Company Overview
Rubrik, a leader in data management and security software based in Palo Alto, CA, filed their S-1. They’re the first software business to file in 2024 and their IPO demand and trading performance should be a strong barometer for the rest of the software market. The amount Rubrik plans to raise isn’t yet disclosed, but it’s likely to be substantial (at least $500M+) given the company’s scale. Goldman Sachs is leading the IPO. Rubrik plans to list on the New York Stock Exchange under the symbol “RBRK” and should start trading within ~4 weeks. Rubrik will offer Class A stock; they have two classes of stock, Class A (one vote) and Class B (20 votes). The company was founded in December of 2013 (firstly under the name ScaleData which was changed to Rubrik in 2014) and began selling in 2016. It only offered its RSC, or Rubrik Security Cloud, as a cloud-native platform in FY 2023 (the year ending January 31st, 2023). Their mission “is to secure the world’s data” and their platform detects, analyzes, and remediates security risks and unauthorized user activities. They sell subscriptions on 4 different types of data: private cloud or enterprise, enterprise NAS or network-attached storage, cloud, and SaaS applications. With the massive rise in cyberattacks and data breaches, further driven by the scalability of attacks through AI and the growing surface area of risk inside companies given the growth in software, the need for Rubrik’s solution is rapidly growing. Unlike traditional backup and recovery solutions, Rubrik’s focus on security (with a Zero Trust architecture) gives them an advantage in the market. An impressive feat is that Rubrik started as an on premise backup and recovery company and, in only a few years, transitioned its business model to a cloud-based data security platform. Rarely do we see businesses that go through successful business model transitions in such a short period of time. Rubrik has large scale at $784M of Subscription ARR (annual recurring revenue), growing 47% year-over-year in FY 2024. Given the business model transition from perpetual to subscription, Subscription ARR is the best barometer of success for the business vs. total revenue. The company has 6,100+ customers and 130%+ average subscription dollar-based net revenue retention. Rubrik is still burning money, though. Overall, the company released a significant amount of metrics on the business (more later in this post) and according to Pitchbook, Rubrik’s most recently reported valuation was a $374M Series E led by MS&AD Ventures, Microsoft and Karmel Capital in April of 2021 at a $4B post-money valuation. They are likely to trade significantly higher than that price (more in the valuation section later). Rubrik was co-founded by Bipul Sinha (CEO) and Arvind Nithrakashyap (CTO) and has 3,100+ full-time employees across 23 countries.
Company Milestones
Source: S-1
Product Offering
Rubrik offers a broad suite of data management and security products in its Rubrik Security Cloud and has undergone a significant business and delivery model transformation since 2016. Before getting into the current product suite and use cases, below is a short summary of the history of product evolution from an on premise appliance business to a cloud-native subscription business:
Rubrik launched its first product, Converged Data Management, in FY 2016. It combined data and metadata into a single layer to offer Zero Trust Data Protection and this was essentially a backup and recovery solution. It was sold as a perpetual license with associated maintenance contracts and delivered through an appliance.
In FY 2019, Rubrik extended its data protection to cloud-native applications and rebranded Converged Data Management to Cloud Data Management, or CDM. This was then sold as a SaaS subscription. The company also began offering new SaaS subscription products: Ransomware Monitoring & Investigation (now known as Anomaly Detection), and Sensitive Data Monitoring & Management (now known as Sensitive Data Monitoring).
In FY 2020, Rubrik moved more towards subscription vs. perpetual license by offering their CDM platform as a subscription term-based license with associated support. As of February 1, 2022, Rubrik stopped offering CDM as a perpetual license.
In FY 2023, Rubrik launched Rubrik Security Cloud, or RSC, a unified cloud-based control plane and a Zero Trust Data Security Platform. It began migrating legacy customers over to RSC, which is all subscription and transitioned the sales of Rubrik-branded appliances to their contract manufacturers.
