Tomorrow, Pleasanton, California-based Workday, which describes itself as a “leading provider of enterprise cloud applications for human resources and finance,” is launching its initial public offering as the company finally goes public.
This goes against the grain of all the recent acquisitions and consolidation going on in the HR tech space, but what jumped out at me about Workday’s IPO is not so much how much money they are planning to raise tomorrow (a healthy $590 million plus), but rather, the overall valuation of the company as it goes public.
Would you believe that the IPO will place Workday’s value around $4 billion?
Valuation shows faith in Workday’s model
That number jumped out at me today from a San Francisco Chronicle story about Workday on the eve of its initial public stock offering that’s set for tomorrow:
Workday, a maker of Web-based payroll and human resources programs, is betting it deserves a higher valuation than all other business software providers to hit the public markets in the past year.
The Pleasanton company plans to raise as much as $591.5 million in its initial public offering Friday. The middle of its $24 to $26 price range, which will be set Thursday, values Workday at $4 billion, about 20 times sales in the past four quarters. That’s a richer IPO valuation than any of the 13 U.S. business software companies to go public since late 2011, according to data compiled by Bloomberg.
The higher valuation reflects confidence in Workday’s ability to grow by targeting large corporations, putting it in direct competition with Redwood Shores’ Oracle. Before founding Workday in 2005, co-Chief Executive Officers Dave Duffield and Aneel Bhusri were top executives at PeopleSoft, the human resources software company Oracle bought that same year in a hostile takeover.
“The revenue momentum, the bookings momentum – there’s no doubt in a lot of peoples’ minds that this is a market-leading company,” said Kevin Spain, a general partner at Emergence Capital Partners in San Mateo. “That obviously drives a premium.”
“Emerging as a force to be reckoned with”
The Chronicle story details Workday’s revenue growth, and how its products are used by more than 340 customers and graining traction at large businesses such as Google and Hewlett-Packard. That’s all great, of course, but it’s Workday’s future prospects that seem to have analysts and investors most excited:
Mark Murphy, an analyst at Piper Jaffray, estimated in a report that Workday’s share of the $15 billion human-resource-software market could increase more than fivefold to 17.6 percent in the next three to five years from 3.2 percent. He predicts Workday will take sales from companies including Automatic Data Processing, Lawson Software and Ceridian Corp.
“Workday is emerging as a force to be reckoned with,” Murphy wrote.”
If you are interested in what is going on right now in the HR technology market — and judging from all of the people I saw in Chicago this week at the annual HR Technology conference, there are a lot of them out there — you would be well served to read this San Francisco Chronicle story before you sit back and watch how Workday’s IPO does tomorrow. (For a slightly different take, check out the San Jose Mercury News piece on Workday’s IPO, because it is interesting, too.)
And here’s my take, for what’s it worth: Don’t be surprised if Workday’s IPO is a lot more successful than what Facebook did a few months back. Yes, Mark Zuckerberg is a smart guy, but he hasn’t been around nearly as long, or have as heralded a track record, as Dave Duffield, who seems to be the John Wooden of the HR tech world.
My guess is that all of that, in the end, will make for a lot more investors feeling a lot more comfortable about investing in something solid like Workday rather than a more mercurial company like Facebook. Tomorrow, we’ll know if that assessment holds true.