Is this the best Australian tech company?
Tuesday, September 27, 2016/
It could quite possibly be the biggest business you’ve never heard of, and also one of the coolest.
While Atlassian is justifiably praised for its global domination of technology project management, Campaign Monitor has become a world leader in the highly competitive email sector and Canva has been a remarkable success story, arguably the best Australian tech company of them all has quietly built one of the world’s most popular websites.
Since launching from a garage in 2006, Envato has become Australia’s lowest profile tech superstar. Partly because its married founders, Collis and Cyan Ta’eed, don’t seek publicity, and partly because the business has been so profitable it hasn’t needed to raise any money, almost no one, even those in the tech sector, has ever heard of it.
But that is about to change.
Envato runs a series of marketplaces for web designers – its most popular site, Themeforest, sells website templates and WordPress themes. Envato doesn’t design the templates themselves, it simply provides a forum for designers to sell their wares, and take a very significant clip on the way (Envato recently announced it had paid its designers more than $400 million since 2006). Envato’s sites also sell video effects and footage, code scripts and royalty free music for websites.
While perhaps not overly well known outside the development community, Themeforest is one of the world’s most popular websites. According to Alexa, Themeforest is currently the 369th most visited website globally – that makes it more popular than AirBNB, Groupon and Box.com.
Envato’s 2016 financial results will be released shortly but its performance in 2015 was stunning. While many tech businesses are valued on a multiple of revenue because they don’t make much (or any) money, Envato has been a profit generating machine. According to documents lodged with the Australian Securities and Investments Commission, the company’s earnings before interest and tax (EBIT) increased from $22 million in 2014 to $44 million in 2015. Given growth trajectory, the business appears is likely to deliver EBIT upwards of $60 million this year.
As a comparison, Aconex (which provides technology solutions to building companies globally) reported EBIT of $6 million for the 2016 financial year and is valued at $1.28 billion; if Envato (which is a superior business model) was valued on the same multiple, it would be worth around $12 billion. WiseTech, another Australian success story reported pro forma net profit after tax (NPAT) of $14.2 million and has a market value of $1.54 billion. Envato is likely to report NPAT this year of around $40 million but is growing at closer to 50% ‘year on year’ organically (compared with 22% for WiseTech), and so based on the WiseTech market cap, a $6 billion valuation for Envato is reasonable. While it is reasonable to argue that Atlassian and WiseTech are trading on nose-bleed bubble valuations, even using JB Hi-Fi’s EBIT multiple of 22, the far faster growing Envato would worth well north of $1 billion.
That would make the extraordinarily humble Ta’eeds worth somewhere between $1 billion and $10 billion (depending on how lofty a valuation you choose to use).
As you’d expect Cyan and Collis, Envato don’t avoid tax through Double Dutch Irish Sandwiches; unlike Apple and Google, Envato paid a full corporate tax rate of around 30 percent in 2015. Oh and last year Envato was voted the Coolest Company to Work for Women.
It’s hard to think of a couple of more deserving billionaires.