ExactTarget had a very successful IPO last week pricing above it’s expected range and then promptly gaining 32% in value the first day. ExactTarget is one of the most impressive SaaS companies due to their strong corporate culture (Orange Culture), growth rate north of 40% at scale, and headquarters in Indianapolis (outside the Silicon Valley echo chamber). It’s a small group of Software-as-a-Service companies that have had successful IPOs and the market has rewarded them handsomely in terms of valuations (SaaS IPOs are sexy article).
Based on today’s stock price of $26.32 for ET, the company is valued at $1.7 billion. At a little more than $200 million in recurring revenue that puts them in the 8x revenue club (the company is valued at more than eight times their revenue, which is extremely high). Bill Gurley, a famous venture capitalist and long time blogger, has a great post All Revenue is Not Created Equal: The Keys to the 10x Revenue Club where he talks about factors that contribute to extremely high multiples of revenue (think LinkedIn, OpenTable, etc).
Here are the factors Bill Gurley lists:
- Sustainable Competitive Advantage (Warren Buffet’s Moat)
- The Presence of Network Effects
- Visibility/Predictability are Highly Valued
- Customer Lock-In/High Switching Costs
- Gross Margin Levels
- Marginal Profitability Calculation
- Customer Concentration
- Major Partner Dependencies
- Organic Demand vs. Heavy Marketing Spend
ExactTarget has most the factors including #2 (The Presence of Network Effects), #3 (Visibility/Predictability are Highly Valued), #4 (Customer Lock-In/High Switching Costs), #5 (Gross Margin Levels), #6 (Marginal Profitability Calculation), #7 (Customer Concentration), #8 (Major Partner Dependencies), and #10 (Growth). A sustainable competitive advantage is there but not as obvious as lower cost providers continue to proliferate. In addition, there isn’t organic demand but rather very heavy marketing spend ($30 million in losses last year due to sales and marketing). With eight of the 10 factors readily identifiable, and the stock trading at 8x revenue, it’s squarely in the 8x revenue club.
What else? What are your thoughts on ExactTarget in the 8x revenue club?