The Friday Ho
tViews post – Workday - Another Cloud IPO. Another huge valuation – could only hint at what actually happened on the first day of trading. The IPO price was set at $28 which valued Workday at $4.5b. This you might think was a pretty massive valuation anyway for a loss-making company which had revenues of just c$120m in the six months to 31st July 12.
But the market went mad for the shares which ended the first day of trading at $48.70 – a 'mere' 74% gain. So, at $7.8b, that is around 16x next year’s high-end forecast revenues of c$500m.
I really like Workday. It has a great business model and industry niche. HR is right there in the ‘sweet spot’ of applications which large enterprises are happy to move to the cloud (like CRM). Its ex-Peoplesoft founders/managers are ‘veterans’ who know the business. But there does come a point where even the most enthusiastic backer says “everything and more has already been built into this price’.
‘Bubbles’ usually do harm to our sector. Of course, we need successful IPOs. But these should be based on tried and tested valuation metrics. Then shareholders – even the ones coming in, rather than cashing in, at IPO - should get rewards going forward based on the performance of the company. If you reread my expose (see The Last Time) of my two remaining Holway Boring Award winners – Sage and Capita – that is exactly what they have done.