A Quick Look At Pivotal’s S-1

I’ve taken a quick look at the numbers in Pivotal’s S-1 to get a feeling for how the finances align with management’s rhetoric about its prospects.
The short answer is that things look good for Pivotal’s sales prospects. The key to success will be increasing subscriptions without overspending on sales and marketing.

Pivotal Sales Growth 2016-2018 (Source: SEC filings and PivotNine analysis)
Pivotal Sales Growth 2016-2018 (Source: SEC filings and PivotNine analysis)

As you can see, revenue growth is strong while operating costs are fairly flat. The structure of Pivotal’s business means it can scale revenue growth well without having to add huge amounts of costs. This is the beauty of a mostly software business: the marginal cost of creating more of it isn’t very high.

All that gross margin does get eaten up by overheads, though.

Pivotal Common Size Income 2016-2018 (Source: SEC filings, PivotNine analysis)
Pivotal Common Size Income 2016-2018 (Source: SEC filings, PivotNine analysis)

Sales growth is doing most of the heavy lifting here. R&D spend has increased from about $120.5 million in 2016 to $161 million in 2018 which is about 34%, while sales has increased 81%. Sales and marketing is the stand-out cost in absolute terms, but it’s only increased about 18% from $187 million in 2016 to $221 million in 2018. General and admin costs are modestly up from $58 million in 2016 to $67 million in 2018 (15%).

It’s where the growth is coming from that is most interesting to me.