2016 IPO Prospects: AppDynamics May Sustain Unicorn Valuation

According to a Gartner report published last year, the application performance monitoring (APM) market grew at a record pace of 15.8% in 2014 to $2.6 billion. Compuware is the market leader with $326.9 million revenues, followed by IBM at $222.6 million. Newer companies are also making their presence felt. The fastest growing vendor in the space was San Francisco-based AppDynamics which reported an impressive 246.5% growth to end last year with an estimated $79 million in revenues.

AppDynamics’s Offerings

CA alumnus Jyoti Bansal founded AppDynamics in 2008 to deliver application performance monitoring tools to cater to the growing demand for distributed architectures. The idea of AppDynamics was similar to that of Google. Like Google wanted to index every page on the Internet, Jyoti wanted to “watch every line of code” in the world.

He set up AppDynamics initially as Singularity Technologies with the vision of ‘application intelligence’ to empower software-defined businesses to embark on their journey of digital transformation and adopt a new agile, business transaction-focused approach to monitoring, managing and optimizing their applications.

Today, it offers a range of solutions that not only provide visibility into the application and code-level detail, but also offer solutions for problems based on learnings evolved from the application’s past performance. It is this intelligent learning that has helped AppDynamics deliver products that are able to adapt to growth in scale and demands of cloud-based deployment. AppDynamics’ customers are able to monitor, troubleshoot, diagnose, and scale production applications. Businesses are able to identify how application performance is impacting the business and how the problems of application performance can be fixed. For instance, the platform is able to recognize that a shopper abandoned an online shopping cart due to poor application performance, and then allows the business to offer the customer a coupon for a future purchase.

AppDynamics’s Financials

AppDynamics operates on a freemium model where it offers a basic pre-production license for free. These licenses grant developers access to basic diagnostics and alert tools and help them take care of simpler problems such as slow transactions. Paid for premium subscriptions are available at prices starting at $3,300 for a year and come with added features such as access to unlimited application performance management agents, data retention for years, unlimited data agents, network request dashboards, analytics and other tools.

AppDynamics does not disclose its detailed financials. Analysts estimate that their bookings have nearly doubled to $150 million in 2014. According to the Gartner report, revenues came in at $79 million in 2014.

It is venture funded so far with $365 million raised from investors including Altimeter Capital, General Atlantic, Battery Ventures, ClearBridge Investments, Sands Capital Ventures, Lightspeed Venture Partners, Greylock Partners, Kleiner Perkins Caufield & Byers, and Institutional Venture Partners. Its last round of funding was held in November 2015 when it raised $158 million from Altimeter Capital and General Atlantic at a valuation of $1.9 billion. Prior to this round, AppDynamics had raised $70 million at a valuation of over $1 billion. The latest round was suggested to be a “pre-IPO growth round”.

The APM market is still dominated by the legacy firms like IBM, CA and Compuware. But newer age companies like New Relic and AppDynamics have made their mark in the market. Unlike New Relic, which focuses on the smaller organizations and startups, and has just begun to expand to larger organizations, AppDynamics works more with mid-sized companies. In December 2014, New Relic went public and has since delivered a successful IPO with its market valuation having risen from pre-IPO levels of $1 billion to $1.75 billion. Given AppDynamics’s strengths, it won’t be off-base if it expects to deliver a similar performance when it decides to go public.

This segment is a part in the series : 2016 IPO Prospects