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NEW YORK, Oct 22 (Reuters Breakingviews) - Navan is, appropriately enough, running both forward and backward. The palindromically named software developer plans to make its market debut, opens new tab after surviving a pandemic-induced existential crisis. Its mooted price tag, however, is well below an earlier private valuation. Even achieving that much will probably depend on riding the artificial-intelligence hype train. Originally known as TripActions, Navan started by helping companies manage corporate travel. Covid-19-related lockdowns brought the business to a screeching halt. In response, co-founders Ariel Cohen and Ilan Twig expanded into more general expense management. After plodding through the initial predicament, Navan raised about $300 million in October 2022, more than doubling its prior valuation, opens new tab to $9.2 billion in the process. Sign up here. Although investors have shown renewed appetite for initial public offerings, there are fresh questions about how richly to assess software vendors. Navan's $330 million of revenue in the six months through July 31 was a healthy 30% higher than a year earlier, while its net loss widened a bit, to $100 million. At the midpoint of the $24 to $26 price range disclosed in its latest prospectus, opens new tab, the company would be worth $6.2 billion, or 10 times its 2024 revenue. The multiple might look reasonable compared to other specialty business software providers like ServiceTitan (TTAN.O), opens new tab, which caters to plumbers and electricians, or Guidewire (GWRE.N), opens new tab and its insurance industry customers. Those enterprises trade at 14 times and 12 times, respectively. Below the top line, however, Navan isn’t the best package deal. Its combined growth rate and free cash flow margin are 30%, based on Breakingviews calculations, some 10 percentage points short of measuring up to the so-called Rule of 40. Companies with a similar profile trade at, opens new tab an average of 6.5 times revenue, according to boutique advisory firm Software Equity Group. If assessed on its 73% gross profit margin as of July, a company like Navan would garner 5.2 times. Blend the two results with the 9.2 times typical of its sales growth, and the company would be worth just 7 times, or $4.3 billion. An AI wildcard may help. Travel involves the sort of disparate and hard-to-pattern-match data that lends itself to analysis with large-language models. Navan uses such techniques wisely, including for tailoring trips and collecting receipts, but there are reasonable questions about whether it can keep an edge with such fast-moving technology. Machine-learning mania may nevertheless give this IPO the coveted, and equally palindromic, pop. Follow Jeffrey Goldfarb on X, opens new tab and Linkedin, opens new tab. Context News For more insights like these, click here, opens new tab to try Breakingviews for free. Editing by Jonathan Guilford; Production by Pranav Kiran Breakingviews Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time. Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors. Jeffrey is Global Corporate Finance Editor, based in New York, coordinating deal-related coverage. Previously, he oversaw the Asia-Pacific region for Reuters Breakingviews from Melbourne and Hong Kong. He first joined Breakingviews in London as the global financial crisis began and later spent seven years in New York as U.S. Editor. Before becoming a columnist in 2007, Jeffrey covered banking, M&A, media, technology, international trade and healthcare for Reuters and BNA in New York, Washington, Phoenix and across Europe. He has a master's in journalism from Columbia University and a bachelor's in finance from the George Washington University.
