The Battle Road IPO Review is a monthly screen of more than 150 growth-oriented initial public offerings of the last six years. Each month we add new stocks to our Battle Road IPO Review coverage universe as companies become public and consensus estimates begin to emerge. Our monthly analysis features companies in the following six sectors: software, internet, hardware, consumer, business Services, and health sciences and healthcare IT. Each month we update our Exploration List, which is an idea-oriented sub-set of the coverage universe, which we determine based on qualitative and quantitative inputs.

New to our software sector universe is Rally Software Development (NYSE: RALY), a provider of cloud-based software for software development teams. Founded in 2001, and formerly known as F4 Technologies, the company changed its name to Rally Software Development in 2004. Based in Boulder Colorado, the company issued six million shares at $14 per share in an IPO led by Deutsche Bank and Piper Jaffrey on April 12, 2013.

Rally sells three versions of its software development system, which are generally priced based on the size of a software development team. Among the many features Rally offers are the ability to track code changes and bug fixes, as well as collaboration tools that help developers communicate and keep projects on track for completion. The company boasts over 1,000 customers and over 168,000 paid users, including many household brands, such as Intel, Disney, Oracle, eBay, McGraw Hill, Cisco, Microsoft, AOL, and HP.
The company sells its development system, primarily through a direct sales force, to a wide range of industries that develop custom software, including manufacturing, communications, energy, financial services, healthcare, insurance, retail, and transportation.

Along the way to its IPO, Rally Software, backed by numerous VCs, acquired several small software developers that offer features for its software solutions, including AgileZen in April of 2010, which added a visual project collaboration tool, which identifies bottlenecks in software development processes.

Roughly 77 percent of sales come from one-year subscriptions that are paid up front, with about 10 percent of sales stem from perpetual licenses, and the remainder from customer support. No single customer accounted for more than four percent of sales in the last year, and about 13 percent of sales come from markets outside the US.

To see how Rally Software Developments screens against its software peers within the Battle Road IPO Review software coverage universe, please contact: [email protected].

The Battle Road IPO Review is a monthly screen of more than 150 growth-oriented initial public offerings of the last six years. Each month we add new stocks to our Battle Road IPO Review coverage universe as companies come public and consensus estimates begin to emerge. Our monthly analysis features companies in the following six sectors: software, internet, hardware, consumer, business Services, and health sciences and healthcare IT. Each month we update our Exploration List, which is a long-oriented sub-set of the coverage universe, which we determine based on qualitative and quantitative inputs.

New to our software sector universe this month is Marketo (NASDAQ: MKTO), a developer of cloud-based marketing software, including email marketing, lead management, social marketing, and analytics. Founded in 2006, based in San Mateo California, the company recorded revenue of $58.4 million in 2012, an increase of 80 percent over 2011. During the same period, the company’s operating loss widened significantly, from $23 million to $34 million.

On May 21, 2013, Marketo issued six million shares at $13 per share in an IPO led by Goldman, Sachs & Company, Credit Suisse Securities, UBS, Canaccord Genuity, Raymond James, and JMP.

Marketo sells its software on a subscription basis, and counts more than 2,300 customers. Customer concentration is low as no single customer accounted for more than two percent of sales in any of the last three years. Marketo targets the small and mid-sized business (SMB) market, which it defines as companies with less than 1,500 employees. In the most recent year, 80 percent of sales came from the SMB market, while the remainder came from companies with employees exceeding 1,500. Representative customers include CenturyLink, Citrix, Gannett, GE, Moody’s, Panasonic, and Symantec. The company has overseas sales offices in Dublin and Sydney. A bit less than 13 percent of sales came from outside the US in 2012.

Nearly 90 percent of sales come from software subscriptions and support revenue. Pricing is based on various customer usage metrics, which can include the number of leads in a customer’s database, as well as the authorized number of users. Subscriptions range in length from one quarter to three years.

In the first calendar quarter of 2013, Marketo’s revenue rose by 80 percent to nearly $20 million, yet its operating loss increased by nearly 50 percent from $23 million to $34 million. Part of this is due to the fact that the company’s gross margin in the most recent quarter was just 57 percent, partly due to losses from professional services.

To see how Marketo screens against its software peers within the Battle Road IPO Review software coverage universe, please contact: [email protected].