Customers have been rapidly adopting the cloud-native RSC platform which contributed to the majority of FY 2024 subscription revenue. The company states there will be some nuances in the revenue lines as this transition flows through the P&L. It expects the conversion of maintenance contracts to subscription offerings to be largely completed by the end of FY 2026. Subscription revenue growth could fluctuate through FY 2027, though.
The Rubrik Security Cloud (RSC) is a cloud-native SaaS platform that secures data across disparate sources, allowing customers to have a single point of control from one user interface. It also has a Zero Trust design that automates data policy management and enforcement, delivers threat analytics and responses, and orchestrates recovery across use-cases like protection and recovery from cyberattacks, malicious insiders, orchestration of cyber and operational recovery, failover/failback testing and migrations, sensitive data classification, governance and regulatory compliance, and data breaches. Rubrik’s commercial products include Data Protection, Data Threat Analytics, Data Security Posture, Cyber Recovery, and Ruby AI for defense and recovery. Ruby is Rubrik’s generative AI product that helps augment human efforts and Azure’s OpenAI model. Rubrik also offers a variety of customer support packages that accompany their platform.
While Rubrik’s transition from an on premise business to the cloud has been impressive, so has the continued development of its product suite to address not only the growing market of data management but also become a key tenet of data security for their customers. Customers also think highly of the Rubrik Security Cloud, as evidenced by the company’s NPS (Net Promoter Score) of 86 as of December 31, 2023. An overview of the Rubrik Security Cloud is below.
Rubrik Security Cloud
Source: S-1
How Customers Use Rubrik
Source: S-1
GTM (Go-to-Market) and Summary Metrics
Rubrik must have experienced significant changes on the go-to-market side as they transitioned the business from perpetual to subscription and evolved their product suite. Moreover, while Rubrik sells their platform directly through their sales team, most of their revenue comes from partners, and their 3 largest channel partners, Arrow Enterprise Computing Solutions, Exclusive Networks, and Promark Technology, collectively generated ~79% and ~76% of revenue for FY 2023 and FY 2024, respectively. The company targets larger enterprises and sells to mid-sized companies and smaller customers through a high-velocity, inside sales team. The model is land-and-expand, much like many companies that sell to larger enterprises, and the land happens in 4 ways by securing: 1) enterprise or private cloud environments 2) enterprise NAS or unstructured data 3) cloud environments 4) and SaaS applications. Subscriptions through channel partners utilize a two-tier, indirect fulfillment model, and SaaS products are also sold through the marketplaces of alliance partners such as GCP, Azure, and AWS. The expansion motion happens across 3 vectors and includes: 1) growth of data in applications 2) new applications secured, and 3) additional data security products. Expansion is very strong as evidenced in the company’s average subscription dollar-based net retention rate of 133%, as of January 31, 2024. Given that Rubrik’s ICP (ideal customer profile) are larger enterprises, the sales team includes sales development, inside sales, sales engineering, and field sales personnel. The sales org is also segmented both geographically and by the size of prospective customers and has dedicated sales teams for the public sector. Rubrik called out that new hires require significant training and that it may take significant time before sales reps achieve full productivity, and this delay is accentuated by their long sales cycles. Moreover, Rubrik called out that sales cycles were lengthening, which they attributed to higher cost-consciousness around IT budgets given the current macroeconomic environment. As of January 31, 2024, Rubrik had 1,300+ employees in their sales and marketing organizations (42% of total full-time employees).
