The Long Road to the Qualtrics IPO
Discussion regarding a potential Qualtrics initial public offering has been ongoing for quite some time. As early as 2016, the company’s CEO, Ryan Smith, openly suggested his plans to launch an IPO. Following ten years of self-funding and achieving $50 million in yearly revenue, Qualtrics accepted external investment first from Sequoia, and subsequently from Sequoia, Accel, and Insight Venture Partners.
The complete history of the company has been documented by TechCrunch. Given the unique aspects of the public offering process, combined with Qualtrics consistently exceeding the performance of its competitors, we decided to review the events that led to this outcome.
2017
Having previously avoided direct responses or provided ambiguous statements, Smith articulated his views in a 2017 discussion with TechCrunch:
Within a few days, Qualtrics secured $180 million in funding, achieving a $2.5 billion valuation. This round was led by Sequoia, Accel, and Insight Venture Partners. Notably, this represented Accel’s largest investment to date. The company’s expansion was remarkable—the experience management company increased its revenue from $50 million in 2012 to $250 million in 2017.
Industry publications like TechCrunch and others suggested that this substantial funding round might not precede an initial public offering, but instead represent a final infusion of capital before entering the public market.
Smith remained noncommittal regarding the validity of this assessment:
In 2017, the company also introduced its XM platform, an experience management solution that Smith suggested had the potential to become as widespread as Workday or Salesforce within organizations. This platform focused on overseeing internal feedback, assisting companies in identifying crucial business factors, anticipating future customer requirements, and improving employee retention.
Bryan Schreier, a partner at Sequoia Capital, commented at the time:
2018
During October 2018, Qualtrics submitted its S-1 filing, which also featured the company’s results for the third quarter. The firm’s revenue exceeded $100 million – an increase of $8 million compared to the previous quarter – with approximately 75 percent representing gross profit. This represented a robust quarterly showing and served as an ideal prelude to a planned initial public offering.
The initial intention was to offer 20.5 million shares during its market entry, priced between $18 and $21 each. This would have generated up to $495 million in gross proceeds, establishing a company valuation in the range of $3.9 billion to $4.5 billion.
However, an unforeseen event occurred.
SAP made a proposal to acquire Qualtrics for $8 billion. Qualtrics accepted this offer. Consequently, its planned public offering was postponed indefinitely, or ultimately cancelled.
The rationale behind the acquisition was that integrating SAP’s operational data with Qualtrics’ insights into customer and user behavior would create a significant competitive advantage, establishing a uniquely powerful combination. This strategy mirrored acquisitions like Facebook’s purchase of Instagram, and was envisioned to be similarly dominant.
Bill McDermott, then CEO of SAP, stated at the time:
He was specifically referencing rivals such as Oracle, Salesforce, Microsoft, and IBM.
Alongside the announcement of the acquisition, Qualtrics provided an additional revenue update, projecting revenue surpassing $400 million for the full year 2018, alongside a projected growth rate exceeding 40 percent, excluding any benefits derived from the acquisition.
2020
Following the acquisition, Qualtrics operated with a lower profile, leading us to move beyond 2019 directly to 2020. A little over a year and a half after being acquired, a significant development occurred: SAP declared its intention to separate Qualtrics through a new initial public offering.
SAP highlighted the company’s cloud expansion, which had exceeded 40%, and stated that Qualtrics would continue under the leadership of its founder, Ryan Smith. Notably, the announcement also indicated Smith’s plan to remain Qualtrics’ largest individual investor, while SAP would maintain majority control of the company.
While the announcement provided limited detail, it suggested that Qualtrics had the potential for even faster growth if it were not integrated within SAP’s larger corporate structure.
This spin-out plan represented an unusual step for a corporation such as SAP.
As noted by my associate Danny Crichton at the time:
We at TechCrunch anticipated the forthcoming IPO with enthusiasm. This was a company that had almost become publicly traded, and was now preparing to do so again.
As the year neared its end, Qualtrics submitted its initial (or, more accurately, second) S-1 filing. Our analysis of the figures revealed the following:
As is common with companies pursuing a public offering while having a substantial corporate stakeholder, Qualtrics’ financial reporting proved more complex upon its second attempt, but the underlying characteristics of a successfully scaling software business remained evident. The crucial question then became how the market would assess the value of this large Utah-based company.
2021
Several weeks passed before Qualtrics announced its initial price range for its upcoming IPO, setting a target of $22 to $26 per share. This valuation represented a significant increase compared to the company’s earlier estimations when it first considered going public. Naturally, Qualtrics’ progress wasn’t solely due to its internal expansion and the advantages gained from its relationship with SAP; it also benefited from the generally high valuations of Software-as-a-Service (SaaS) companies and a very active stock market.
Based on this pricing, with 50 million shares available, the anticipated capital raise exceeded $1 billion. Considering this figure, it’s important to remember that Qualtrics had an annual revenue run rate of approximately $800 million. The company continued to demonstrate strong growth, with its Q4 2020 midpoint revenue increasing by over 23% when compared to its Q4 2019 results.
Ultimately, the S-1/A filing indicated that Qualtrics’ valuation in early 2021 ranged from $11.2 billion to $13.3 billion. Alex Wilhelm provides a more detailed analysis of these figures, and I recommend reviewing his reporting for a comprehensive understanding.
Wilhelm also correctly predicted that the initial share pricing for Qualtrics’ IPO would likely be increased. And his prediction proved accurate!
Yesterday, Qualtrics adjusted its share price upward from $22 – $26 to a new range of $27 to $29, resulting in a valuation between $13.8 billion and $14.8 billion. That’s quite a jump!
- Updated Qualtrics lower-end IPO run rate multiple: 16.2x.
- Updated Qualtrics upper-end IPO run rate multiple: 17.4x.
Wilhelm also suggested that the Qualtrics share price could potentially increase again, while acknowledging that the current multiples, despite appearing reasonable, are subject to change:
One thing remains clear: throughout its history, Qualtrics has consistently demonstrated revenue growth and profitability that surpasses many other software companies. We have anticipated this IPO for several years, and while many details are still unknown, we will soon have the answers we seek.
However, it’s also possible that a large corporation could make a $20 billion acquisition offer. That would certainly be an interesting development!
