With a flurry of initiations crossing the wires this morning as the quiet period expires for recent IPO Anaplan (PLAN), it is clear that there is plenty of interest in the name from the analyst community. And, according to their initiations, a majority of analysts are feeling bullish on the name as well. However, the stock is still trading lower by about 3% this morning as investors seem to be honing in on two of the more prominent calls -- specifically, the more cautious notes from Goldman Sachs (Neutral) and Morgan Stanley (Equal Weight).
It's also worth noting that PLAN is trading well above its expected price range. To rewind, on October 12, PLAN's 15.5 mln IPO priced at $17, the high end of the $15-$17 projected range, and opened for trading with a sizable 43% pop to $24.25. That is essentially where the stock closed yesterday. The surge higher created a much loftier valuation as compared to the mid-point of the proposed price range, with a 1-year forward P/S in the 10x range.
While PLAN's top-line growth is solid and its gross margin has been on the rise, its operating losses are considerable and are widening as the company invests heavily in Sales & Marketing. Consequently, the company's risk/reward profile isn't as attractive as it was prior to its IPO pricing, likely causing Goldman and Morgan Stanley to take a somewhat more cautious perspective on its upside potential in the near term.
However, despite the rich valuation, most analysts are still quite bullish on the stock. For instance, Needham initiated PLAN with a Buy and $30 price target, commenting that PLAN represents a compelling hyper-growth story as the early leader in a segment where customers are looking to migrate to a Cloud model. And, while PLAN's valuation multiple of 10x FY20 revenue places it at the top end of the historical range for SaaS companies, the firm thinks rapid, sustainable revenue growth and expanding margins will continue to support the multiple as valuations shift to FY21 expectations.
Other notable positive initiations include: Market Outperform at JMP Securities, Buys at Suntrust, Jefferies, and Canaccord Genuity, and Overweights at Barclays and Piper Jaffray.
Another factor here is that the stock ran up nearly 10% over the past few days ahead of the quiet period expiration as the market rebounded higher and as traders anticipated a positive round of initiations. So, a "sell-the-news" type of reaction is at play as well. Overall, though, PLAN's future does look bright as the company has considerable room for growth and as well as for continued margin improvement and business scaling.
PLAN is a cloud software provider, developing what it calls a "Connected Planning" platform, enabling businesses to make better and faster decisions. Its Connected Planning software was built to replace legacy approaches to planning, which has traditionally been characterized by outdated tools (like Excel) with manual processes that are typically slow and inefficient. Also, planning has usually been confined to finance departments. PLAN's software has the capability to connect all people within an organization to data and plans, enabling a collaborative approach to business planning.
Behind its software is its modeling engine which is driven by its "Hyperblock" technology. This enables thousands of concurrent users to access a centralized source of information for planning purposes. Hyperblock also allows users to quickly run alternative scenarios to better understand the impact of changes in business projections. Consequently, users can assess the impact of assumptions on various business plans and key performance indicators in real time.
The company has also been investing in artificial intelligence, including machine learning, to further improve its predictive capabilities.
As you can probably imagine, there's an almost limit-less amount of possible uses for PLAN's software. But, some of the more common uses are for managing sales performance and sales forecasting, managing budgeting and planning, supply chain and inventory management, managing workforce plans and performance, and IT project budgeting.
Its customer base cuts across sectors, industries, and size. That said, PLAN primary focuses on larger enterprises as that is where it sees its greatest opportunity. As of July 31, 2018, it had 979 customers. Of this total, 220 were members of the Global 2000, and they accounted for 56% of its total revenue for the six months ended July 31, 2018.
For the 3-months ended July 31, 2018, revenue was up 41% to $109.4 mln. Subscription revenue was $94.5 mln (86% of total revenue), up 48%, due to additional sales to existing customers, which accounted for approximately 60% of the increase, and a significant increase in sales to new customers, which accounted for approximately 40% of the increase.
Gross margin improved to 73% from 69%, due to the aforementioned increase in subscription revenue, which carries higher margins that professional services revenue.
PLAN's largest expense is Sales & Marketing, which is not unusual for an up-and-coming cloud software company. This expense soared by 84% to $77.9 mln as it added to its workforce and paid higher salaries and benefits.
Overall, the company's operating loss widened to ($45.3) mln from ($15.9) mln in the year ago period.