Below is an output of representative customers:
Source: S-1
The platform can be purchased in 3 subscription editions and pricing is based primarily on subscription edition and data volume. An output of their various editions is below:
Source: S-1
Below are a few high-level metrics on Rubrik’s financial performance, metrics, and other relevant disclosures:
$784M of Subscription ARR, growing 47% year-over-year. Cloud Subscription ARR was $525M as of last quarter, growing 119% year-over-year, while Other Subscription ARR was $259M, declining (12)% year-over-year. The growth driver in the business is certainly the cloud products
While Subscription ARR grew 47% year-over-year in FY 2024, only ~4% was attributed to the business model transition to the cloud, implying very little growth comes from transitions/migrations of existing customers but from sales and expansion of the cloud-based products. This number was ~17% in FY 2023 as they had more migrations then
Due to the business model transition, LTM (last-twelve-months) revenue was $628M but only grew 5% year-over-year
GAAP gross margin was 77% last quarter
Rubrik is losing money and had a $(307)M GAAP operating loss in FY 2024, representing a (49)% margin. Free cash flow margin was better at (4)% in FY 2024
Rubrik ended FY 2024 with 6,100+ customers, up 22% year-over-year from 5,000 in FY 2023. The implied average ACV (annual contract value) was $129K in FY 2024 and $107K in FY 2023 (Subscription ARR over total customers). Contracts are generally 3 years in length
As of last quarter, Rubrik’s ARR per FTE (full-time employee) was $253K. This is below the median of our group of public SaaS companies of $335K
Net revenue retention, or Average Subscription Dollar-Based Net Retention Rate, was 133% as of last quarter but is down from 150% ending FY 2023
Rubrik’s implied months to payback, which is the inverse of a CAC ratio (implied net new Subscription ARR multiplied by GAAP gross margin divided by GAAP sales and marketing spend of the prior quarter), was at a 25.4-month median over the past 7 quarters. For selling to larger enterprises, that is a strong number
The U.S. represented 68% of total revenue in FY 2024 and 69% in FY 2023. Rubrik bills in U.S. dollars
Rubrik does have seasonality and sells a higher percentage of subscriptions in Q4
In August 2023, Rubrik acquired Laminar, a data security posture management (“DSPM”) platform, for $104.9M and $90.8M in cash. Their financials do not include any Laminar revenue as it was not material
As of January 31, 2024, ~46% of full-time employees were outside the U.S., with ~26% of full-time employees in India
Rubrik has 255 issued U.S. patents and patents in various non-U.S. jurisdictions and 207 patent applications pending in the U.S
As of January 31, 2024, total remaining non-cancellable performance obligations under the company’s contracts with customers was approximately $1.3B
Rubrik offers a ransomware recovery warranty of $10M for customers. There have yet to be any claims made
As of January 31, 2024, Rubrik has net operating losses, or NOLs, of $533.6M
Rubrik has $279M in cash and has raised $715.1M of equity (according to liquidation preference disclosure in S-1) and $287M of debt, implying they have burned through a little over $700M to get to almost $800M of implied ARR, a ratio of ~1.1x, which is impressive for their product, enterprise segment and business model transition
Below are more stats on the business and industry from the S-1:
According to the International Data Corporation (IDC), more than 129 zettabytes of data were generated in 2023, and this is forecasted to increase to 291 zettabytes by 2027, representing a 22.5% compound annual growth rate, or CAGR, from 2023 to 2027
According to the United Nations Conference on Trade and Development, by 2021, 137 out of 194 countries put data protection and privacy legislation into place
According to Cybersecurity Ventures, the frequency of ransomware attacks will continue to rise over the next eight years and reach every two seconds by 2031 (up from every 14 seconds in 2019)
According to a study conducted by Netskope, among the enterprises surveyed, enterprises average more than 1,000 cloud services, indicating that more data than ever is being created, transferred, and used across an ever-expanding web of enterprise, cloud, and SaaS applications
Market Opportunity
As Rubrik’s product suite has expanded over the past few years, so has their addressable market, which is large. The company believes their current addressable market will be ~$36.3B by the end of 2024 and reach ~$52.9B by the end of 2027, which represents a 13% CAGR (compound annual growth rate), according to Gartner. The market includes the below two segments (both according to Gartner, “~” indicates an approximated value):
Data Management: Data management will be ~$12.9B by the end of 2024, which includes $11.1B in Backup and Recovery Software and $1.9B in Archive Software. These markets are expected to increase to $15.4B by the end of calendar year 2027
Security: The addressable market for Application Security, Cloud Security, Cloud Security Posture Management, Data Privacy, Data Security, and Privileged Access Management Software will represent ~$23.4B by the end of 2024 and ~$37.5B by the end of 2027
Competition
Rubrik describes their market as highly competitive and rapidly evolving. Rubrik states they are unaware of another company with a similar Zero Trust Data Security approach that secures data across enterprise, cloud, and SaaS applications. Rubrik mentions competition in data management and protection vendors such as Commvault, EMC, Veeam, and Cohesity among their various products. Cohesity is the closest private, venture-backed competitor.
