How do you value slower, more profitable software growth?
Last night Datto priced its IPO at $27 per share, the top end of its range that TechCrunch covered last week. The data and security-focused software company had targeted a $24 to $27 per-share IPO price range, meaning that its final per-share value was at the top of its estimates.
The Datto IPO won’t draw lots of attention; its business is somewhat dull, as selling software to managed service providers rarely excites. But, the public offering matters for a different reason: It gives us a fresh lens into today’s IPO market.
That lens is the perspective of slower, more profitable growth. What is that worth?
The value of quickly growing and unprofitable software and cloud companies is well known. Snowflake made a splash earlier this year on the back of huge growth and enormous losses. Investors ate its shares up, pushing its valuation to towering heights. This year we’ve even seen rapid growth and profits valued by public investors in the form of JFrog’s IPO.
But slower growth, software margins and profitability? Datto’s financial picture feels somewhat unique among the IPOs that TechCrunch has covered this year.
It’s a similar bet to the one that Egnyte is making; the enterprise software company crested $100 million ARR last year and announced that it grew by around 22% in the first half of 2020. And, it is profitable on an EBITDA basis. Therefore, the Datto IPO could provide a clue as to whether companies like Egnyte and the rest of the late-stage startup crop should be content to grow more slowly, but with the benefit of actually making money.
Lessons from Datto’s IPO pricing and revenue multiple
Here are the deal’s nuts and bolts: