Rethinking Databricks valuation in a more conservative startup market – Marketingwithanoy

How difficult? will some high-flying unicorns go public? The question is getting more serious and worrying by the week.

To understand how much the late-stage market has changed in recent months, let’s pull back public market data that we’ll compare to the well-known results of mega-unicorn Databricks. Recall that we ran this experiment in February, when the data analytics company announced it was closing 2021 with $800 million in ARR, and in April, when we looked at the company under the harsher lights of a declining software revenue market.

That downward trend has continued, meaning it’s time to do the drill again.

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I promise we won’t pick Databricks for any reason other than it has committed the well-known sin of being more transparent than is traditional during the growing phase. By that I mean it has shared a large number of data points during its life as a private company. We are grateful for that. Unfortunately, because many of his colleagues preferred to hide their – let’s be clear: lesser – results, we continue to use Databricks as our measure of how much things have changed in SaaS land.

It’s never right to punish the honest for their candor, but we can’t help but work to understand the current market – it’s our job. So more with Databricks data today, even as we get to the point of cruelty.

So let’s discuss the results and valuations and see how much work Databricks still has to offer before going public. Keep in mind that renewal rounds on previous terms are back in vogue (Gusto exemplifies this trend among the multi-unicorns), so we could see the company quietly raising capital without a public price review before it’s listed. Our eyes are, of course, peeled.

Now let’s have some fun.

A Historical Tour of Databricks Valuation Multiples

Based on our coverage in February and April, a historical overview of Databricks valuation and fundraising:

  • Q3 2019: $200 million run-rate, $6.2 billion valuation – 31x run-rate multiple
  • End of 2020: $425 million ARR, $28 billion valuation – 66x ARR multiple
  • August 2021: $600 million ARR, $38 billion valuation – 63x ARR multiple
  • End of 2021: $800 million + ARR, $38 billion valuation – 47.5x ARR multiple

Knowing what we did in April about Databricks’ historic revenue growth, we estimate that the company had about $1 billion in ARR at that date, so we go ahead and calculate the following ratios using both $1 billion and $1.1 billion ARR figures for the company. You can decide for yourself what you think is a fairer estimate.

Now, with $1.0 billion in ARR, Databricks is worth 38x its annual recurring revenue. At $1.1 billion, 34.5x. That’s not a huge difference, so however you hinder the company’s recent growth, Databricks is worth about 30x its current revenue. The question is how far removed that number is from market reality today.

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