July 29, 2019 - 2:40pm EST by
2019 2020
Price: 57.70 EPS 0 0
Shares Out. (in M): 126 P/E 0 0
Market Cap (in $M): 7,430 P/FCF 0 0
Net Debt (in $M): 30 EBIT 0 0
TEV (in $M): 7,460 TEV/EBIT 0 0

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  • Not a value investment
  • winner


Anaplan is an industry leading cloud-based provider of Connected Planning solutions


Attractive product attributes

  • Provides tremendous ROI to clients: Reduces forecasting and planning cycle by weeks, increases forecasting accuracy, reduces opex and organizational complexity, drives sales with quicker time to market

  • Fast implementation period: Anaplan solutions get up and running within months for even the largest, most complex organizations

  • Highly sticky: single digit churn rate

  • Mission critical

  • Small % of IT budget

  • Complex / high switching cost

  • Lots of product use cases: A big piece of product distinction is Anaplan’s ability to deliver planning solutions suitable to various departments and use cases (across finance, sales, supply chain, etc.), rather than just financial planning 

  • Client feedback is excellent: Great product, fast, reliable, easy to use, accurate, high connectivity, premium product in the marketplace


Strong moat with attractive technology, network, and platform ecosystem effects

  • Honeycomb Effect: Starting with a single use case, Anaplan clients are adopting Anaplan rapidly to adjacent use cases  

    • Products often land in FP&A and then extend to other firm use cases, (e.g. financial planning, supply chain planning, sales planning, performance management), divisions (e.g. HR, FP&A), business lines, geographies, etc.

    • Validation: FP&A is ~60% of use cases



  • Network Effect: A network effect is created as employees across different functional areas of a firm use the product interconnectedly with each other.  In addition, Anaplan software can be used to link different companies together (e.g. Coke uses Anaplan to connect with their bottlers).


  • Proprietary Technology: Anaplan’s proprietary Hyperblock technology provides a central in-memory modeling hub for the platform, and is a key competitive advantage in enabling extensibility and scale while providing real-time calculations to many concurrent employee users, making it the primary source of information/data for decision making within an organization.  


  • Ecosystem: Broad ecosystem of partners are investing heavily to establish practices using Anaplan’s platform

    • Connected planning projects can drive as much as $8-10 of services work for every $1 of revenue for Anaplan

    • Management noted that partners trained to be Anaplan model builders were growing from ~1,000 to 1,500 this year.  

      • ~50% of deals now involve a partner. 

      • The partnership ecosystem is rapidly growing and will contribute to sourcing larger deals

    • Annual contract values (ACV) are ~3-5x larger when partners are involved 

    • Diverse group of ecosystem partners

      • High end: Deloitte, McKinsey, Bain, PWC, Accenture

        • Success with Deloitte

          • Announced in June 2019 signing of 41 new deals

          • Deloitte increased its number of certified Anaplan model builders by 67% y/y to keep up with market demand

          • Deloitte now has 650+ consultants delivering Anaplan solutions to customers—with plans to double that number by 2021

      • Regional: Wipro, Appirio, Slalom, etc. These clients reach more broadly into the Global 2000

      • Services: Anaplan has a large network of certified partner resources globally that deliver ~75% of the firm’s implementation projects.


Based upon extensive due diligence, we believe Anaplan is the “gold standard” in the marketplace.  Anaplan has an unparalleled position in the marketplace today given its leading technology, incumbency status among large enterprises, expertise, and ecosystem of relationships

  • Anaplan competes against greenfield opportunities, ERP providers, and point solution vendors

    • Greenfield: Conversion of manual, excel-based processes

    • ERP Providers (Workday, SAP, Oracle, IBM): Anaplan competes most directly with financial planning solutions offered by large ERP.  We believe Anaplan will win for several reasons: 

      • Quicker time to value

      • Lower cost of ownership with cloud innovation and service delivery

      • Broader use adoption with less complexity working with software; minimizes the need for IT involvement

      • ERP systems are not investing in their planning products

    • Point Solution Vendors: Next-gen Point Solution vendors specialize in specific use cases and/or segments and have a finite market opportunity. Vendors include: Adaptive Insights (acquired by Workday) and Host Analytics in Finance/HR, Callidus (SAP) and Xactly (Vista) in Sales planning, and JDA and Kinaxis in Supply Chain

      • Adaptive Insights (Workday): Relative to Anaplan, Adaptive tends to be a mid market offering (not enterprise) geared towards budgeting / financial planning, whereas Anaplan tends to operate more broadly and thrives on complexity extending across an entire organization

Go-to-Market Strategy is Working

  • A top priority of Anaplan management is to penetrate the Global 2000 corporations, of which they have landed >250 already

  • Anaplan utilizes a land and expand strategy, targeting a key functional area or use case before expanding across the organization

  • Anaplan uses (1) direct sales team and (2) partners

    • Direct Sales: Targets large enterprise customers

    • Partners: Anaplan has a large network of consulting and implementation partners, extending the reach of its direct sales team while minimizing the (margin dilutive) services load on the organization. 

