HashiCorp (HCP) IPO: US software company seeks $1bn capital
Cloud infrastructure start-up HashiCorp is going public in the US to raise up to $1.16bn to fund operations and growth. The San Francisco-based software provider provides cloud infrastructure to companies across public and private clouds. Its technology enables clients to manage their workflow in centralised locations in four categories: applications, networking, security and infrastructure.
HashiCorp IPO: what you need to know
The company has filed for an initial public offering (IPO) on the US Nasdaq Global Select Market. It will be listed under the ticker symbol HCP.
The HashiCorp stock IPO is scheduled for 9 December. The software company will offer 15.3 million Class A common shares. Each share is planned to be sold within the $68-$72 range, which could raise between $1.04bn and $1.1bn. If the underwriters exercise their options to purchase the additional 2.295 million Class A shares at the top-end of the range, the IPO could raise up to $1.16bn.
Use of proceeds
According to HashiCorp’s US Securities and Exchange Commission (SEC) filing, the main purposes of this offering are to obtain additional capital, create a public market for its Class A common stock and facilitate future access to the public equity markets.
The company intends to use net proceeds from the IPO for general corporate purposes, including working capital. HashiCorp intends to use a portion of the net proceeds to satisfy the minimum anticipated tax withholding and remittance obligations of $90.8m related to the restricted stock unit (RSU) settlement based on an assumed IPO price of $70.00 a share.
The HashiCorp valuation is expected between $12.3bn and $13bn, if the offered shares, including underwriters’ options to buy, are sold at its target range.
In the event that the underwriters do not exercise their options to purchase additional shares, holders of HashiCorp Class B common stock will own approximately 99.1% in combined voting power of the company’s outstanding capital stock. Each share of Class A common stock will be entitled to one vote, while Class B stock is entitled to 10 votes.
“While HCP’s high operating losses are a concern, as a percentage of revenue, they are dropping. The firm’s dollar-based net retention rate of 127% is very impressive and shows the firm is growing sharply by providing what the market wants and doing so efficiently,” said analyst Donovan Jones on Seeking Alpha.
Ahead of the HashiCorp IPO date, let’s look at HashiCorp IPO news and analyse the company’s business model, revenue, growth strategy and risk factors to help you navigate the launch.
HashiCorp business model’s overview
HashiCorp was founded in 2012 by Mitchell Hashimoto and Armon Dadgar. They met when they were studying Computer Science at the University of Washington.
“HashiCorp’s portfolio of products is based around the need to have consistent workflows to provision, secure, connect, and run infrastructure and applications across multiple public and private cloud environments,” said both founders in the SEC filing.
HashiCorp’s products are developed as open-source projects, and are available in a “non-commercial form for users to download, learn and adopt”. The company also “sell[s] proprietary, commercial software that builds on our open-source products with additional enterprise capabilities.”
The company’s primary commercial products are Terraform, Vault, Consul and Nomad.
Terraform: An infrastructure provisioning product that supports all major public and private clouds, and allows users to easily set up and manage IT infrastructure.
Vault: A secret management and data protection product. Using Vault, security teams can apply policies based on application and user identity, integrating with both on-premises and cloud-native identity providers, to govern access to credentials and secure sensitive data.
Consul: An application-centric networking automation product. It enables practitioners to manage application traffic, security teams to secure and restrict access between applications, and operations teams to automate the underlying network infrastructure.
Nomad: A product that provides practitioners with a self-service interface to manage the application lifecycle.
Growth strategy: According to data from research consultancy the 650 Group, the global public cloud market is forecast to grow to $607.1bn and the private cloud market to $33.0bn by 2026, with a compound annual growth rate of 15% between 2021 and 2026.
Amid increased adoption of cloud technology worldwide, HashiCorp intends to pursue the strategy of growing existing customer bases. The company served 2,392 customers, as of 31 October 2021, including over 340 of the Forbes Global 2000. Nearly all of HashiCorp’s paid product adoption began with open-source usage. HashiCorp said its products were downloaded approximately 100 million times during fiscal year 2021.
The company will continue to cultivate those users and turn them into paid customers. In addition, HashiCorp also intends to drive new paying customer additions by expanding its sales and marketing efforts and product portfolio, its existing customer base through increased usage, extensions to new products and use cases, and its global footprint
Sales outside the US accounted for 25% of the company’s fiscal 2021 revenue, and 27% of revenue between February to October 2021.
To increase its global presence, HashiCorp plans to make investments in sales, marketing and customer support in geographic areas of focus.
High retention rate amid market competition
The industry is competitive. One of the biggest challenges is customer retention. To stay ahead of rivals, HashiCorp has emphasised its company strategy of developing and cultivating long-term customer relationships. The company’s last four quarter average net dollar retention rate was consistently above 100%. See table below.
HashiCorp revenue rises in 2021, loss narrows
HashiCorp’s revenue jumped to $224m in February to October this year, up 49% on the same period in 2020. The increase was driven by a higher number of customers and recurring annualised subscription contracts.
Operating expenses grew by 26.5% year-on-year to $249.6m. Rising operating expenses pulled overall income lower. Losses this year have narrowed by 18.5% compared with the same period in 2020.
HashiCorp listed the following risk factors in its SEC form:
· Failure to appropriately manage future growth, and improve systems, processes and business, financial condition will adversely affect the company’s prospect.
· Due to HashiCorp’s history of net losses, it may not be able to achieve or sustain profitability or positive cash flows in the future.
· Limited operating history makes it difficult to evaluate HashiCorp’s current business and prospects.
· Future quarterly results of operations may fluctuate significantly, as HashiCorp’s recent results of operations may not be a good indication of its future performance.
· Downturn or upturns in sales could affect subscription revenue, which may not be immediately reflected in its results of operations.
· Due to the open-source licenses, there are limited technological barriers to entry into the market, which could increase competition in the industry.
· Failure to increase sales of subscriptions to new customers, sell additional subscriptions or expand sales value to existing customers.
· Limited experience in determining the optimal prices for products.· Unpredictable sales cycle length, which may require considerable time and expense for sales effort.
When considering whether to invest in the company’s stock, you should always do your own research, considering the outlook and relevant market conditions. A number of factors dictate whether stock prices rise or fall, including the company’s fundamentals and broader macro-economic factors. There are no guarantees. Markets are volatile. You should conduct your own analysis, taking in such things as the environment in which it trades and your risk tolerance. And never invest money that you cannot afford to lose.
What is the initial public offering value?
HashiCorp’s initial public offering value is planned to be between $68 to $72 a share.
When will HashiCorp go public?
HashiCorp will go public and list its shares on Nasdaq on 9 December 2021, according to the Nasdaq IPO calendar.
Is HashiCorp a public company?
This is the first time HashiCorp will offer its shares publicly. Until its shares are listed on Nasdaq, it is not a public company.
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