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HashiCorp IPO | S-1 Breakdown

By 

Alex Clayton

Nov 10, 2021

Company Overview

HashiCorp, the leading provider of open source infrastructure software, filed for an IPO. The dollar amount is most certainly a placeholder at $100M and Morgan Stanley is leading the offering. HashiCorp plans to trade on the NYSE under the symbol “HCP." HashiCorp was founded by Mitchell Hashimoto and Armon Dadgar to reimagine infrastructure management for the cloud world. Hashimoto was the CEO until 2016, when Dave McJannet took over. Dadgar is currently the CTO. HashiCorp states that “infrastructure enables innovation” and the company offers a suite of open source technology products that solve the core infrastructure challenges of cloud adoption. Their product suite spans across infrastructure provisioning, security, networking, and application deployment (more on the specific products later). In short, they help provision, secure, connect, and run infrastructure at scale and in real-time. The goal of their products is to enable IT operators and practitioners to automate cloud infrastructure. It’s also embedded in their approach that practitioners, rather than executives, have become the decision-makers for adopting modern enterprise products and that’s where HashiCorp is focusing their product and community efforts. Their suite enables companies to accelerate their time to market, reduce their cost of operations, and improve their security and governance of complex infrastructure deployments. As companies build more software and move to the cloud -- which is the largest trend in technology today -- HashiCorp offers the industry’s leading products that help companies to accelerate and manage this transition. Their primary commercial products are Terraform, Vault, Consul, and Nomad. HashiCorp’s software is predominantly self-managed and customers deploy it across public, private, and hybrid cloud environments. The company also offers the HashiCorp Cloud Platform, or HCP, their fully-managed cloud platform.

HashiCorp’s open source products were downloaded ~100 million times during their fiscal year 2021, which is quite incredible. The company then sells proprietary, commercial software on top of their open source products, with the focus being on large enterprises (more detail in the GTM section). The strategy is working. HashiCorp doesn’t report ARR (annual recurring revenue), but as of last quarter, the company was at $294.9M of implied ARR (quarterly subscription revenue * 4), growing 50% year-over-year and had a 124% four quarter average net dollar retention rate in the last reported period. HashiCorp has 2,101 total customers, 558 customers greater than $100K in ARR, and 58 customers with >$1M in ARR as of their most recent quarter. HashiCorp was founded in 2013 but began commercializing its software in 2016. According to Pitchbook, HashiCorp has raised $349.5M in equity financings to date across seed → Series E rounds. The most recent round was a Series E led by Franklin Templeton in March 2020 at a $5.27B post-money (according to Pitchbook). HashiCorp is headquartered in San Francisco, CA, although most of the company is remote and only about 10% of employees are in HQ. The company is remote-first and has over 1,400 full-time employees across the world. Below is a company timeline output.

Source: S-1

‍Product Offering

Source: S-1

HashiCorp, unlike most software companies, has a broad suite of products and deployment models for their customers. The company’s “foundational technologies solve the core infrastructure challenges of cloud adoption by enabling an operating model that unlocks the full potential of modern public and private cloud”. The products are built using common design principles to enable automation in infrastructure, broad ecosystem support, and self-service for practitioners. Their products are predominantly self-managed (on premise) and customers deploy them across public, private, and hybrid cloud environments. HashiCorp Cloud Platform, or HCP, represented 5% of total revenue last quarter but is the fastest-growing part of the business (it was released in 2020). The company utilizes an open-core software development model and all their products are open source. The company has a large community of users, contributors, and partners collaborating on the development lifecycle. With that said, HashiCorp maintains control over their code base and while anyone can suggest code contributions, they are reviewed by a HashiCorp-employed core committer before integration into the code base. HashiCorp's products can be adopted individually but are also designed to work together as a stack. For example, deploying Vault (secrets management) and Consul (networking automation) together can create the basis for a Zero Trust security architecture. Moreover, their products are purpose-built for cloud and cloud-native architectures and are cloud platform and technology-neutral. And given large enterprises are moving to multi-cloud and hybrid cloud approaches, HashiCorp has found the white spaces in between the cloud providers i.e. AWS and Microsoft Azure’s walled-garden ecosystems. Enterprises use HashiCorp as a single plane of control for cloud infrastructure automation. The primary commercial products are Terraform, Vault, Consul, and Nomad.

