2016 IPO Prospects: Apptio Files Despite Reduced Valuation and Mounting Losses

A recent report by MarketsandMarkets on the global cloud-based IT Service Management (ITSM) market projects the industry to grow 15% annually over the next five years to be worth $8.78 billion in 2021 from $4.41 billion in 2016. It is dominated by big vendors including IBM, CA Technologies, BMC Software, Microsoft, and HP. But, Bellevue, Washington-based Apptio is part of the small vendors that are making their presence felt in the industry. And now, the company is ready to go public.

Apptio’s Offerings

Apptio was founded in 2007 by Sunny Gupta to fill the gap of a cloud-based offering that could help the CIOs of organizations manage the business of technology more efficiently. It is a leading provider of Technology Business Management (TBM) solutions that provides a data-driven, cloud-based SaaS system to improve the decision-making capabilities of IT leaders through analysis and benchmarking capabilities.

Meanwhile, Apptio continues to expand its product offerings. Earlier this year, Apptio announced new Contract and Asset planning capabilities for its IT Planning Foundation application. The new feature will allow CIOs, IT finance teams, and budget owners to get a detailed visibility into their resource investments in labor, traditional, and cloud-based contracts and IT assets.

The solution realizes the importance of transparency in vendor contract pricing and gives IT leaders a view of all vendor contracts, including renewal dates, total contract values, notice periods, and budget increases to help them plan their contracts better. It also addresses the capital asset requirement through an Asset and Depreciation functionality that will allow IT finance to create pre-defined depreciation parameters by asset type and enter key asset information to deliver more accurate balance sheet and cash flow plans.

Apptio’s Financials

Apptio earns revenues through subscription and professional services for its products. Revenues have grown from $73.8 million in 2013 to $106.6 million in 2014. For fiscal 2015, revenues grew 21% to $129.3 million. Net losses have also increased during the period due to continued investments in product and market development. Net losses came in at $23.7 million for 2013 and grew to $32.9 million in 2014. For fiscal 2015, Apptio recorded net losses of $41 million.

For the six month period ended June this year, revenues grew 22% to $75.62 million. By segment, subscription revenues grew 31% to $61.68 million. Revenues from professional services contributed the remaining $13.94 million for the quarter. During the same period, losses have narrowed down marginally. Net loss reduced from $18.41 million in the first half of 2015 to $14.88 million for the first half of the current year. Overall though, Apptio expects losses to continue due to investments in product development and sales and marketing.

Apptio has been venture funded so far with $136 million in funding from investors including T. Rowe Price, Shasta Ventures, The Hillman Companies, Madrona Venture Group, Greylock Partners, Janus, 137 Ventures, Andreessen Horowitz, and Cisco. Its last round of funding was held in May 2013 when it raised $45 million at a valuation of $600 million. Last month, Apptio decided to test the stock market by filing its S-1 to go public.

But all is not well with Apptio. Over the past year, venture capitalists appear to have become more realistic about the valuations they assign to companies. This is also evident in Apptio’s valuation which appears to have stagnated despite improving financial metrics. Earlier this year, T. Rowe Price had announced a 25% drop in the valuation of its shares in Apptio. More recent reports reveal that Apptio is planning to raise $75 million through its listing that will suggest a valuation of nearly $520 million.

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