Investors and Ownership
Rubrik has $715.1M of preferred stock, a proxy for equity raised, and select investors include Lightspeed, Greylock, Bain Capital Ventures, IVP, MS&AD Ventures, and Microsoft. 5%+ institutional investor shareholders include Lightspeed (23.9%) and Greylock (12.2%). CEO Bipul Sinha holds a 7.6% pre-offering stake. The company’s last round was a $374M series E round led by MS&AD Ventures, Microsoft, and Karmel Capital in April of 2021 at a $4.0B valuation ($23.55/share), according to Pitchbook.
Major Shareholder Summary Cap Table Ownership % (Pre-offering)
Source: S-1
Current Large Shareholder Value at Last Round Price ($M)
The below looks at the current value of select disclosed shareholders at the “fair value” share price of $28.63 per share, the latest price per share as of January 31, 2024, as determined by the company’s compensation committee. We believe the valuation could be at least double this figure when the company trades, though (more in the valuation section later in this post).
Source: S-1
CEO Long-term Performance Share Award
Bipul Sinha, CEO, founder, and Chairman of the Board, received a long-term performance award from the board in June of 2022. The S-1 states; “this award is designed to provide both multi-year retention incentives for Mr. Sinha and to align achievement of business and operating objectives with long-term stockholder value creation. Our board of directors believes that achievement of the Target Stock Values described below would result in significant value for our stockholders over the performance period.” The award is for 8.0M shares and is divided into 10 tranches (below) and earned by time served and by stock price appreciation above a certain price during a period of 90 consecutive trading days that equals or exceeds the applicable Target Stock Value. Even at the $28.63 per share price, which the compensation committee determined in good faith as a fair value, 8M shares represent ~$230M in implied value. With that being said, the shares are only granted at certain share price thresholds above the IPO price, which we don’t yet know (see valuation section), but is likely to be significantly higher than $28.63/share or ~$4.7B market cap, hence the total potential dollars are much larger in this award and could be in the billions if all are achieved.
Source: S-1
Share Prices and Implied Returns Over Time
At the fair value price of $28.63, the Series A would return 42.6x, Series B 11.7x, Series C 4.2x, Series D 2.4x, and Series E 1.2x. If the company trades as expected, these figures will be much greater. Regardless, early investors in Rubrik will see spectacular returns.
Source: S-1
Rubrik Subscription ARR Growth in Perspective ($M)
We decided to put Rubrik’s Subscription ARR performance in the perspective of other relevant SaaS companies. Note we use Subscription ARR for Rubrik and Implied ARR for other relevant SaaS companies given that is the appropriate proxy for growth for Rubrik vs. revenue given the business model transition. The following chart looks at relevant comparables indexed from their first disclosure from ~$300 → $750M of implied ARR. As you can see, Rubrik is around the middle of this comp set in terms of growth. This puts Rubrik in a rare set of exceptional companies.
Source: S-1 and company filings
Annual P&L ($000's)
Rubrik is a $780M+ Subscription ARR business, growing 47% year-over-year and slightly below breakeven on a free cash flow basis. Gross margins are in line with the broader SaaS universe at 77%. However, given the business model transition happening, overall revenue growth is slower as they’re deprecating legacy perpetual license and maintenance revenue line items. The following charts dive deeper into the company’s business and metrics.
