Rubrik's IPO on the Horizon
Portfolio company Rubrik, the cloud and data security startup known for its robust financial backing from software behemoth Microsoft, is reportedly on the brink of filing for an initial public offering (IPO).
As we wrote last September and updated last February, this move comes as part of Rubrik's ambitious plans to solidify its position in the cloud data management sector, aiming to raise between $500 million and $700 million. The potential filing, expected as early as next week, marks a significant milestone for Rubrik, reflecting its growth, market confidence, and a rejuvenated IPO market landscape.
Rubrik's journey to this pivotal moment is notable for its rapid ascendancy in the cloud and data security space, underscored by Microsoft's investment in 2021 that pegged the startup's valuation at $4 billion. This partnership provided Rubrik with a substantial financial infusion and a vote of confidence from one of the industry's giants, setting the stage for its upcoming market debut.
The timing of Rubrik's IPO filing is particularly intriguing, given the recent uptick in IPO activity. The market has witnessed a notable resurgence, buoyed by successful offerings from diverse companies, including Reddit and Astera Labs. The first quarter of the year saw forty-eight companies raise approximately $9.6 billion through IPOs on U.S. exchanges, a significant increase from last year. This resurgence indicates a broader market recovery, offering a conducive environment for Rubrik's entry.
The upcoming Rubrik IPO is a litmus test for the company and the IPO market at large. It arrives when investor appetite appears to be warming up to technology and cloud-based enterprises, as demonstrated by the recent successes of Reddit and Astera Labs. Rubrik's offering will thus be a critical indicator of the market's readiness to embrace new listings, especially those in the high-growth tech sector.
For more coverage about Rubrik, subscribe to our club letter.
Rubrik’s S-1 analysis
Rubrik's transition to a SaaS business model is clearly underscored in its S-1 analysis. As an enterprise-focused data protection platform with 6,000 customers and an average contract value (ACV) of $120,000, Rubrik offers a comprehensive suite of solutions covering data backup, disaster recovery, compliance, and analytics. Despite a nearly flat full-year revenue growth in 2024, increasing by only 5% to $628 million, the company's deliberate shift away from low-margin legacy maintenance, hardware, and perpetual sales revenue is noteworthy. This strategic move appears to be nearing completion, as indicated by subscription revenue making up 91% of its last quarter revenues, a significant jump from 73% the year prior.
The Annual Recurring Revenue (ARR) presents a more telling indicator of Rubrik's growth and value, with a 47% year-over-year increase and high gross margins. The S1 filing reveals that the transition from legacy maintenance contracts to new SaaS sales contributed to merely 4% of ARR growth over the last 12 months. Instead, growth was primarily fueled by expansion within the existing book (+133% Net Revenue Retention), robust new logo acquisition (+22%), and higher average contract value for subscription (ACVS) (+21%). However, the quarter-over-quarter net new ARR momentum has remained relatively flat, suggesting potential challenges in scaling. Assuming quarterly Net New ARR remains within the $65-70 million range over the next 12 months, YoY ARR growth could decrease to approximately 35%.
Despite incurring significant losses on the Profit and Loss statement (P&L) with a -48% margin, Rubrik has managed to keep its operating cash burn comparatively low. The substantial P&L losses are attributed to heavy investments in sales and marketing relative to ARR. Nonetheless, by securing multi-year contract deals and receiving upfront payments for multiple years of revenues, the company has managed to scale efficiently while keeping cash burn in check. This strategy not only bodes well for cash-efficient scaling and the Rule of 40 metric but also poses a risk to future cash burn if such sales momentum and contractual terms do not persist. The substantial $1.1 billion deferred revenue balance, approximately 1.5 times ARR, signifies cash already received for future ARR.
In conclusion, Rubrik's effective execution of its transition to a SaaS model, coupled with its rapid growth and nearly cash-flow breakeven status in a lucrative market, positions the company strongly. The healthy customer book, evidenced by positive Net Revenue Retention metrics, further underscores Rubrik's promising outlook as it nears its IPO.
Disclaimer:
This statement should not be construed as financial advice. Investing in any company, including Rubrik, involves risks, and potential investors should carry out their due diligence or consult with a financial advisor before making any investment decisions.
