HashiCorp IPO: Valuation and Open Source Tech

HashiCorp's Upcoming IPO: A Valuation Overview

HashiCorp is planning its initial public offering (IPO) between Thanksgiving and Christmas. The company has set an initial price range for its shares, potentially achieving a high valuation among technology firms heavily reliant on open-source technology.

IPO Price Range and Potential Valuation

A recent S-1/A filing revealed HashiCorp anticipates offering shares between $68 and $72 each. This range is subject to change prior to the final pricing of the IPO, as demonstrated by Nubank’s recent adjustment to its own price range.

Should HashiCorp reach the higher end of its projected price range, it would be positioned as one of the most valuable tech companies with a significant open-source component. This debut will have implications extending beyond the company itself.

Comparison to Other Tech Companies

The IPO will serve as a benchmark for other companies in the tech sector. Further details regarding HashiCorp’s financial performance can be found in a separate analysis.

Let's examine HashiCorp’s proposed valuation in detail, and compare it to the revenue multiples of other publicly traded tech companies.

Understanding the Significance

The success of HashiCorp’s IPO could positively influence investor perception of other open-source-driven businesses. Open source is becoming increasingly vital in the modern tech landscape.

Key Considerations for Investors

• Valuation Multiples: Assessing HashiCorp’s valuation relative to its revenue is crucial.
• Market Conditions: The overall state of the stock market will impact the IPO’s performance.
• Growth Potential: Investors will be evaluating HashiCorp’s future growth prospects.

The company’s performance will be closely watched by industry observers and potential investors alike. This IPO represents a significant event in the cloud infrastructure management space.

HashiCorp’s entry into the public market is a noteworthy development. It highlights the growing importance of cloud infrastructure and the viability of the open-source business model.

Determining HashiCorp’s Valuation

Estimating HashiCorp’s worth following its Initial Public Offering (IPO) can be approached through two distinct methods. One involves a straightforward calculation based on the anticipated number of shares outstanding post-debut. The other considers a fully diluted share count, encompassing shares potentially arising from outstanding options.

Following the IPO, HashiCorp anticipates approximately 178,895,570 shares of both Class A and Class B stock will be publicly traded. When including shares allocated to underwriting entities, this figure increases to 181,190,570 shares.

Based on this latter share count, and an IPO price range of $68 to $72 per share, HashiCorp’s valuation would fall between $12.3 billion and $13.0 billion.

However, a more comprehensive valuation, accounting for potential dilution, yields a higher figure. According to Renaissance Capital, at a price of $70 per share, the company’s IPO would result in a valuation of $14.2 billion when considering the broader share count.

Should the IPO price reach $72 per share, HashiCorp’s potential worth could climb to as high as $14.6 billion.

Previously, the company was valued at approximately $5 billion in March 2020. This indicates that the current IPO pricing represents a significant increase in valuation.

Is a $14.6 Billion Valuation Justified?

The question of whether $14.6 billion represents a substantial sum is relative, particularly when considering current market conditions.

HashiCorp’s most recent quarterly filing indicates revenues of $82.22 million, translating to an annualized run rate of $328.9 million. This results in a current run-rate multiple of approximately 44x its valuation.

Evaluating the Multiple

While this multiple is undeniably high, it isn’t entirely unreasonable when compared to valuations of other companies in the tech sector.

HashiCorp demonstrated a year-over-year growth rate of 49% during the three months concluding on October 31st. Comparable growth is observed in Shopify, at 46.4%, alongside a similar revenue multiple of 42.4x its current run rate.

Therefore, a case can be made to support HashiCorp’s 44x revenue run rate multiple. Although some might consider it somewhat inflated, the prevailing market climate in 2021 allows for such valuations.

The Significance of Open Source

HashiCorp distinguishes itself not merely as a Software-as-a-Service (SaaS) company, but also through a robust open source component integrated into its business model.

As highlighted in its IPO filing, this aspect is increasingly important, as the open source model gains favor among startups within the broader private technology market.

HashiCorp’s IPO revenue multiple appears to be among the highest observed for companies utilizing an open source approach.

Comparative Analysis

Only six publicly traded companies currently exhibit higher run-rate multiples, according to Bessemer data. These include:

• Datadog (52x)
• Asana (56x)
• Zscaler (62x)
• Bill.com (64x)
• Cloudflare (88x)
• Snowflake (96x)

Among this group, Datadog is the most comparable to HashiCorp in terms of its commitment to open source principles. Its website explicitly states that its core libraries and software are open source.

Consequently, HashiCorp is positioned to become the second most highly valued open source public company globally following its IPO.

Nuances and Implications

It’s important to acknowledge that defining “open source” and calculating multiples can introduce complexities. However, it’s reasonable to assert that HashiCorp’s IPO will establish a notably high multiple for publicly traded OSS companies.

This development is positive news for startups pursuing similar open source strategies.

Further updates will be provided as the company determines its final pricing or adjusts its IPO price range.