Source: S-1. Metrics shown in the table above are GAAP unless otherwise noted. Non-GAAP metrics are calculated as GAAP less SBC
Subscription ARR and Year-over-Year % Growth ($M)
Source: S-1
Subscription ARR Contribution Margin
While Subscription ARR Contribution Margin is still negative at (12)% in FY 2024, it has been steadily improving from (117)% in FY 2022. The company defines this measure as Subscription ARR Contribution (Subscription ARR at the end of the period less: (i) non-GAAP subscription cost of revenue and (ii) non-GAAP operating expenses for the prior 12-month period ending on that date) divided by Subscription ARR at the end of the period. This demonstrates that the business has seen significant operating leverage since its business model transition but, at the same time, they have a long way to go since they’re still in the red. The silver lining here is that the business is growing fast and still contribution margin negative – albeit increasing at a fast clip – and not burning much money. So this implies they have a strong market and margin structure for the future. That said, the potential flaw in this metric is that the company is comparing end-of-period Subscription ARR (an inherently forward-looking metric) to that year’s costs instead of using that year’s subscription revenue. Using revenue instead of Subscription ARR here would likely result in a lower contribution margin than the company reports.
Source: S-1
Total Revenue by Quarter ($M)
Revenue growth of 29% year-over-year in the latest quarter is far below the latest quarterly Subscription ARR year-over-year % growth rate of 47%, as the business shifts from a perpetual license model to a subscription model. With that being said, as you can see, total revenue is starting to accelerate closer to Subscription ARR growth as the business moves away from perpetual license revenue lines.
Source: S-1
Revenue Contribution by Segment
The following shows a similar trend – the company has rapidly moved towards a subscription model.
Source: S-1
Subscription ARR & Total Revenue Trajectory
This is another view of Subscription ARR and total quarterly revenue. Total revenue is relatively flat as legacy revenue goes away. Moreover, an impressive feat is that of the 47% year-over-year growth rate of Subscription ARR, only 4 percentage points came as a result of transitioning legacy customers. Therefore, the company is growing 43% year-over-year through new customers and expansion ARR, which is still quite fast.
Source: S-1
GAAP Gross Margins and Operating Expenses as a % of Revenue by Quarter
GAAP gross margins have increased slightly over the last 8 quarters from 70% to 77%. GAAP sales & marketing as a percentage of revenue was elevated at 73% in the latest quarter. Note that the company does not disclose individual non-GAAP operating expense line items quarterly therefore, the following is GAAP.
Source: S-1
GAAP Operating Margin
While these are GAAP figures, Rubrik does have a way to go in reaching non-GAAP profitability.
Source: S-1
Cohorts and Net Dollar Retention
Rubrik has strong net dollar retention at 133%, though this represents a decline from 150% in January ‘23. Expansion occurs across three vectors: the growth of data from applications already secured by Rubrik, new applications secured, and additional data security products. It’s likely net retention has come down due to fewer migrations of legacy customers to their new cloud products, although the company does not call that out in the number (this is an assumption). It will be interesting to see where this figure stabilizes in the coming quarters.
Source: S-1. Note: Average subscription dollar-based net retention rate is calculated by first identifying subscription customers, or the prior period subscription customers, which were subscription customers at the end of a particular quarter, or the prior period. Subscription ARR is then calculated from these prior period subscription customers at the end of the same quarter of the subsequent year, or the current period
Customers with Subscription ARR $100K+ & % Year-over-Year Growth
Rubrik’s largest customers are growing much faster than the total: 45% year-over-year for larger customers vs. ~22% for total customers. Below are Rubrik’s $100K+ customer counts and year-over-year growth rates.
Source: S-1
Sales Efficiency and Payback Periods by Quarter
Rubrik releases Subscription ARR and GAAP sales and marketing costs by quarter, so we can look at the company’s magic number and also plot their implied months to payback (net new implied ARR multiplied by GAAP gross margin divided by GAAP sales and marketing spend of the prior quarter). The magic number is defined as implied net new ARR divided by GAAP sales and marketing spend of the prior quarter. The median months-to-pay-back over the disclosure period is 25.4 months. This is a strong payback figure for an enterprise infrastructure company that doesn’t have a PLG motion, but a heavier sale and longer sale cycle, enterprise motion.
