IPO Qualtrics International: How to Make a Religion of a Brand | R Blog RU


Companies are constantly fighting for the client. The entire arsenal of tools is used to develop consumer behavior models, observe his habits, preferences and tastes. CMOs around the world agree on the need for a more comprehensive approach in this matter, and the usual accounting in CRM is clearly not enough.

Qualtrics International (NASDAQ: XM)

Qualtrics International pioneered and developed a Customer Experience Management (CX) SaaS platform. The company will IPO on the NASDAQ exchange on January 27, 2020 under the ticker XM. The market will start trading the next day. Before deciding to participate in the placement, we will learn more about the company’s business.

Business Qualtrics International

Qualtrics International was founded back in 2002, pioneering new software for gathering information and analyzing customer base (CustomerXM), company products (ProductXM), employees (EmployeeXM) and brand (BrandXM).

These products are responsible for the following functionality:

  • CustomerXM – reduces customer churn, increases their engagement, LTV (Life-Time Value) and allows you to work with reviews.
  • ProductXM – helps in creating the best selling products, increasing the average check and reducing the time from the beginning of development to the market.
  • EmployeeXM – participates in the development of ways to motivate staff, helps in the processing of comments and suggestions from employees to improve working conditions and product quality.
  • BrandXM – allows you to create brands taking into account the needs of the target audience, analyzes customer feedback.

It is becoming increasingly difficult to meet customer needs, as more than 70% of consumers easily change a brand even after one unsuccessful use case. Therefore, a comprehensive solution from Qualtrics International has become popular. In 2016, the company raised USD 180 million with an estimate of USD 2.5 billion. Two years later, the German company SAP, a leader in the software development industry, bought Qualtrics for 8 billion USD. In the summer of 2020, there were rumors that SAP intends to spin off Qualtrics into an independent division.

Business Qualtrics International

More than 12,000 private and public companies have become clients of the company, most of which are included in the Fortune 100 list. The company operates in 25 countries and employs 3,300 employees. Qualtrics’ most notable clients include Walt Disney, Levi Strauss, Coca-Cola, Microsoft and Adidas. As you can see, the leaders of different industries use advanced management technologies.

Business Qualtrics International

For 18 years the company has created its own software niche market, becoming the segment leader. Qualtric is growing at a fairly fast pace, which we will talk about later. The company’s service, however, is in demand and universal not only for companies from the United States. Now it will be appropriate to indicate the volume of the company’s market.

SaaS market

Due to the fact that the company’s market niche is extremely specific, but in demand, there is practically no independent research on the SaaS market. Qualtrics International estimates its market in 2020 at 60 billion USD.

The current economic structure is also called the “experience economy”, when a product has a chance to win the consumer’s liking only on the first impression. Until recently, CRM and HCM systems seemed redundant, but now all sales departments are required to work with them. Therefore, the indicators of 2020 can be taken as a minimum mark, the next 5 years in the management of companies will undergo transformation to meet the challenges of the future. The unification of management systems is an emerging and confident trend, led by Qualtrics International.

Financial performance of Qualtrics International

The company does not generate profits, which is typical for companies going to IPOs, so we will focus on analyzing revenue. According to the data presented in the S-1 form, the company’s revenue for the last 12 months amounted to USD 535.46 million. For the first three quarters of 2020, this indicator amounted to USD 415.00 million, which is 34.06% more than the revenue for the same period in 2019. The relative growth of revenue in 2019 against 2018 amounted to 45.52%. Forecasted revenue for 2020 is USD 576.58 million.

Financial performance of Qualtrics International

Gross profit for 9 months of 2020 increased by 40.84% ​​compared to 2019. The net loss decreased over the same period by 233.44% against 2019. This was made possible by reducing operating expenses by 75.47%. All this speaks of the company’s striving to get net profit as soon as possible.

In general, the dynamics of the company’s revenue also speaks of an impressive growth in the company’s market share. Therefore, we can say with confidence that the presented indicators are much better than the market average.

Qualtrics strengths and weaknesses

The strengths of the company include:

  • The purchase of Qualtrics by SAP defines the lower bound of the estimate at USD 8 billion.
  • The company is growing at over 30% per year.
  • The company’s founder, Ryan Smith, remains at the head of the company.
  • Qualtrics has carved out its niche in the software market.
  • The company’s growth strategy is based on increasing the volume of cooperation with its current large customers and expanding its presence outside the United States.

Among the risk factors for investing in this company, we can note:

  • The current growth rate will slow down, making it difficult to evaluate the company in the future.
  • The segment of the company is dynamically changing and puts forward new requirements for software, any failure in operational management can result in loss of market share and bankruptcy.
  • The company is unprofitable and does not plan to pay dividends.

IPO details and Qualtrics capitalization estimate

The placement was underwritten by many well-known investment divisions of transnational banks: Raymond James & Associates, Inc., William Blair & Company, LLC, Loop Capital Markets LLC, Piper Sandler & Co., Oppenheimer & Co. Inc., Morgan Stanley & Co. LLC, JP Morgan Securities LLC, Barclays Capital Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, BofA Securities, Inc., HSBC Securities (USA) Inc., Citigroup Global Markets Inc. Samuel A. Ramirez & Company, Inc. other.

The offering range is 22 – 26 USD per share. The company plans to raise USD 1.18 billion by selling 49.22 million shares. The capitalization of the placement will be USD 12.59 billion.
To estimate the potential capitalization, we use the P / S (capitalization / revenue) multiplier (ratio). At the time of the IPO, P / S Qualtrics is 22.56. Direct competitor Medallia has this multiple of 10, with a revenue growth rate of 17%.

Taking into account Qualtrics’ revenue growth rate, the regulatory P / S would be 41 ((47 + 34/2)). Thus, the company’s capitalization may amount to USD 23 billion. We have an upside on Qualtrics shares of 82.68%.

Taking into account the current dynamics of the company’s development, the potential market and general market sentiment, we recommend this company for medium and long-term investments.

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