  • Terraform: solves end-to-end infrastructure automation by enabling organizations to easily codify their infrastructure when provisioning.
  • Vault: provides identity-based controls that are appropriate for modern Zero Trust security needs by authenticating users and applications based on extensible plug-ins.
  • Consul: enables application-centric networking by providing a central, real-time view of all applications so application teams can manage traffic and security policies.
  • Nomad: enables developers to deliver workloads more efficiently using a self-service application lifecycle.

HashiCorp’s broader portfolio includes numerous other products (Waypoint, Boundary, Vagrant, and Packer) solving adjacent challenges in achieving a cloud operating model. The company describes in the image below their approach to launching and growing new products from community incubating → at-scale commercial products.

Source: S-1

Below are a couple of screenshots on HashiCorp's products.

Source: S-1

Lastly, on the product side, HashiCorp discloses their “Tao” or principles for their products and technology. A graphic representing them is below.

Source: S-1

Summary Metrics and GTM (Go-to-Market)

Below are a few high-level performance metrics before getting into their GTM strategy.

  • $294.9M of implied ARR, up 50% year-over-year. LTM (last twelve months) revenue was $259.1M, up 54.7% year-over-year. 98% of revenue was subscription-based as of last quarter. 
  • Terraform and Vault are HashiCorp’s most established products with commercial offerings at scale and make up the majority of revenues; 85%+ of total revenue for fiscal 2021 and over 85% of total revenue for the six months ended July 31, 2021.
  • HCP, HashiCorp’s self-serve fully managed offering was at $14.7M of implied ARR last quarter and grew 838% year-over-year.
  • Non-GAAP total gross margin was 83%, non-GAAP subscription gross margin was 85% and non-GAAP professional services gross margin was (44)%, all last quarter.
  • HashiCorp is not yet making money and LTM non-GAAP operating margin was (19.4)%. 
  • HashiCorp discloses customers based on size and they had 2,101 total customers and 558 customers over $100K in ARR in the most recent quarter. 58 customers are $1M+ in ARR.
  • The total implied average ACV (implied ARR / total customers) was $140K and the same analysis for $100K customers was $460K. LTM revenue per customer was $120K.
  • HashiCorp’s implied months to pay back, which is the inverse of a CAC ratio (implied net new ARR multiplied by non-GAAP gross margin divided by sales and marketing spend of the prior quarter), was at a 16.7-month median over the past 9 quarters. Given the company targets large enterprises, this metric isn’t most representative of the business but worth evaluating.
  • HashiCorp has $245.9 in cash and has raised $349.5M (according to Pitchbook), implying they have burned through a little over $100M to get to almost $300M of implied ARR, a ratio of 2.9x, which is impressive.
  • HashiCorp’s self-managed offerings have terms of 1 → 3 years. Billing cycles are one-year upfront.
  • HashiCorp’s products have been downloaded ~100 million times in fiscal 2021, and the company estimates that they have been downloaded by ~79% of the Fortune 500 as of July 31, 2021. Moreover, they estimate that ~11,000 organizations have downloaded at least one of their products since HashiCorp’s inception.
  • HashiCorp has 219K stars on GitHub repositories.
  • As of July 31, 2021, 300+ of the Forbes Global 2000 were HashiCorp customers.
  • As of July 31, 2021, 44%+ of customers $100K+ in ARR were licensing more than one product.
  • HashiCorp customers are across the globe and organizations of all sizes and in all industries.

