Workday Shows How a Successful IPO Gets Done
It may have taken nearly 30 minutes before supply finally met demand, but shortly before 10am this morning, the much-anticpated IPO of Workday, a cloud-based purveyor of human resource tools, burst into the public's hands. Shares priced last night at $28 but opened this morning at $47.05 for a hefty 68% initial pop. Workday has been touted by many as the most important technology IPO since Facebook's debacle in May and, by all accounts, has shown the markets how a successful IPO gets done.
There were many things to like about today's Workday IPO. The company managed expectations well by offering an adequate number of shares, 22.8 million, to reasonably meet demand. It also stuck to its initial price range of $24 to $26 a share, deciding to only raise the price once, to $28 a share, thus ensuring that initial shareholders would be rewarded as shares opened. Facebook, by comparison, set expectations very high, kept the share count very low and set an entry price so high that it almost ensured that initial investors, especially those who bought in the aftermarket, would be taken to the woodshed.
Beyond the IPO, there are plenty of other things to like about Workday as well. The company has a terrific management team with proven track record of success. Co-Chief Executive Officers Dave Duffield and Aneel Bhusri both herald from the former PeopleSoft and undoubtably know a thing or two about enterprise software. Workday also has a business model that investors can easily understand, they sell HR services that save companies money and do so on a subscription basis just like Salesforce.com does for sales and customer service applications.
It's hard to argue the comparisons being drawn between Salesforce and Workday as both companies offer similar cloud-based applications, only in different areas. Given Salesforce's sky-high valuations, it's only reasonable to assume some of those valuations will spill over into Workday as long as the company continues to achieve its growth targets.
Workday contrasts sharply to a company like Facebook, which has an unproven management team, questionable growth prospects and an advertising model that depends on the fickle nature of the masses. Reliable corporate subscriptions will alway trump pay-per-click advertising in investors' minds. That's part of the reason why investors are piling into Workday's IPO and chose to sell quickly out of Facebook's IPO.
Hats off to the Workday team and their investment bankers for reminding the markets that not all IPOs have to be mind-blowing money losers.