Despite weakness in the overall market, Cornerstone OnDemand, Inc. (CSOD) priced their 10.5M share IPO at $13.00, well above the indicated range of $9.00-11.00. Cornerstone is offering 7.5M shares, while the selling stockholders (including entities affiliated with Bessemer Venture Partners, Meritech Capital, Bay Partners, and certain executive officers and directors) are selling 3M shares. The offering is being led by Goldman Sachs and Barclays.
Cornerstone is pure-play software as a solution (SaaS) provider of learning and talent management. They help companies maximize productivity of their employees by supporting the entire employee lifecycle. Their solution consists of five integrated platforms for learning management, enterprise social networking, performance management, succession planning and extended enterprise. Their solution is personalized for employees, yet unified for managers.
The company has grown from just four customers in 2001 to 481 at the end of 2010. They currently serve over 4.92M users across 164 countries in 23 languages. Revenue has grown at a 62% CAGR from ’07 to ’10, from $11M to $46.6M. For 2010, the company experienced 58.9% revenue growth and 76.7% bookings growth. The company’s gross margin for 2010 was 69%, but they have not yet reached profitability, with a -19% non-GAAP operating Margin in 2010.
Publicly traded competitors include: Taleo Corp (TLEO), Saba Software (SABA) and SuccessFactors (SFSF). These comps are currently trading at 2012 estimated P/Es of approximately 29x, 30x and 280x, respectively. They also face competition for larger software companies such as ORCL and SAP. Cornerstone points out that the majority of their growth has been organic, while many of their competitors have grown through acquisitions. They also note that they have had a retention rate of over 95% on a dollar weighted basis since 2001.
While it may seem strange that an unprofitable company such as Cornerstone would garner as much attention as it has in this current weak and volatile market, it shows that investors are still seeking growth at such times. There is also the possible correlation that this learning and talent management market will see the rapid adoption of SaaS, as has been the case with other segments, such as software for the workforce (ie, Salesforce (CRM)). In any case, as we see by the aggressive pricing, there was much demand for the offering, and it should perform well out of the shoot today, despite the overall market.