HashiCorp makes money by selling proprietary features on top of their open source products that include collaboration modules, governance and policy modules, enterprise use cases, and premium support and services. Customers can buy subscriptions to the self-managed offering which can be deployed in customers’ private or public cloud, or on premise. HCP is the fully-managed cloud version, which is available on all their leading products. For self-managed, each product is sold as a base module and has a tiered pricing system that scales pricing with increased product usage. On HCP, customers can pay hourly or annually and the company would like to transition this to a usage-based pricing model over time. The GTM focus of the company combines the self-serve nature of an open source model with direct sales targeting large enterprises. HashiCorp mentions the cloud product, HCP, has helped accelerate their self-service approach given it’s fully managed and many of the accounts seem to be smaller deployments. This is a unique advantage for a company like HashiCorp; they have massive open source adoption (they estimate hundreds of thousands of users) and a self-serve cloud product that enables the sales team to mine those accounts and target them with direct sales. Another sales vector is partnerships, of which HashiCorp had 700+ and 170 ISVs as of last quarter. Expansion is a key part of the business and the last four quarter average net dollar retention was 124% last quarter. HashiCorp has 4 main commercial products, with the business being driven primarily by Terraform (infrastructure provisioning) and Vault (secrets management), which make up over 85% of total revenue as of the most recent period. A  big focus for the company (and potential investors) will be if HashiCorp can sell its other products as effectively as Vault and Terraform. Sales are seasonal, which is common for software companies selling to large enterprises and the highest percentage of sales happen in the 4th quarter of the year and Q2 is usually the slowest.

Below are more stats on the business and industry from the S-1:

  • HashiCorp User Groups, or HUGs, are self-organizing chapters of users that advocate for HashiCorp products, which include 36,000+ members in more than 140 chapters across over 50 countries as of July 31, 2021.
  • The company has a rich ecosystem of over 1,400 providers and integrations as well as more than 700 partners as of July 31, 2021, including all major cloud service providers and technology partners.
  • HashiCorp hosts 2 annual conferences in the U.S. and Europe which had close to 10K people attend each event.
  • HashiCorp will have dual-class voting stock. Class B common stock has ten votes per share, and Class A common stock, which is the stock being offered in the IPO, has one vote per share.
  • HashiCorp has 3 issued U.S. patents and had 19 pending U.S. patent applications, with several more applications in the pipeline.
  • According to a recent Gartner cloud adoption survey, more than 75% of organizations are using a multi-cloud adoption model. 
  • According to 451 Research’s Voice of the Enterprise, Cloud, Hosting, and Managed Services: Organizational Dynamics study, 85% of organizations identify a skills gap related to cloud implementation expertise.

‍Market Opportunity

As I mentioned earlier, HashiCorp is riding the largest technology trends today -- the growth in software which is underpinned by the growth in the need to manage this new software infrastructure (i.e., HashiCorp products). Given their products can be deployed across public cloud, private cloud, and multi-cloud and hybrid environments, the market is even bigger. According to IDC, the global public cloud services market is expected to be $676.1B by 2024.

HashiCorp then estimated market size by looking at the size of the existing and newer markets they’re disrupting across infrastructure, security, networking, and applications. According to the 650 Group in July 2021, collectively, these 4 markets were estimated to be $41.7B in 2021 and projected to reach $72.5B by 2026. They include both legacy markets that are being reconstituted by the transition to the cloud, as well as new markets being created by modern ways of deploying applications and managing infrastructure. The 650 Group estimates the global public cloud market at $607.1B and the private cloud market at $33.0B by 2026 with a compound annual growth rate (CAGR) of 15% between 2021 and 2026. Below are estimates of each of their main product’s market sizes:

  • Terraform addresses the emerging cloud infrastructure market, which was estimated to be $2.1 billion by the end of 2021 and $12.0 billion by the end of 2026.
  • Vault addresses the legacy and emerging security market, which was estimated to be $16.3 billion by the end of 2021 and $20.8 billion by the end of 2026.
  • Consul addresses the legacy and emerging networking market, which was estimated to be $22.6 billion by the end of 2021 and $30.9 billion by the end of 2026.
  • Nomad addresses the emerging applications and workload orchestration market, which was estimated to be $0.7 billion by the end of 2021 and $8.8 billion by the end of 2026.

