Demandware Riding High on IPO

Analysts estimate that global e-commerce revenues will grow from $316 billion in 2010 to $653 billion by 2015. Further, they estimate that the market for cloud-enabled e-commerce platform services will grow 21% annually from 2010-2015 to reach $11.3 billion, from $4.3 billion estimated in 2010. Counting on this growth, e-commerce platform services provider Demandware recently made their IPO.

Demandware’s Financials
Demandware was founded in 2004 by Stephan Schambach, former CEO of Intershop, to deliver an e-commerce solution that enabled merchandisers with improved power and innovation at lower technical costs, complexities and risks. They were the pioneers to provide the market with their first on-demand enterprise e-commerce platform. Today, their product is the leading on-demand e-commerce platform and claims to be the basis of more than 200 e-commerce websites, recognized by world renowned retailers and brands.

Demandware earns revenues through a subscription- and performance-based pricing model. Customers agree to a minimum value of transactions on their platform and pay a subscription fee based on that minimum amount. Transactions processed over and above this minimum requirement are charged additionally to the customers.

The company has reported strong growth over the past few years. As of September 2011, they had 91 customers, compared with 16 reported in 2008, for an annual growth rate of 64.3%. The number of e-commerce sites operating on their platform grew from 39 to 321 during the same period, recording 83% annual growth.

Over the past four years, revenues have grown from $7.5 million in 2008 to $21.4 million in 2008 and $36.7 million in 2010. For the nine months ended September 2011, they saw revenues grow 57% to $37.9 million. They ended the previous year with revenues of $56.5 million, recording 54% growth over the year. They reported net losses of $25.1 million in 2008. Losses fell to $10.4 million in 2009, and they reported earnings of $0.3 million in 2010. However, last year, because of additional spending on research and marketing, the company saw losses grow to $4.0 million for the nine-month period ended September 2011.

To date, the company has received funding of $43.1 million from investors, including General Catalyst Partners, North Bridge Venture Partners, and T-Venture. Last month, they were listed on the NYSE under the ticker DWRE. The company raised $88 million through an IPO priced at $16 a share.

Demandware’s Growth Plan
Demandware is focused on growing by helping their existing customer base to expand their e-commerce presence. They plan to help their customers by launching revenue-generating e-commerce sites focused on different regions, brands, and channels. They will also work to extend the platform across channels such as smartphones, social networks, call centers and in-store kiosks.

The company is also evaluating international expansion plans, with sharper focus on Europe and Asia Pacific markets. They plan to expand their operations in Europe through investment in sales, strategic alliances, services, and support. They are also evaluating plans to set up base in Asia Pacific to address the emerging markets.

The market is buoyed by Demandware’s potential, and where many tech IPOs may have crashed, their stock continues to soar. Demandware’s stock is trading at $27.08 with a market capitalization of $758.16 million. It touched a high of $31.98 soon after listing.