Procore IPO in for prolonged coronavirus lockdown?

US construction collaboration SaaS technology provider Procore planned to offer its shares on the New York Stock Exchange in the near future, but its plans could be undermined by the coronavirus pandemic.

Procore logoOn 28 February 2020, California, US-based construction collaboration SaaS technology provider Procore filed registration documents with the US Securities and Exchange Commission relating to a proposed initial public (IPO) offering of its common stock (news release). The company said the number of shares to be offered and the price range for the proposed offering had not yet been determined. It intended to list its common stock on The New York Stock Exchange under the ticker symbol “PCOR.” The IPO could value the company, according to Bloomberg News, at US$4 billion.

The IPO filing gives a lot of background about Procore’s finances. In 2019, revenues were US$289.2 million, up from US$186.4 million in 2018 and US$112.3 million in 2017; the company recorded net losses for all three years: US$55.5 million in 2017; US$56.7 million in 2018; and US$83.1 million in 2019. At the end of 2019, Procore had around 1.3 million users. Potential investor risks included: a history of losses, potential future decreases in construction spending, failure to compete effectively, and miscalculation of the future market opportunity.

Extranet Evolution analysis

Procore has previously raised over US$250 million through a succession of funding rounds, valuing the business at around $3 billion in December 2018 (post). These investments have helped the firm expand overseas into markets including Australasia (May 2017 post) and the UK and Ireland. It has also cultivated a substantial marketplace of complementary integrations with other solutions, and, despite the mounting losses, has made the occasional acquisition (for example, Honest Buildings in July 2019).

The revenue figures make interesting reading, not least because they enable comparisons with the financial performance of other construction SaaS vendors. For example, Aconex, prior to its December 2017 US$1.2 billion acquisition by Oracle (post), generated revenues of US$127.6m (c. Au$161.2m, £99.3m or €108.3m),  in the year to 30 June 2017 (post), a figure that put it just ahead of Procore’s performance at the time.  But Aconex also made an operating profit (US$11.9m – c. Au$15.0m, c. £9.2m, or €10.1m), and claimed a 5.3m-strong user base – nearly four times bigger than Procore’s current figure.

However, global events in the three weeks since Procore’s announcement may well see it shelving its IPO plans (as might Bentley Systems – post). The unfolding coronavirus pandemic has sent markets plunging and many analysts are forecasting a deep recession. Hardly the right time for an IPO. Moreover, past recessions suggest construction experiences a deeper recession than other industries, and takes longer to bounce back. So, even when things do improve, there may be other sectors that offer earlier gains from an investor point of view.

The pandemic is also  likely to lead to a major slowdown in construction activity and spending (see previous post), with a corresponding impact on software vendors including Procore; its revenue growth may falter, with even bigger losses in 2020. The impacts will, of course, depend on the extent to which Procore’s current and future customers – mainly SMEs to mid-sized contracting firms – are affected by the slowdown and how far, if at all, they are supported by clients, banks and governments during the downturn.

The other investor risks – failure to compete effectively, and miscalculation of the future market opportunity – also need to be considered, particularly from a technology point of view. Building information modelling (BIM) was positioned as one of the steps necessary to modernise construction and help it emerge from the financial crisis of the late 2000s; in the UK and several other developed economies, it is seen as a foundation for digital transformation of the built environment. Procore’s platform, though, currently has little BIM functionality compared to its competitors (it has a BIM viewer). Procore-Aconex integrationAconex, and its acquisitions, invested substantially in BIM and associated model, data and workflow management over several years, as have most of Procore’s other key competitors (eg: Autodesk, Bentley Systems, Trimble). But there has been little demand to date from Procore’s SME to mid-sized contractor customers for BIM functionality – most are still predominantly working with conventional drawings, documents and spreadsheets. Integrations with other solutions such as Aconex may help (post), but if Procore wants to compete directly with rival platforms and support larger contractors and owner-operators, it will have to invest significantly in developing or acquiring stronger BIM object capabilities.

[Disclosure: I have written occasional freelance pieces for Procore’s Jobsite, and have provided consultancy services to Procore’s London office.]

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