Source: S-1. Note: Metrics are GAAP as non-GAAP is not available in quarterlies
Free Cash Flow by Year ($M) & % Free Cash Flow Margin
Burn has declined substantially since FY 2022 and FCF margins were roughly (4)% in FY 2024. Note that the company did not disclose FY 2022 revenue, so it is not possible to interpolate the exact FY 2022 FCF margin, but it was likely far lower than FY 2023 or FY 2024.
Source: S-1
Cash Flows ($M)
Source: S-1
Deferred Revenue
As shown above, Rubrik has (49)% operating loss margins but only (4)% FCF margins. What is driving the difference? With many public SaaS companies, part of the answer is SBC (stock-based compensation). For Rubrik, SBC is minimal and instead, deferred revenue is driving the difference. Rubrik specifically notes this phenomenon, stating their largest source of operating cash flow is upfront cash payments from its customers for multi-year contracts (the GAAP revenue for which is recognized over time, hence the generation of deferred revenue). Rubrik also notes that “this may evolve as customers have opted to, and may continue to opt to, pay us on an annual basis based on products purchased due to the growth in our SaaS product offerings and the uncertain macroeconomic environment.” Paying annually for multi-year contracts is standard practice for most software vendors. As Rubrik transitions its product from a license + appliance model to a cloud model, it’s no surprise its pricing model is transitioning as well. We don’t know where they are in this shift today or how fast it will occur, but you can see that the total deferred revenue balance from FY 2023 to FY 2024 shrunk despite rapid top-line growth. Regardless, we call it out as it could represent a potential free cash flow headwind for Rubrik in the future. However, Rubrik’s is growing rapidly with improving contribution margins, so it’s hard to say exactly what the net effect will be (more on this in the valuation section).
U.S. vs. International Revenue Mix Percentage
Most of Rubrik’s business is still in the U.S.
Source: S-1
Quarterly P&L Output ($000's)
Source: S-1
Rubrik Valuation ($M)
High-growth SaaS companies trade on multiples of revenue. As we’ve established in our bi-weekly Meritech Pulse newsletter, multiples are most highly correlated to what we call the “Meritech Rule of 40”, defined as 3x NTM revenue growth + NTM free cash flow margin. Said another way, in today’s environment, growth has roughly three times the impact on the valuation of a public SaaS company vs. profitability (defined as free cash flow margin), and this metric appropriately captures that weighting. Even today’s investors want growth with “some free cash flow.” With this in mind, we believe the most accurate way to understand where a SaaS company might trade in the public markets is simply to plot it on the regression line comparing multiples and the Meritech Rule of 40. That’s what we’ve done below. The blue dots represent all current public SaaS companies in our index (~90). The orange dot represents Rubrik based on illustrative assumptions for its NTM financial performance (companies do not give guidance in their S-1s). Given Rubrik’s business model shift, there are two important callouts to make:
We calculate the Meritech Rule of 40 for Rubrik using its forward ARR growth, not revenue growth. As mentioned, these two numbers could be meaningfully different, and ARR growth better represents the growth of the underlying business
Forecasting free cash flow for Rubrik is complex. On one hand, they may continue to lose the benefit of upfront payments on multi-year deals as they transition to a cloud model, which will negatively impact cash flow. On the other hand, they are growing rapidly and showing improving contribution margins (albeit with a nonstandard methodology) which will drive operating leverage and cash flow generation
We assumed 27.5% NTM ARR growth, down from 47% LTM, and a 0% FCF margin, up from (4)% LTM. In short, for simplicity, we are assuming that the effects of less deferred revenue and more growth and operating leverage net out, resulting in FCF breakeven. Of course, the reality could be different. Together, our assumptions result in an implied Meritech Rule of 40 of 83%. We then “plot” that figure on the regression line using the simple “y = mx + b” equation representing the line. This calculation implies Rubrik could trade at 11.3x Subscription ARR or an $8.8B enterprise value.
