The Qualtrics IPO: What Really Just Happened

January 29th, 2021

As many of you can see from the headlines, yesterday’s Qualtrics IPO was incredibly successful, with the stock closing 51% above its initial price, and the end of day stock price on Thursday valuing the company at $27.3 billion.

What we wanted to think about, though, is: What does this really mean for Qualtrics, SAP, and the broader employee engagement / experience market?

Let’s start with Qualtrics.

For those of you who have been following the story, you know that SAP bought Qualtrics for $8 billion before its intended IPO in 2018. They held the company for roughly 2 years, and then, as of yesterday, raised approximately $27 billion from the public markets. While that is a phenomenal return on investment for SAP (more on them later), Qualtrics also got a lot out of this little detour on its journey to IPO.

First, Qualtrics achieved a scale it would have struggled to reach on its own. SAP took Qualtrics leaders under their wings, expanded Qualtrics’ international offerings and capabilities, brought Qualtrics into verticals (e.g., supply chain) they were not in previously, and generally taught them the ropes of being a public company. This mentorship – if we can call it that – of Qualtrics leaders means the company is likely more prepared to execute at scale than at least some of its competitors.

Second, the last 2 years have given Qualtrics an opportunity to broaden its strategy and focus on being much more of a platform player across the entire process of designing and executing customer or employee experience, as shown by Figure 1. We imagine that the SAP experience has encouraged Qualtrics to dream bigger when it comes to knitting together their platform with a combination of partners who can deliver the services aspect of their work.

Figure 1: Qualtrics’ Strategy for Supporting Experience Design and Improvement, with Some Partners Listed | Source: Qualtrics, 2021.

Finally, SAP’s obvious focus on human capital (among other factors) may have influenced Qualtrics to focus more on their people experience business (which they call EmployeeXM) moving forward. While Qualtrics has been saying they were making this shift to focus more on EmployeeXM for some time, the reality of the shift was most recently exemplified by the move of Jay Choi, formerly leader of EmployeeXM, to Chief Product Officer over all Qualtrics products (CX, EX, PX, and BX).

Critically, the last two items underscore why it was increasingly important for Qualtrics to become more independent. If the company was going to make a broader platform play and focus more on employee experience, it needed to build beyond the SAP ecosystem and expand to a broader set of potential partners (including SAP competitors such as Workday, Oracle, and some of the HRIS systems targeted at SMBs).

Net-net: the road through SAP to IPO gave Qualtrics scale, a broader experience management strategy, and a greater focus on employee experience — plus a ton of cash.

But the big winner in all this is SAP.

First, there’s the crazy amount of money SAP just made from this IPO. We couldn’t find a public source for their exact profit, but given that they bought the company for $8 billion and it just got valued at north of $27 billion, we think SAP did more than just *alright*.

But here’s where SAP was really smart.

SAP gets to pocket those billions AND it retains financial control over Qualtrics. “Wait…WHAAAT?!?” you might be thinking (especially after having read above about the importance of Qualtrics’ independence).

Yeah, right at the top of their S-1 (the financial document a company has to file to go public), is the statement that Qualtrics was offered with two levels of stock: Class A and Class B.

“SAP will own all 423,170,610 shares of Class B common stock…Each share of Class A common stock is entitled to one vote and each share of Class B common stock is entitled to ten votes…This means that, for the foreseeable future, investors in this offering and holders of our Class A common stock will not have a meaningful voice in our corporate affairs and that the control of our company will be concentrated with SAP.”

Buried on page 47, the S1 states:

“As a result, SAP will have the ability to control all matters affecting us, including:

  • the composition of our board of directors and, through our board of directors, any determination with respect to our business plans and policies;
  • any determinations with respect to mergers, acquisitions and other business combinations;
  • our acquisition or disposition of assets;
  • our financing activities;
  • […a whole bunch of other things, omitted for brevity…] and,
  • the strategy, direction, and objectives of our business.”

