Does Anaplan’s Stock Have Any Upside?

by Trefis Team
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Anaplan (NYSE:PLAN) has grown rapidly in the past few years, as its Hyperblock technology – which enables intelligent planning across the Finance, Sales, Supply Chain, Marketing and Workforce domains – gains traction among customers. The company’s recent IPO was fairly well received, and its current stock price is nearly 20% higher than its IPO price. Our interactive dashboard on A Closer Look At Anaplan’s Valuation examines the company’s key valuation drivers, and a scenario where there can be a further upside to the company’s stock price. You can modify any of our assumptions to arrive at your own estimate of the company’s valuation.

Strong Growth In Customers Driving Revenues

Anaplan has been steadily increasing its customer base over the past three years. While the rate of growth has slowed down, the number of members of Global 2000 (Top 2000 companies as per Forbes) in Anaplan’s customer base is growing strongly. As of July 2018, Anaplan had 979 customers, and 56% of its revenues came from members of the Global 2000. These companies present a significant growth opportunity for Anaplan. Further, the company’s subscription revenue per customer has grown over the past three years, indicating high quality of revenue growth. These factors are a strong indication that future revenue growth is likely to remain strong, at least in the near term.

Gross Profit Remains Strong, Operating Expenses Decline

Anaplan has been able to improve its gross margins over the last few years, and at 70% for fiscal year 2018, they are slightly lower than competitor Adaptive Insights, which generates a gross margin of nearly 74%. While the company’s operating expenses remain high and it continues to generate losses, these expenses are showing a declining trend, indicating lower customer acquisition costs and a path towards profitability in the near future.

Revenue Multiple Remains Low 

Anaplan commands a revenue multiple of around 11.7X (after a more than 20%  stock price gain post-IPO) based on its projected 2019 revenues. This multiple is slightly lower than Adaptive Insights, which commanded a multiple of around 12x (based on projected revenues for fiscal year 2019) when it was acquired by Workday. Callidus Software, which was acquired by SAP earlier this year, commanded a revenue multiple of 12.5x  based on its 2017 revenues. Anaplan’s revenue growth has been substantially higher than Adaptive Insights (40% growth for the fiscal year ended January 2018, compared to 30% by Adpative Insights in the same period) while the difference in the companies’ gross margins is narrower. This indicates that Anaplan’s valuation could still have some more room for upside – given that it trades at a slight discount to many peers, despite its strong revenue growth trajectory and clear path to profitability. Faster growth in revenues could boost the company’s valuation further.

In a scenario where Anaplan commands a revenue multiple of 12.5x and is able to generate revenues of $250 million in fiscal 2019, the company’s valuation could be around $3.1 billion, a 20% upside to its current stock price levels. You can create additional scenarios by modifying the blue dots in our interactive dashboard here.

With several large companies such as Coca Cola and HP as clients, a strong customer base of nearly 1,000 companies and growing subscription revenues per customer, Anaplan appears to be on a strong growth and profitability path. Its “land and expand” strategy, whereby the company implements its solution for one business vertical of a client and then expands to other verticals (once the solution is successful), is working well. Anaplan has been able to expand its platform and has seen strong expansion rates. According to IDC the performance management and analytic applications software industry is likely to grow by $4 billion between 2018 and 2021, and Anaplan is well poised to capitalize on this growth. Further, the company believes that its market opportunity is higher, and not captured by current market research studies.

We believe Anaplan is a solid player in the industry, and effective execution of its strategy can lead to strong revenue growth, and consequently an upside to its valuation.

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