Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

We believe Medallia's IPO valuations are deeply undervalued.Based on the 11.2x EV/Sales multiple, and applying our 2019 sales estimate of $395 million, this would imply an EV of $4.4 billion and a market cap of $4.8 billion and a one year target price of $38.94 per share, which would be 116% higher than the high end of the IPO price of $18 per share.We have used EV/Sales multiple analysis as our main valuation method for Medallia. The comps have an average EV/Sales multiple of 10.2x in 2019. Our base case valuation is 11.2x EV/Sales in 2019, which is 10% premium to the comps' average EV/Sales multiple. We believe a premium valuation multiple to its peers is justified mainly because the company has achieved significant economies of scale in reducing its operating expenses as a percentage of sales and its sales growth has been accelerating this year compared to the sales growth of last year. In addition, Medallia's sales growth are higher than some of the comps including SVMK Inc.We expect the company to generate sales of $395.3 million (up 21.5% YoY) and operating loss of $20.6 million (an improvement from operating loss of $80.4 million) in FY2019E. We believe our profit forecasts are conservative, considering the fact that the company was able to significantly improve its operating loss to -$2.0 million in 1Q19 from an operating loss of -$27.1 million in 1Q18.

We believe Medallia's IPO valuations are deeply undervalued.Based on the 11.2x EV/Sales multiple, and applying our 2019 sales estimate of $395 million, this would imply an EV of $4.4 billion and a market cap of $4.8 billion and a one year target price of $38.94 per share, which would be 116% higher than the high end of the IPO price of $18 per share.We have used EV/Sales multiple analysis as our main valuation method for Medallia. The comps have an average EV/Sales multiple of 10.2x in 2019. Our base case valuation is 11.2x EV/Sales in 2019, which is 10% premium to the comps' average EV/Sales multiple. We believe a premium valuation multiple to its peers is justified mainly because the company has achieved significant economies of scale in reducing its operating expenses as a percentage of sales and its sales growth has been accelerating this year compared to the sales growth of last year. In addition, Medallia's sales growth are higher than some of the comps including SVMK Inc.We expect the company to generate sales of $395.3 million (up 21.5% YoY) and operating loss of $20.6 million (an improvement from operating loss of $80.4 million) in FY2019E. We believe our profit forecasts are conservative, considering the fact that the company was able to significantly improve its operating loss to -$2.0 million in 1Q19 from an operating loss of -$27.1 million in 1Q18.

Medallia IPO Valuation Analysis - Deeply Undervalued

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<a href="https://www.smartkarma.com/entities/medallia-inc" target="_blank" data-smartkarma-citation="entities:28160:1" rel="noopener">Medallia Inc (MDLA US)</a> is an enterprise software company in the US which is expected to complete its IPO in the US in the next two weeks. The IPO price range is between $16 and $18 per share and is expected to raise up to $240 million.</li>
<li>The company uses proprietary AI technology to analyze various data from customers and employees for better understanding the customer experience as well as how employees conduct their duties daily. </li>
<li>Qualtrics and Survey Monkey are key competitors to Medallia. Qualtrics was preparing for an IPO last year but was acquired by SAP in November 2018.</li>
<li>Medallia generated sales of $313.6 million in FY2018, up 20.1% YoY. Its sales accelerated in 1Q19 when it had sales of $93.6 million, up 32.5% YoY. Most importantly, the company significantly reduced its operating losses in 1Q19 when it achieved an operating margin of -2.2% versus -38.3% in 1Q18. This tremendous improvement in operating margin was driven by higher gross margins as well as lower total operating expenses as a percentage of sales. </li>
</ul>



Medallia Inc (MDLA US) is an enterprise software company in the US which is expected to complete its IPO in the US in the next two weeks. The IPO price range is between $16 and $18 per share and is expected to raise up to $240 million.
The company uses proprietary AI technology to analyze various data from customers and employees for better understanding the customer experience as well as how employees conduct their duties daily. 
Qualtrics and Survey Monkey are key competitors to Medallia. Qualtrics was preparing for an IPO last year but was acquired by SAP in November 2018.
Medallia generated sales of $313.6 million in FY2018, up 20.1% YoY. Its sales accelerated in 1Q19 when it had sales of $93.6 million, up 32.5% YoY. Most importantly, the company significantly reduced its operating losses in 1Q19 when it achieved an operating margin of -2.2% versus -38.3% in 1Q18. This tremendous improvement in operating margin was driven by higher gross margins as well as lower total operating expenses as a percentage of sales. 


United States

Medallia, Inc. provides software as a services. The Company offers cloud for marketing management, digital solutions, and research activities. Medallia serves customers worldwide.

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Medallia Inc (MDLA US)

Medallia IPO Valuation Analysis - Deeply Undervalued

We believe Medallia's IPO valuations are deeply undervalued.Based on the 11.2x EV/Sales multiple, and applying our 2019 sales estimate of $395...

Douglas Kim

Medallia Inc IPO Preview

Medallia Inc (MDLA US) is an enterprise software company in the US which is expected to complete its IPO in the US in the next two weeks. The IPO...

Douglas Kim

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