Competition

Given HashiCorp’s large suite of products that touch different pain points inside an enterprise, their market is highly competitive. For companies that use a single-cloud solution, HashiCorp competes with the public cloud providers such as AWS, Azure, and GCP. The company also competes with legacy providers with point solutions across their products such as Red Hat, CyberArk, VMware, IBM, and open source projects such as Google Istio. Emerging technologies compete with certain products from HashiCorp such as Pulumi with Terraform or Teleport with Boundary and Vault. HashiCorp’s open source software is likely their biggest competitor. Many companies can opt to build their own infrastructure using open source only, and not choose to pay for HashiCorp’s commercial products. That certainly has its limitations, though, given the expertise required in managing that infrastructure.

Investors and Ownership

According to Pitchbook, HashiCorp has raised $349.5M in equity financings and investors include GGV, IVP, Bessemer, Redpoint, True Ventures, Mayfield, TCV, and Franklin Templeton. 5%+ institutional investor shareholders include Mayfield (18.6%), GGV (18.5%), Redpoint (11.1%) and True Ventures (8.6%). CEO, Dave McJannet, who is not a co-founder and joined as CEO in 2016, holds a 4.0% pre-offering stake. The stated ownership figures are based on current common and preferred shares outstanding. HashiCorp’s last round was a $175M Series E led by Franklin Templeton in March of 2020 at a $5.27B post-money valuation, or $28.92 per share. In May 2020, the company did a tender offer and sold ~$124M worth of shares at a $26.03 price per share, slightly below the Series E round. See the cap table output of major shareholders below.

Major Shareholder Summary Cap Table Ownership % (Pre-offering)

Source: S-1. Based on common and preferred shares outstanding

Price per Share Disclosure

The following chart shows the preferred share prices over time.

Source: S-1

Current Shareholder Value ($M)

The below looks at the current value of top disclosed shareholders at the last round price, of $28.92 per share. The IPO is likely to be multiples above this. Mayfield and GGV's stakes are likely to be worth in the billions on the first day of trading.

Source: S-1

HashiCorp vs Other High-growth Developer-focused Infrastructure Companies

Given a few other companies have gone public, Confluent and GitLab recently, and Elastic in 2018, the following looks at these companies indexed to a similar revenue scale. They are all quite similar in growth. Elastic (NYSE:ESTC) went public in 2018 and is now worth $16.9B and Confluent (NasdaqGS:CFLT) and GitLab (NasdaqGS:GTLB) went public in the past couple of months and are worth $23.8B and $18.7B, respectively (as of 10-Nov-2021).

Indexed Revenue-Run-Rate ($M)

The following chart takes a look at all 4 company’s revenue run-rate. I didn’t use implied ARR (which is subscription revenue multiplied by 4) given some have license components where revenue is recognized upfront instead of all ratably over time. As you can see, the growth trajectories on revenue run-rate are quite similar.

Source: S-1 and company filings

Indexed Non-GAAP Operating Margin

While they were growing at similar rates, non-GAAP operating margin for HashiCorp is on the higher end of this group. Margins are indexed to the quarter the companies crossed ~$100M of revenue run-rate and are the same as the chart above.

Source: S-1 and company filings

Year-over-year Revenue Growth Rate

I took indexed quarters 5 → 11 and looked at the year-over-year growth rate. While HashiCorp was growing the fastest a few quarters ago, their YoY revenue growth has gone from 91% YoY to 49% YoY in only 4 quarters, which is significant de-acceleration. Confluent slowed down from the mid-70’s at a similar revenue scale but in the past two quarters has re-accelerated growth. HashiCorp is probably hoping to plan for the same, which could also give them Confluent’s valuation multiple (more in valuation section later in post).