      • Partner helping enact repeatable processes for targeted use cases / industries which reach below the primary direct focus of G2K customers

  • Proof Point: as of 1Q20, Anaplan’s Top 25 customers are spending $3mm+ ARR annually vs. ~$300K in initial purchase price (a 10x increase).


Large Growth Market

  • An industry inflection in demand is taking place and Anaplan is well positioned

  • IDC sizes the WW performance management and analytic applications software markets at $17Bn today, expected to grow to $21Bn by 2021

  • Gartner sizes the analytics and business intelligence software market at $20Bn+, the ERP software market at $35Bn+, and the supply chain management software market at $15Bn+.

  • PLAN is tiny today at $250mm run rate subscription revenues

  • PLAN shows up in 4 separate Gartner magic quadrants, validating breadth of its platform capabilities



Strong unit economics justify investment in growth

  • LTV/CAC >5x

  • CAC Payback = 22 months

  • New business wins (a good thing) will initially drive down margins.  Management has provided contribution margins on new business wins. In year 1, contribution margins are sharply negative due to heavy up-front costs landing a client, but the economics become considerably more favorable in years 2-3, improving to 60+% by year 3



Anaplan is investing in a land-grab market opportunity towards driving sustained 30+% revenue growth

  • KPIs are incredible, supporting long runway towards 30%+ top line growth

    • Customers +25% y/y

    • ARPC +30% y/y

  • Net dollar revenue retention consistently >120%+, yet there is room for expansion

  • Anaplan has ~1150 customers, of which >250 are within the Global 2000

  • Revenue run rates imply an average annual customer spend of >$250k

  • Management has attributed strong revenue growth to the increasing size of initial lands and accelerated expansions which validate the significance of Anaplan to clients 


Financial Forecast

  • Revenue

    • Subscription Revenue: We break out revenue into G2K and non G2K

      • Global 2000: Assuming Anaplan can reach ~1/2 of the Global 2000 over time and that the spend potential of this group can reach current Top 25 levels would suggest a ~$3Bn revenue opportunity (vs. $250mm today)

      • Outside G2K: Historically ~45% of revenue (assume relationship holds).  Large G2K clients have pushed Anaplan onto smaller companies.

    • Professional Services Revenue: Should continue downward trend as more work gets shifted to partners

  • Gross Margins

    • Professional services gross margins continue to operate near break-even.   

    • Overall gross margins should scale into the high-70s over time as subscription revenues represent a greater portion of total revenues

  • Operating Margins

    • Margins will be depressed in the intermediate term (and will slowly rise over time) due to reinvestment to drive growth: CEO Frank Calderoni and CFO Dave Morton believe prior management drove towards margin improvement too early

      • Both have indicated a focus on top-line growth at the expense of near-term margin expansion to capture the inflection in market demand

    • Sales and Marketing 

      • S&M investments are primarily focused on adding direct sales reps 

      • Enterprise focused sales reps generally take 9-12 mos to ramp up

    • Over the long term, Anaplan should be able to grow into double digit positive operating margins with a mix shift away from professional services and sales and marketing providing the greatest amount of operating leverage


  • FCF

    • Analysts have raised concerns regarding management’s focus on reinvestment to drive growth given FY 19 revenue growth came in at 43% with a -31% margin

      • Nevertheless, S&M efficiency metrics should offer some comfort.  Last year Anaplan generated $87mm in incremental new billings on $97mm in prior year's S&M expense.  See below.

      • FY 20 billings/top line growth provide validation on whether S&M investments are effective

    • Given these dynamics, key questions should be how long Anaplan’s negative margin profile should persist and how much operating leverage can ultimately delivered over time 

      • The Company has highlighted FCF margins and the pace of trajectory towards break-even are a function of billings growth 

      • We forecast Anaplan will reach FCF break-even byFY22


Bigger Picture / Conclusion

  • Rare asset in SMID cap space: Enterprise focused SMID cap companies are rare and high in strategic value

  • Beating consensus expectations: Anaplan has only been public for three quarters but has consistently delivered ahead of consensus expectations

  • Takeout potential: Anaplan would be a highly strategic asset to a number of players, including SAP, ORCL, MSFT, IBM, CRM, NOW

  • Valuation

    • Anaplan’s stock price could continue trading strong if Company continues to deliver strong growth.  

    • Multiples could hold, or even expand, when the Company hits breakeven by FY 2022 (CY 21) and delivers to the rule of 40.  

    • Anaplan shares trade ~19x EV/S on CY20E; if this multiple holds thru to CY21 that would translate to a $75 share price

    • Supporting this valuation would be intrinsic value in the customer base and the Company will have pricing power in the future from its moat and high customer ROI




I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Continues to deliver strong growth

Capture new lands in G2000

Reaches breakeven

Delivers on gross margin expansion, shifting professional services work to partners

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