2016 IPO Prospects: Automattic Needs to Justify Valuation

According to a W3Techs survey conducted in November last year, 25% of the websites globally use WordPress as their content management system. We are avid users of WordPress and love the product. The open-source platfrom’s market share has increased from 13% back in 2011 to 23.3% by January 2015 before ending the year with 25.6% share. Automattic is looking to increase that share to 50% in the next few years, but it has a long way to go.

Automattic’s Offerings

Automattic was founded in 2005 by Matthew Mullenweg as an online blogging service for the masses with a mission of wanting to make the web a better place. Automattic offers several web-based tools such as an online proof reading tool – After the Deadline; a forum software – bbPress; file sharing application – Cloudup to name a few. But their biggest claim to fame is the web publishing platform WordPress.com.

WordPress.com is among the easiest and the most secure ways to start web-publishing. Its users not only include individuals, but also bigger names like the New York Times. The enterprise version called WordPress.com VIP integrates the benefits of the blogging tool WordPress.com with the ability to run custom code. It also offers its customers access to a Content Management System and a 24 x 7 support service.

Automattic offers its basic services for free and charges customers a premium for additional features such as customized designs, enhanced customer support, video content embedding capability, and unlimited blog space. Premium access is priced at $299 a year. The company also offers cloud hosting services for larger websites at charges starting at $5,000 per month.

Today, WordPress has become the biggest publishing platform on the net that powers more than 25% of all websites on the Internet. Joomla comes in a distant second with a comparatively modest 2.8% market share followed by Drupal at 2.2% share. WordPress serves over 15.8 billion pages each month and has recorded over 131 million monthly unique visits in the US – second only to Google which has a significantly higher 232 million unique visitor count in the country.

Automattic’s Financials
Automattic has several revenue generating tools to monetize its non-paying subscribers. It earns revenues through premium subscription services, advertising on user sites, and by charging media companies to run their blogging platforms. It is estimated to be profitable and has delivered strong growth in the past. The company’s recent financials are not known. Revenues were estimated to be $45 million for 2012 compared with a modest $10 million in 2010.

Automattic has been venture funded so far with $317.30 million from investors including Insight Venture Partners, Chris Sacca, True Ventures, Tiger Global Management, Iconiq Capital, Polaris Partners, Radar Partners, New York Times, Shelby Bonnie, Blacksmith Capital, CNET Networks, Doug Mackenzie, and Kevin Compton. Its last round of funding was held in May 2014, when it raised $160 million in a round led by Insight Venture Partners, Chris Sacca, True Ventures, Tiger Global Management, and Iconiq Capital at a valuation of $1.16 billion. That is a significant growth from the $200 million valuation that the company had been pegged at in an acquisition offer back in 2007.

Automattic’s management has maintained that it doesn’t want to go public as it has sufficient funds and would prefer to remain independent. The VCs invested in Automattic have been patient so far, but they will soon be looking for an exit. An IPO is a likely exit for them. But further clarity about its financials would reveal whether or not it will be a successful IPO. Freemium businesses like Evernote have struggled due to low conversion rates from free to premium. WordPress doesn’t disclose conversion rates, nor detailed current financials. Without those metrics, it is hard to say whether this Unicorn will thrive in the public market, or it will crash.

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