Source: S-1 and company filings

Financials and Other Metrics Outputs

HashiCorp is almost a $300M implied ARR business, growing 50% YoY and HCP, their cloud-managed offering, is at almost $15M in implied ARR, growing almost 850% YoY. This represents a huge growth opportunity for the company as well as more commercial efforts behind new products. The vast majority of the revenue today is Terraform and Vault. Gross margins are strong for an infrastructure company and about 10 points higher than Confluent at 83% last quarter (non-GAAP). Non-GAAP operating margin was (33)% last quarter and they're still losing money. The following charts dive deeper into the company’s business and metrics.

Historical P&L & Key Metrics ($000's)

Source: S-1. *Includes Other Income, net

Historical Key Metrics ($000's)

Source: S-1

Quarterly Total Revenue and Growth Rates ($M)

Source: S-1

Revenue Mix Percentage

98% of HashiCorp's revenue is subscription and the total revenue mix is below. HashiCorp defines license, support, and cloud-hosted services revenue as subscription.

Source: S-1

Implied Ending ARR ($M)

HashiCorp added $33.0M of implied net new ARR over the past quarter and $98.4M over the past year.

Source: S-1

HashiCorp (HCP) Cloud Implied ARR and Growth Rates ($M)

HashiCorp's revenue from HCP, their cloud-managed self-serve offering, is the fastest-growing segment of the business at almost $15M in implied ARR. The gross margin on this business is currently only 30% as HashiCorp has invested in headcount significantly ahead of traction. An output of HCP's implied ARR is below which was calculated by multiplying their disclosed % of subscription revenue figures * total subscription revenue in the quarter * 4.

Source: S-1

Here is another view; HCP revenue now makes up 5% of total subscription revenue.

Source: S-1

Remaining Performance Obligations (RPOs)

HashiCorp has quite a bit of disclosure around RPOs and includes non-GAAP RPOs, which are RPOs plus customer deposits, which are refundable pre-paid amounts. Total non-GAAP RPOs were $335.8M last quarter, growing 69% YoY and the company is expected to recognize 64% of non-GAAP RPOs as revenue over the next 12 months, and the remainder thereafter. This is similar to a TCV (total customer value) metric.

Source: S-1

Customer Analysis

HashiCorp has decided to make some interesting disclosure around customers and associated segmentation. The company has a few charts in the S-1 that show total customers and total customers >$100K in ARR by quarter, and some annual disclosure around total revenue from customers >$100K in ARR. Given that disclosure, they enable you do some deeper analysis on their customer base and revenue. The following will look at not only the number of customers by segment, but also implied ARR and implied average ACVs by segment. These charts capture quite a few dynamics at play and will allow us to take a much deeper look at of the business.

Total Customers and Growth

Here is a view of total customers. HashiCorp has over 2,100 and customers are growing at almost 100% YoY, while revenue is growing almost 50% YoY.

Source: S-1

Customers >$100K in ARR

The chart below shows customers greater than $100K in ARR, which is growing just over 30% YoY.

Source: S-1

Customers <$100K in ARR

HashiCorp's smaller customers, which make up most of their total customers and are in the <$100K in ARR bucket, are growing rapidly. This is likely driven by the massive increase in HCP, which is a ~$15M ARR business growing almost 850% YoY and is targeted towards smaller companies and/or deployments. This metric was imputed and is not explicitly reported by HashiCorp.

Source: S-1

Total Net New Customer Growth

Given HashiCorp discloses total customers, the following shows net new customer momentum by quarter -- it's growing quite rapidly and the only sequential slowdown was during fiscal Q1'21, which was at the onset of COVID and after a particularly large Q4.

Source: S-1

>$100K ARR Net New Customer Growth

Now, take a look at net new customer momentum for >$100K logos, which is a flatter trend. With that said, the implied average ACV (implied ending ARR / number of customers) is growing rapidly, so revenue from this segment is growing rapidly even as net new customer remain flat. More on that later in the post.

Source: S-1

<$100K ARR Net New Customer Growth

Net new logos for HashiCorp's lower-end customers are rapidly growing quarter-over-quarter, which is not surprising and is likely being driven at least in part by HCP growth.

