WalkMe IPO Filing Analysis

Following our recent analyses of Marqeta’s IPO filing, and examinations of SPACs involving Bright Machines and Bird, we are now reviewing WalkMe’s IPO documentation. Squarespace is anticipated to directly list later this week, with IPOs also planned for Oatly and Procore.

The current IPO market is exceptionally active, prompting us to bypass our standard introductory remarks and proceed directly to an examination of WalkMe’s IPO filing. We will begin with a concise overview of the company’s product offering before delving into its financial results.

WalkMe represents the second technology company originating from Israel to submit IPO filings this week. The no-code startup, Monday.com, is concurrently seeking an initial public offering in the United States.

Company Overview

Let's begin our detailed review of WalkMe’s business.

WalkMe provides a digital adoption platform (DAP). This platform is designed to enhance user experience and drive adoption of software applications.

DAPs aim to guide users through complex software interfaces. They achieve this through on-screen guidance, automated workflows, and personalized support.

Essentially, WalkMe helps companies maximize the return on their software investments. It does this by ensuring users can effectively utilize the tools they have.

The platform is utilized across a variety of industries. These include financial services, healthcare, and technology.

WalkMe’s customers include prominent organizations. Examples are Adobe, Salesforce, and Siemens.

The company’s business model is primarily subscription-based. Revenue is generated through recurring fees based on usage and features.

WalkMe’s target audience consists of businesses seeking to improve employee productivity and reduce software training costs.

The platform integrates with a wide range of software applications. This allows for seamless implementation and broad applicability.

WalkMe differentiates itself through its comprehensive feature set and scalability. It caters to both small businesses and large enterprises.

The company’s growth strategy focuses on expanding its customer base and enhancing its platform capabilities.

Understanding WalkMe's Functionality

WalkMe delivers software solutions that utilize visual guidance directly on websites. These overlays assist users in effectively navigating and understanding the features of a given product. My experience at Crunchbase, a former client, informs this understanding.

The platform is particularly favored by marketing departments aiming to guide users through new or updated interfaces. It streamlines the adoption process and enhances user experience.

Key Features Beyond Basic Guidance

According to WalkMe’s F-1 filing, their service encompasses more than just simple overlays. A core component is their onboarding system, designed to quickly acclimate users to the platform.

Furthermore, WalkMe offers Workstation, described as a unified interface for enterprise applications. This feature simplifies task completion through a conversational, natural language interface and incorporates automation capabilities.

The inclusion of “automation” is noteworthy, especially considering the recent UiPath IPO. Investors are keenly focused on companies demonstrating automation technologies.

WalkMe as a SaaS Business

At its core, WalkMe operates as a SaaS (Software as a Service) business. This classification is important when analyzing its financial performance.

Therefore, evaluating WalkMe’s results requires an understanding of the dynamics inherent in modern software companies. A detailed examination of its key metrics is essential.

WalkMe’s Financial Performance

Between 2019 and 2020, WalkMe experienced a revenue increase from $105.1 million to $148.3 million, representing a 41% growth. However, the company’s growth trajectory has moderated recently.

Specifically, revenue growth slowed from a 25% increase between the first quarter of 2020 and the first quarter of 2021. This translated to a rise in top-line revenue from $34.2 million to $42.7 million during that period.

Annual Recurring Revenue (ARR)

In terms of SaaS metrics, WalkMe’s ARR increased from $131.2 million at the close of 2019 to $164.3 million by the end of 2020.

Examining the data more closely, the company’s ARR grew from $137.8 million to $177.5 million when comparing the first quarters of 2020 and 2021, respectively.

Dollar-Based Net Retention (DBNR)

WalkMe segments its DBNR into two distinct categories. One encompasses all customers, while the other focuses solely on those with over 500 employees.

As anticipated, the larger-customer segment demonstrates superior DBNR figures, prompting the company to provide a separate data point for this group.

A concerning trend is the decline in the company’s overall DBNR from 2019 to 2020, and again from Q1 2020 to Q1 2021.

Furthermore, the slight improvement in DBNR for larger customers between 2019 and 2020 is offset by a subsequent decrease in the current year.

Growth and Profitability

WalkMe is demonstrably a growing software company with significant value.

However, its growth rate does not mirror that of companies like Slack, necessitating a greater focus on profitability than might be required with more rapid revenue expansion.

Is WalkMe Profitable?

A growth rate exceeding 40% is often viewed favorably for a company preparing for an initial public offering (IPO). However, a 25% growth rate may be considered less appealing. A key question regarding WalkMe is whether it currently achieves profitability, or generates substantial cash flow to offset its decelerating growth.

Currently, WalkMe does not report profits, although its profitability is showing signs of improvement. A review of the company’s income statement reveals the following:

A quick analysis demonstrates that WalkMe’s net loss decreased from 2019 to 2020. However, when comparing the first quarter of 2020 to the first quarter of 2021, the gross dollar amount of the loss increased marginally. The most significant increase in spending during Q1 2021 appears to be in General & Administrative (G&A) expenses, potentially indicating expansion of the finance department in preparation for the IPO.

Regardless of the specific reason, the company’s losses are generally decreasing while revenue is increasing. This is a positive trend, as it demonstrates operating leverage.

Excluding the cost of share-based compensation, Q1 2021 would have shown a smaller loss compared to Q1 2020, by several million dollars.

Cash Flow Considerations

Regarding profitability, examining cash flow provides further insight. WalkMe is making notable strides in reducing its cash burn rate. For instance, in Q1 2020, the company’s operations resulted in a cash consumption of $7.4 million. This figure decreased to $2.9 million in Q1 2021.

• This indicates improved financial efficiency.
• The reduction in cash burn is a positive signal for investors.
• Continued progress in this area is crucial for long-term sustainability.

Ultimately, while not yet profitable, WalkMe is demonstrating positive trends in its financial performance, particularly in reducing cash burn and improving operating leverage.

Evaluating WalkMe's Potential IPO

WalkMe presents a compelling case as a company, though its current growth trajectory hasn't yet generated significant market excitement. Success hinges on its ability to reassure potential investors during its initial public offering (IPO) roadshow. Specifically, demonstrating either stabilized growth or the possibility of acceleration is crucial for securing substantial future cash flow.

Determining the company’s value is a key consideration. PitchBook data suggests a valuation of approximately $1 billion following its 2018 funding round. However, WalkMe also secured $90 million in funding during 2019, and the corresponding valuation remains undisclosed.

Analyzing comparable companies provides a potential valuation framework. Anaplan, exhibiting a similar growth rate of around 25%, currently boasts an enterprise value of approximately 15 times its annualized revenue. Considering WalkMe’s relatively straightforward financial position regarding cash and debt, a comparable market capitalization estimate emerges.

Applying this metric, WalkMe could potentially be valued around $2.6 billion. This figure likely represents a positive outcome when contrasted with its final private valuation.

Further analysis will be provided as more information becomes available. Stay tuned to TechCrunch for ongoing coverage as we navigate the current wave of unicorn liquidity events.