Clearwater IPO Raises $540M and Hits $4.2B Valuation

Clearwater Analytics Holdings (NYSE:CWAN), a leading provider of SaaS-based financial accounting and advanced analytics software, completed its IPO in October 2020 and issued 3 million shares at $18 per share. The Enterprise Value hit at over $4.2 billion when the shares opened at $25, but since then, the stock price is down 40% from its peak and currently trades around $16 with an Enterprise Value of $2.6 billion.

Clearwater Analytics plans to use the proceeds to buy equity interests from its operating subsidiary and to invest in its business growth. The company’s long-term goal is to make its cloud-based software the world’s most reliable and comprehensive technology tool for investment accounting, data analytics, and reporting of global investment assets.

According to Clearwater Analytics, its platform aggregates and normalizes data on over $5.6 trillion of global invested assets for over 1,000 clients. The company’s clientele includes asset management firms, insurance companies, and large corporations.

How Clearwater Analytics’ Software is Different

The investment accounting industry has long been dominated by complex and expensive legacy technologies and processes, which make data integrity and traceability a very challenging task. Also, these tools often require significant manual intervention to get any meaningful information.

Clearwater Analytics’ platform replaces the traditional legacy systems with modern cloud-based software, helping customers to effectively simplify their investment accounting operations and keep their focus on more important business functions, including asset allocation and investment selection.

Unlike other tools in this category, Clearwater Analytics’ software allows reporting of investment assets on a daily basis or on-demand, instead of weekly or monthly. This advantage helps users to make the most informed decisions after taking all important aspects into consideration, including performance, regulatory compliance and risk associated with an investment.

Clearwater Analytics’ Business Model

Clearwater Analytics has a 100% recurring revenue model.  For helping the clients manage assets on its proprietary platform, the company charges a fee, which is primarily based on the assets under management. A majority of the assets that are managed on the platform are high-grade, fixed income assets with very low levels of volatility and highly predictable revenue streams. Whenever applicable, an additional transaction fee is also charged from the clients for managing certain complex asset classes, for example, derivatives and other financial instruments.

Clearwater Analytics: Revenue Growth from 2019 to 2021

Clearwater Analytics has achieved significant growth in the last few years. For the year ended December 31, 2020, it earned a revenue of $203 million, representing an increase of nearly 21%, compared to $168 million earned by the company in the previous year. For the first half ended June 30, 2021, it has earned a revenue of $118 million, compared to $98 million for the same period in 2020, a year-over-year growth of approximately 24%.

However, the company continues to lose money and booked an EBITDA loss in 2020 of $18.1 million and a Net Income loss of $44.2 million.

Valuation

On a trailing 12-month basis, Clearwater Analytics has an Enterprise Value to Total Revenue (EV/Revenue) multiple of 11.2x that is much higher when compared to profitable competitors such as Broadridge Financial Solutions (NYSE:BR) at 4.3x and SS&C Technologies (NASDAQ:SSNC) at 5.2x.

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