The construction world is in need of modernization. Too many construction sites run as they always have, with paper documents and limited technology. However, that's rapidly been changing, and one of the largest companies in cloud-based construction software, Procore Technologies, is finally ready for its initial public offering.
Procore has been around since 2002 and has some pretty impressive stats. Since 2014, over 1 million projects have been created on Procore, representing over $1 trillion in construction value. It has over 10,000 customers on its platform and over 1.6 million users. The company has seen steady customer growth and is used by many of the biggest active construction companies around the world. It first filed to go public in February 2020, but those plans were delayed due to the pandemic.
The initial offering price is expected to be between $60 and $65, and the company will trade on the New York Stock Exchange under the symbol PCOR. It plans to offer 9.47 million shares. It could raise over $600 million, giving it a valuation as high as $8.3 billion.
What Procore is all about
Procore's goal is to become the system of record for construction management. This is a lofty goal but an obtainable one based on its current growth. The promise of yoking together owners, contractors, architects, and subcontractors is highly attractive and could save time and money for developers.
It's also an idea whose time has come, partly because everyone carries a mobile device with the power to transmit and share data and because construction sites are more likely to have access to technology. Webcams are increasingly common on construction sites.
Procore estimates that the construction industry spends approximately $12.4 billion on software. It sees the annual potential market opportunity for its existing products to be approximately $9.4 billion.
There's also an increasing expectation in the industry that contractors share documents and progress via mobile platforms. When I interviewed Ari Rastegar, he talked about creating a system where his contractors are sharing videos and photos of progress, available at any time.
Collaboration that is asynchronous and remote is increasingly valuable in construction. The COVID-19 pandemic proved that this was possible, and it's rapidly becoming the expectation.
No profits, no problem?
However there's one major thing to consider: Procore doesn't run at a profit. It generated revenue of $186.4 million in 2018 and saw a net loss of $56.7 million that year. It had revenue of $289.2 million in 2019 and losses of $83.19 million. Last year, it had impressive revenue of $400.3 million in 2020, a healthy growth of 38%, but still had net losses of $96.2 million. This may not be a huge issue. After all, some very investable companies took years to turn a profit.
Because of its lack of profits, Procore qualifies as an “emerging growth company.” As an emerging growth company, it can take advantage of reduced reporting requirements otherwise applicable to public companies and intends to do this for its first five years as a public company.
Procore has the advantage of nearly 20 years of experience and a large client base, but it's not the only horse in this race. There are other construction software companies within the proptech sector that could grow quickly. Avvir, a company that designs software that catches mistakes before they become costly disasters, recently raised $10 million.
The biggest concern may be another giant in the space. Autodesk (NASDAQ: ADSK), which has its own construction software, has the advantage of being the software of choice for many architects. But, as Brent Schafer wrote over at The Motley Fool, there may be enough business here that both companies can thrive.
Both companies are using acquisitions to expand their product suites. Procore just acquired INDUS.AI, an artificial intelligence-powered analytics platform for construction that monitors construction sites through an AI engine designed to spot anomalies.
The Millionacres bottom line
There's a lot to like about Procore. It has market share, a sizable customer base, and increasing revenues. There's also a strong retention factor here. Once a large developer starts using Procore with its contractors, architects, and other stakeholders, it's unlikely to want to go through the process of testing out and adopting other software.
However, Procore is coming to market at an uncertain time, and that alone may be a reason for investors to wait a bit to see how it does. While it's likely that Procore will continue to grow rapidly, its moment of profitability may still be a ways out.