one year ago. This appears to be a positive indicator.

Analyzing Procore’s Financial Performance

A key question arises: To what extent is this optimism justified? Procore’s filings reveal revenue growth from $92.3 million in Q1 2020 to $113.9 million in Q1 2021, representing an increase of roughly 23.4%.

Simultaneously, the company’s net loss decreased from $19 million to $13.7 million over the same period. Furthermore, gross margins improved by 100 basis points, reaching 82%.

Procore also demonstrated enhanced cash generation, with operating cash flow rising from $4.6 million to $28.3 million between Q1 2020 and Q1 2021. In summary, while Procore’s growth rate is moderate, its improvements in profitability are noteworthy.

The Q1 2021 revenue translates to an annualized run rate of $455.8 million, resulting in a run-rate multiple of 19.5x. This multiple may be considered high given the company’s relatively slow growth. Alternatively, Procore’s IPO valuation range appears optimistic when considered against its revenue and growth trajectory.

The IPO Market’s Recovery

Considering whether the IPO market is recovering from a recent period of comparative stagnation, Procore’s initial price range suggests a positive trend.

Kaltura’s IPO and Market Context

Let's consider Kaltura. Previously, we observed that the company was pursuing an IPO “fueled by accelerating revenue growth, coupled with increasing losses.” Does this assessment still hold true?

To a degree, yes. Kaltura reported $37.7 million in revenue for Q1 2021, exceeding the $25.9 million recorded in Q1 2020. This equates to a growth rate of 45.6%, a significant improvement over the 16.6% growth experienced from Q1 2019 to Q1 2020.

While Kaltura’s losses increased from $5 million in Q1 2020 to $15.6 million in Q1 2021, the company substantially reduced its Q4 2020 loss of $36.3 million.

The crucial question now is how public market investors will assess the company’s value.

Early Days for Both IPOs

It remains early in the process for both the Procore and Kaltura IPOs. Procore’s pricing could fall below its initial range, and Kaltura might also price conservatively. However, with Procore’s range appearing favorable and Kaltura re-entering the market, a cautiously optimistic outlook on the current IPO landscape is warranted.

Is the market as fervent as it once was? There’s no indication of that. However, conditions have undoubtedly improved since the cooling period experienced in April.

This is encouraging news for late-stage startups.