CPM is Heating Up - Anaplan Goes Public

Prophix ImageProphix Sep 28, 2018, 2:23:00 AM
The Corporate Performance Management (CPM) space continues to heat up. Last Friday, Anaplan announced their decision to file for an IPO. As we’ve seen recently with Adaptive Insights, going public means that Anaplan must file certain information about their business, which can be very revealing for those of us in the same market space. We’ll take you through the most noteworthy parts of their S-1. Based in San Francisco, Anaplan was formerly a privately-held growth company with over 20 global offices, 175 partners, and more than 900 customers worldwide. In the past couple of years, Anaplan has nearly doubled its headcount globally, up from 558 employees in 2016 to 1,102 employees in July 2018. As Anaplan moves forward with their IPO, this rapid expansion will inevitably put a strain on their infrastructure, culture, and customer/partner relations, which will create distractions for the organization. Some have also raised concerns that their “senior management team, including members of [their] financial and accounting staff, [have] worked at the company for a limited time.” While on one hand, senior executives from Telsa are moving into the CPM space, which is a boost to the industry. Conversely, however, Anaplan’s inexperienced leadership team could be a red flag for investors, partners, customers, and prospects. One of the more concerning things that have come out of Anaplan’s public filing is regarding their profitability. In its fiscal period, closely aligning with the 2017 calendar year, Anaplan lost $47.6 million against that year’s $168.3 million in revenue, which works out to a negative 28.2% net margin. In its most recent half-year period, Anaplan lost $47.2 million, a net margin of negative 43.2%. So, it’s clear that Anaplan’s growth has come at a high cost. Furthermore, Anaplan’s operating costs have grown sharply in every category year-over-year. The firm’s sales and marketing spend saw the largest growth – from $42.3 million in the six months ending July 31, 2017, to $77.9 million during the six months ending July 31, 2018. This dramatic growth and the associated deficit could impact both the customer experience and the overall stability of the organization. Another notable thing to come out of Anaplan’s S-1 is their rising operating cash burn in the last two quarters, compared to their year-ago equivalents, rising investing cash burn over the same period, falling subscription gross margin, and rising services gross margin. Using the strict Rule of 40 calculation, the firm is unimpressive. Yet, Anaplan’s CEO Frank Calderoni remains optimistic; “our total addressable market is estimated to jump from $15 billion last year to over $21 billion in 2021 and that’s not even counting that $20 billion opportunity of replacing Excel that enterprises are still using today to do planning and forecasting.” Overall, Anaplan’s decision to go public is good for generating awareness of all players in the CPM sector, including Prophix. Their public filing merely serves as a further example of how “desirable” vendors in this space are becoming.
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