Source: S-1

Total Customers by Quarter by Segment

The following shows both segments, >$100K ARR and <$100K ARR customers on the same chart. As we saw above, smaller customers make up most of the growth in logos.

Source: S-1

Customer Mix Percentages

As such, the mix of the total customers is skewing towards smaller customers and/or deployments over time.

Source: S-1

Customer Segment Year-over-year Growth

Here is a consolidated view of the YoY growth rates of each customer segment. As we saw above, smaller customers/deployments are growing rapidly while growth in larger logos is slowing down.

Source: S-1

HashiCorp's disclosure around customer segmentation gives us more clues into the business. While growth in larger logos is slowing, growth in smaller customers / deployments is accelerating which is probably a feeder for that larger customer bucket. But that's still not the full story -- we need to look at trends in each segment's implied ARR and ACVs to get closer to the full picture. As mentioned, there is some disclosure around percent of total revenue from each segment, and given almost all revenue is subscription (~98% the past 4 quarters) I decided to multiply those percentage figures by quarterly subscription revenue to imply ARR (or at least a proxy for ARR).

Implied ACVs by Segment

The following chart looks at the implied average ACV by segment, which is the implied ARR divided by the customers in each segment to get a sense of what they're paying, on average, over time. As you can see, customers >$100K in ARR are paying more over time while customers <$100K are paying less. I believe this is driven by a few factors: 1) HashiCorp is selling larger deals to enterprises and those same companies are paying HashiCorp more as they grow and naturally expand, 2) HCP, the cloud product, is growing rapidly and while the logos are increasing quickly, the average deal sizes are getting smaller so it's dragging down the <$100K in ARR average ACV, 3) to a lesser extent, HashiCorp is selling more products to larger customers. I think it's a smaller driver given most of the revenue (85% last year) comes from two products, Terraform and Vault, 4) customers >$100K in ARR might be expanding more than 124% annually. That 124% figure represents total net dollar retention across the entire customer base, which includes smaller customers that likely expand less and churn more, hence the number might be higher for the larger customer segment and lower for smaller customer segment, 5) lastly, as customers grow larger in the <$100K bucket, right when they hit $100K in ARR they cross over into the larger bucket. HashiCorp unfortunately does not disclose $1M+ customers over different periods, which would be another part of the equation.

Source: S-1

Below is the implied ARR by segment. Again, I believe the <$100K customer segment is flat because customers are rapidly growing out of that segment and there is churn, downgrades/contraction. So even though it appears flat, it's growing since the companies are graduating out into the higher tier of disclosure in the >$100K ARR bucket. Again, this is a feeder for larger customers and HashiCorp is smart to focus on this even though it appears it's not growing.

Implied ARR by Customer Segment ($M)

Source: S-1

Non-GAAP Gross Margin Analysis

HashiCorp has detailed disclosure around gross margins, charted below. This license business is almost a 100% gross margin business. Customers should ask about that :).

Source: S-1

Quarterly Non-GAAP Operating Expenses as a % of Revenue

Source: S-1

Quarterly GAAP and Non-GAAP Operating Margins

Source: S-1. GAAP Operating income / (loss) includes Other income, net

Cohorts and Net Dollar Retention

HashiCorp believes they are early in revenue expansion opportunities with customers given their new products and the megatrends supporting their growth. Expanding their base of customers is a large part of their strategy and customers have historically expanded significantly. As of January 31, 2020, January 31, 2021, July 31, 2020, and July 31, 2021, the last four quarter average net dollar retention rate was 131%, 123%, 128%, and 124%, respectively. The following charts show the layer cake charts of customer expansion as the percentage expansion of each fiscal year's cohort.

Source: S-1

The cohort for a given year represents customers that acquired their initial subscription from us in that fiscal year. For example, the cohort for the fiscal year ended January 31, 2018, or fiscal 2018, represents all customers that made their initial subscription from us between February 1, 2017 and January 31, 2018. The fiscal 2018 cohort increased their initial ARR from $26.0 million in fiscal 2018 to $52.2 million in fiscal 2021, representing a 2.0x multiple.

