Qualtrics Stock Soars as SAP Seeks to Exit Majority Stake

Along with reporting earnings, SAP said Tuesday it has retained Morgan Stanley as a financial advisor on the potential sale of the position. SAP acquired Qualtrics for $8 billion in cash in 2019; the current market cap is $6.6 billion.

Qualtrics shares surged 29% on Thursday to $14.62.

In an interview with Barron’s, SAP CFO Luka Mucic noted that SAP owns about 70% of Qualtrics, or 61% on a fully diluted basis. Mucic said SAP’s control position in the stock has been an overhang on Qualtrics’ valuation, adding that selling SAP’S stake would be “value maximizing” for both companies. The cash raised by SAP from a sale could be used to pursue acquisitions, or to increase cash returns to shareholders, he said.

The SAP announcement has spurred speculation that Qualtrics could be acquired in whole, either by private equity or a strategic buyer. Evercore ISI analyst Kirk Materne writes in a research note that as an enterprise-focused company with expanding margins, Qualtrics “could be attractive to financial buyers.” At current levels, the stock trades for a relatively modest 4 to 5 times expected 2024 sales.

Raymond James analyst Brian Peterson, meanwhile, points out that the stock’s current valuation is still well below the roughly 9 times forward sales that the PE firm Thoma Bravo paid for Qualtrics rival Medallia in 2021. He notes that in the current environment, few software private-equity deals have been priced above 8 times sales. A transaction at 8 times expected 2024 sales would value the company at $16 billion, well over twice the current level.

Qualtrics on Wednesday posted better-than-expected fourth-quarter financial results. Revenue was $389.1 million, up 23% from a year ago, above the Street consensus estimate of $381 million. Subscription revenue was $327.6 million, up 26% from a year earlier. On an adjusted basis, the company earned 3 cents a share, a penny ahead of the Street forecast.

For 2023, Qualtrics sees revenue ranging from $1.661 billion to $1.669 billion, with non-GAAP earnings between 20 and 24 cents a share. It forecasts a non-GAAP operating margin for the year of 10% to 11%. The company has projected operating margins of more than 20% and achieve free cash flow margins of 25% by the end of 2026.

Qualtrics CEO Zig Serafin said the situation should benefit the company.

“This is another step in our journey with SAP, one that has the potential to give Qualtrics an even greater opportunity to accelerate our growth and our category leadership in Experience Management,” he said in a statement. “It’s a win-win situation, where we can continue our partnership with SAP and unlock new value for both of our companies and our shareholders.” 

Write to Eric J. Savitz at eric.savitz@barrons.com