There have been only three IPOs in the search business. Autonomy floated on the NASDAQ in 1998 and all I can say about the company is that the story continues! Twenty years later Elastic floated on the New York Stock Exchange and the shares were very much in demand. Back at the beginning of 2021 the shares were trading at around $150 but then took a significant dive in May to $103 before climbing back up to $180 in November. Since November there has been a precipitous fall to around $110. However, that should not be seen as a panic situation as the 2022 revenues are forecast to be in excess of $800M, up 36% over 2021. There is plenty of cash in the company despite significant investment in software development and marketing. It remains to seen how Elastic fairs against the Open Search initiative of AWS.
Then in November 2021 Coveo launched an IPO on the Toronto Stock Exchange, bringing in an initial $215M and then a further $32M through an over-allotment of shares. The prospectus makes interesting reading. Of the 475 current customers 90% of the revenue came from North America. Gross revenues for the 2021 FY (ending March 2021) were $64.9M but needs to be set against operating expenses of $69M and a total cost of revenue of $16 M to give an operating loss of over $20M. Given that the company has around 625 employees that works out at almost exactly $100,000 revenue per employee. That is quite a substantial HR overhead. Certainly, the growth in revenue has been strong during 2021 but there is a long journey ahead to achieve profitability.
It is very rare for search companies to disclose any details of their operational performance but the Coveo prospectus records that or the fiscal year ended March 31, 2021 the Coveo platform processed 4.7 billion queries and 41.4 billion index transactions. Over the same period it released 20,000 updates to the platform, getting close to 80 every working day!
Coveo, as with Lucidworks, is transitioning from a general-purpose enterprise search application to a B2B and B2C e-commerce platform. That is certainly where the customer money is at present, and this supported Algolia in raising $150 million in July 2021, valuating the business at $2.25 billion, more than twice the valuation of Coveo at the time of the IPO. Algolia, now a pure e-commerce playing moving into B2B as well as B2C, claimed to be processing 1.5 trillion search queries from over 10,000 customers, though unlike Coveo a substantial number of these were B2C e-commerce web site customers.
The level of performance secrecy in terms of search processing and financial performance in the search business is extremely high. Of course, the dynamics are changing rapidly from on-prem (when the number of queries processed was irrelevant) to SaaS and certainly Coveo has been adroit at moving to a SaaS business model, along with Sinequa, Lucidworks and many others.
The cost of entry into the enterprise/e-commerce search business is quite low; you just need some smart developers. From there on things get interesting. For example, I’m intruigued to know what has happened to Keeeb, which in March 2021 was ”proud and honored to be recognized by @KMWorld as one of the most important companies of 2021” but now seems not to be operating its web site or its Twitter account. SaaS makes good sense for a vendor but the financial implications for customers can be quite opaque, making the business case for investment even more challenging. A big issue for search vendors is cash flow because of the time it takes from the initial enquiry to closing the contract. Certainly there is a wide choice of vendors at present, with many based in Europe and many US-owned companies having at least representatives on the ground in Europe.
I’ll be tracking them all in 2022 and seeing how many survive into 2023.
Martin White