Additionally, given that Rubrik is the first SaaS IPO of 2024 and many will be watching, the lead bankers (Goldman Sachs) are likely to price the IPO conservatively to create the renowned “IPO pop.” So this analysis does not reflect pricing valuation but an illustrative trading valuation range after that potential “pop”.
Rubrik Illustrative Valuation Ranges
Source: CIQ as of 29-Mar-2024 and company filings
The table below shows the sensitivity of the above analysis, assuming various NTM ARR growth rates (20% > 35%) and NTM FCF margins (-5% > +5%). Given the Street values growth more than free cash flow margins, changes in growth rate are more impactful on enterprise value than changes in free cash flow margin. Within these bands of outcomes, Rubrik could trade anywhere from $6.7B –> $10.9B in enterprise value.
Note: Enterprise value ranges are illustrative
With all of this said, it’s important to remember that multiples today are just proxies for long-term free cash flow generation. This means that Rubrik’s multiple will ultimately be determined by more than just its next twelve months (NTM) forecast financials. Long-term forecasts depend on a host of qualitative factors, including trends, market structure, and competition. Said another way, when a company trades above or below the line, it gives us insight into what the market thinks about its long-term prospects. We’re excited to see where Rubrik trades.
Final Thoughts
Rubrik Positives
Fast Growth and Improving Operating Leverage: Rubrik is growing Subscription ARR 47% year-over-year, the fastest of any company in our index. Even if you strip out the 4% of growth due to the business model transition, they are still the fastest
The company has real scale and will likely eclipse $1B of Subscription ARR over the next 12 months. Moreover, free cash flow margins are essentially flat after rising dramatically and contribution margins are still negative. So it appears Rubrik has the potential to continue to grow, but also generate stronger margins as they work through the final stretch of the business model transition
Market Leader in a Large Market: Rubrik has significant competition but they are the emerging pure-play leader in the space. Moreover, the markets in data management and security are massive, and given Rubrik’s security focus, which is top of mind for IT buyers today, they have ample room to grow
Great Team and Product Execution: Rubrik’s innovation on product and the business model transition is second to none. Huge credit to the management team for pulling this off
Rubrik Further Questions / Potential Risk Factors
Macro and Sales Cycles: Rubrik focuses on large enterprises and calls out long sales cycles and macro tightening of IT budgets. Given their focus on larger deals, they could be susceptible to deals pushing and slowing growth
Declining Net Dollar Retention: Net dollar retention has come down from 150% to 133% over the past few quarters. It’s unclear how much of the 150% was from migrations from the legacy business, so it could have been inflated to begin with. That said, if they can hold ~130%, that would put them at best-in-class. Understanding where this figure is going will be a key item. Moreover, total customer logo growth was 22% last year, and while we don’t have growth in the earlier periods, that is another key metric to track. Larger customers are still growing fast, though
Path to Positive Free Cash Flow: While Rubrik’s margins have improved dramatically and are moving in the right direction, the company is still burning money. The markets will want a path to not only free cash flow positivity but also non-GAAP operating margin profit, which they are far from today. Assuming they can keep their top-line growth rate high, they will get a short-term pass on non-GAAP operating margins, but that path will be a focus area for investors
AI Story: As with any company, the market will want to know what their AI story is, how fast Ruby is growing, and what kind of traction they can expect. There was little disclosure in the S-1 on that, but it’s still early (as with most companies)
Rubrik is a large, fast-growing, and increasingly efficient company that has undergone a radical and successful business and product transformation over the past few years. It is bearing down on $1B of Subscription of ARR and growing faster (on LTM implied ARR) than any company in our comparable index. While there are questions around margins, among other things, Rubrik is the type of company that can open an IPO window, and we expect the market will be very excited about the offering.
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No investment advice. Meritech is a current or former investor in Datadog (DDOG) and Salesforce (CRM).