Sales Efficiency and Payback Periods

HashiCorp releases customer counts by quarter, so we can look at implied CAC based on net new customer adds (there is no disclosure around only new customers) and also plot their implied months to payback using the inverse of a CAC ratio (net new implied ARR multiplied by non-GAAP gross margin divided by non-GAAP sales and marketing spend of the prior quarter). The magic number is defined as implied net new ARR divided by non-GAAP sales and marketing spend of the prior quarter. The median months-to-pay-back over the disclosure period is 16.7 months.

Source: S-1

Given HashiCorp discloses net new customers by quarter, we can derive a rough CAC metric. It’s not perfect since we don’t have new customers only, but it should be directionally accurate. The implied CAC calculation is sales and marketing spend of the prior quarter divided by net new customers. The chart below also shows "net new ACVs" which is calculated as implied net new ARR divided by net new customers and is meant to be a very rough proxy for the trend in LTV (lifetime value). While CAC is decreasing over time, ACVs are also decreasing in lock step due to the rapid growth in smaller customers with lower ACVs as we saw in the charts above. HCP clearly has a lot of smaller logos and is driving that number down.

Source: S-1

U.S. vs. International Revenue Mix Percentage

International growth is an area of opportunity for the company.

Source: S-1

Cash Flows ($M)

Source: S-1

Quarterly P&L ($000's)

Source: S-1. *Includes Other Income, net

Quarterly Metrics ($000's)

Source: S-1

Valuation ($M)

HashiCorp will trade like other high-growth SaaS companies that are not profitable: on a multiple of forward revenue. The output below uses the NTM (next-twelve-months) revenue based on an illustrative range of growth rates and comparable EV (enterprise value)/NTM revenue multiples from other public, high-growth SaaS businesses. It also includes an implied ARR multiple range. There are no projections in S-1’s. The table below also includes HashiCorp’s implied enterprise value if they trade at the same multiples of companies like Confluent, Elastic, and GitLab. I picked those 3 companies as they’re also high-growth open source public software companies. HashiCorp is growing slightly slower than Confluent and GitLab but will likely trade closer to them than Elastic. The center of the range is more than 2x their last private round of $5.3B in March of 2020. Given the public market euphoria around SaaS companies, they could trade much higher.

Source: Multiple ranges from https://www.meritechcapital.com/public-comparables/enterprise. Enterprise value ranges are illustrative.

Final Thoughts

HashiCorp is riding the largest megatrends in enterprise technology in digital transformation, cloud adoption, and multi-cloud infrastructure environments. Their suite of products sit in the middle of this wave and offers the practitioner the tools they need to enable this technology shift. With the massive growth in companies building and deploying software to customers and consumers, they must invest in the infrastructure underpinning it, which is HashiCorp's suite of tools. The company has not only created a moat in their business around their massive open source adoption and community but has also supercharged their go-to-market with users all over the globe -- HashiCorp's products have been downloaded by almost 80% of the Fortune 500. HCP, their cloud product, is the fastest-growing part of the business and is being pitched as a core growth driver moving forward. The questions on the company will be the competitive landscape of players and the de-accelerating growth rate; revenue growth was 49% YoY last quarter which is down from 99% YoY growth 5 quarters ago, so HashiCorp’s growth is slowing dramatically even as HCP is growing rapidly, but it still a smaller at ~5% of total revenue. RPOs are still growing at almost 70%, though. Given the business is 85%+ Vault and Terraform, those business lines might be slowing down so future growth drivers will be HCP and their other products that are clearly early in commercialization such as Consul and Nomad. HashiCorp is a well-positioned company operating in "picks and shovels" tools for the cloud software world and with a seemingly unlimited market size and with the aforementioned megatrends, they will undoubtedly get intense interest from investors and have a monster IPO.

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Special thanks to Anthony DeCamillo for the help on this post.

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