So, SAP made a ton of money and it still – in legal terms, even if not in day-to-day operations – maintains control over Qualtrics.

Is this (not so tiny) distinction going to matter? We give it a cautious “maybe.”

As we wrote about before, we’d been hearing that Qualtrics already had an incredible amount of autonomy for an acquired company before this spin-out. Further, we’ve also been told that the primary reason for this spin-out is a need for greater independence.

However, things can change fast. The spin-out was at least partially due to leadership transitions, initially precipitated by former SAP CEO Bill McDermott leaving (now CEO at ServiceNow) and reinforced by the sudden departure of SAP’s American co-CEO, Jennifer Morgan. While founder Ryan Smith plans to remain as executive chairman and Zig Serafin as CEO, they can’t stay forever. Should SAP leadership change or become dissatisfied with Qualtrics’ leadership, they could certainly make significant changes.

Change is not the plan for now, but plans change.

In short, SAP made a ton of money and still has the keys to the castle, though they say they aren’t involved in the running of the kingdom.

Perhaps the biggest story is how much money just got put into the EX tech market.

Perhaps the biggest news here, though, is that through this IPO, BILLIONS of dollars just got put into the hands of SAP and Qualtrics – and they will use them. Sure, there will be product innovations and maybe customer service improvements. But what is most likely to happen?

You guessed it: acquisitions.

(Read here for more on our thoughts on why acquisitions are going to be the name of the game for the people analytics tech market in 2021.)

Let’s just focus on Qualtrics (SAP is too wily a beast to make these types of predictions). If we look at where we place them on our people analytics tech 2×2 (see Figure 2), you can see there’s still quite a bit of room for them to move to the right on our “continuous analysis” axis. In short, this means we think there’s still a lot of opportunity for Qualtrics when it comes to using digital exhaust and unstructured data to understand employee experience. Qualtrics have themselves called out (in Figure 1) their intent to focus heavily on continuous listening (#surveyfatigue).

Given this, I’d expect Qualtrics to potentially push into the always-on employee listening space or passive organizational network analysis (ONA) — which could be paired nicely with active survey-driven ONA (again, see Figure 2).

Figure 2: People Analytics Tech Market Map – Focus on Qualtrics and Potential Growth / Acquisition Markets | Source: RedThread Research, 2021.

Another area they might go into is the multi-source analysis space. These vendors pull in data from a very wide set of sources and provide detailed and complex analysis capabilities, primarily for people analytics practitioners and HR business partners, but also HR leaders, business leaders, C-suite execs, and employees. Given Qualtrics’ desire to be a data hub – and to understand the entire employee experience – we could see this as another reasonable direction.

Finally, the employee experience starts with talent acquisition. Labor market analysis capabilities would fit nicely into Qualtrics’ overall focus on end-to-end employee experience. Both of these latter two areas would jive really well with Qualtrics’ social science-heavy roots.

Despite all our conjectures above, it is worth noting that Qualtrics’ strategy is very much an ecosystem play. Therefore, Qualtrics may choose to invest instead in collaborating with a system of partners in these areas – or at least do that before acquiring or building the tech themselves. But invest they will – this money has to go somewhere to continue to fuel their growth.

What now?

Well, as observers of all this stuff, this is when we break out the popcorn and watch the show. Because we’re certain it WILL be a show in 2021. What do we expect to see?

  • This IPO will allow Qualtrics to be MUCH more competitive in the employee experience / engagement market, as they invest this money into their product and services
  • The employee engagement / experience tech ecosystem is likely to change, either via acquisitions or through intentional partnerships
  • We’re going to see even more institutional / external investors in the HR tech space, given how well Qualtrics performed – which will fuel more growth in the broader HR tech vendor market – starting the cycle anew

For now, let’s all have a good weekend… and take that popcorn out of the microwave as we look to February to provide the next segment.

Heather Gilmartin Adams