ThoughtSpot reports cloud growth, but IPO still not imminent

Despite rapid growth in the cloud over the past year, ThoughtSpot is not yet ready for an IPO.

ThoughtSpot on Wednesday released statistics demonstrating growth in the cloud. Meanwhile, during the past two years, Sudheesh Nair, the vendor's CEO, has been open about positioning ThoughtSpot for an initial public stock offering.

That positioning included a significant strategic shift about 18 months ago from serving an on-premises customer base with an on-premises analytics platform to prioritizing the cloud and assisting customers as they move to the cloud.

To that end, the vendor, founded in 2012 and based in Sunnyvale, Calif., introduced ThoughtSpot Cloud, the first SaaS version of its suite of tools, in September 2020. And since then, ThoughtSpot has prioritized the cloud as its distribution method, though it says it continues to serve on-premises customers.

Cloud products now represent half of its annual recurring revenue, according to ThoughtSpot. In addition, annual recurring revenue from its cloud products grew 250% in the past year, and 85% of new customers purchased cloud products during that 12-month period.

Further, the vendor said it has reached 100 SaaS enterprise customers, including T-Mobile and Verizon, with customers spending an average of nearly $100,000 for their deployments.

Still, despite year-over-year growth in the cloud, ThoughtSpot is not quite ready for an IPO, according to Nair.

I'd like to put a few more quarters behind us to show predictability.

"When you take a company public, there are two things," said Nair, who joined ThoughtSpot in 2018 after taking hyper-converged infrastructure vendor Nutanix public in 2016. "The first are growth metrics, and our growth metrics are pointing in the right direction. But the second part is predictability, and I'd like to put a few more quarters behind us to show predictability."

He added that there are always surprises -- the pandemic, for example, couldn't have been predicted two years ago. Therefore ThoughtSpot needs to show more than just 12 months of steady cloud growth to convince potential investors that the vendor's business model is sustainable.

"It's important before you take a company public you have the right team, a history and the right methodologies," Nair said.

Waiting a little while longer, meanwhile, is sound strategy, according to David Menninger, an analyst at Ventana Research.

While ThoughtSpot has now demonstrated year-over-year growth in cloud revenues, enterprises need to show steady growth over a lengthy period to gain the trust of potential investors.

"Companies typically want to show consistent and significant top-line revenue growth, as well as improving margins, as a precursor to going public," Menninger said.

He added that a specific timeline for ThoughtSpot's eventual IPO will only truly be known when the vendor files the requisite paperwork with the Securities and Exchange Commission.

While the strategic shift to the cloud is not the only move ThoughtSpot has made in preparation for an IPO, it's perhaps the most significant when it comes to attracting potential investors.

Nair noted that while tech companies are attracting huge valuations, a significant divide remains between those with cloud-based technologies and those without. On-premises vendors are attracting three to five times revenue, while cloud-based companies are attracting 35 to 45 times revenue.

Snowflake, for example, had a valuation of $33 billion following its IPO in September 2020 compared with revenue of $579 million.

"The differences are very stark," Nair said. "I think it's a fool's errand to chase market valuations, but think about why markets value different products differently."

The answer is speed to value, he continued.

Typically, it takes ThoughtSpot's on-premises customers three to six months to deploy the platform. In the cloud, it takes less than a day and sometimes as little as 30 minutes, according to Nair.

"The reason cloud companies are valued so differently is the speed they are able to deliver value," he said.

Other moves ThoughtSpot has made since its last venture capital funding round in 2019 to position itself for an IPO include changing its financial reporting methods to make it easier to forecast growth and hiring a CFO for the first time.