The IPO That Reflects a New Saudi Arabia

In September, solutions by stc, the IT services and integrated technology solutions arm of stc Group, floated its IPO on the Saudi Exchange’s Main Market, listing 24 million ordinary shares via a secondary offering, which represented 20% of the company’s total share capital. Raising $966.35 million (SAR 3.624 billion), the offering exceeded even the revised target of $960 million, which had been set earlier in the month.

This represents one of stc Group’s most successful privatizations, second only to the privatization of stc itself in 2002. It also positions solutions by stc as an outstandingly successful investment for the group; initially a SAR 100 million ($26.7 million) acquisition, the company has grown its valuation to more than SAR 18.1 billion ($4.8 billion). 

An IT innovator, solutions by stc has evolved into Saudi Arabia’s leading enabler of digital transformation, offering integrated technology solutions to public and private entities. It is currently a market leader in Saudi Arabia’s B2B IT services market, with a market share of 13%, and maintains more than 150 global technology partnerships with companies including Microsoft, IBM, SAP and Oracle. 

Ranked first for IT services in Saudi Arabia for five consecutive years by the International Data Corporation (IDC), a global firm specializing in market research, solutions by stc’s net revenue growth hit 30.6% CAGR in FY18–20, with net profit growth coming in at 12.3% in the same period. In 2020, the company generated 54% of its net revenues through core ICT services, while managed IT and operational services contributed 24% and digital services represented 22%.

The solutions by stc IPO is a natural step for the stc Group as it seeks to amplify its strategy of serving both the private and public sectors. The move has generated capital to invest in creating further scale, reach, speed and technological investment to serve the needs of Saudi Arabia’s growing economy. 

The IPO also aligns with Saudi Arabia’s Privatization Program, which aims to increase the private sector’s role in providing crucial services. Launched in 2018, the Privatization Program identifies government assets and services that can be privatized to improve efficiency, support economic development and improve service quality and competition. 

“Investment through technology is an important priority that supports development in various fields in the Kingdom,” says Olayan M. Alwetaid, stc Group CEO. “At stc, we will contribute with our strategy in this direction and provide the opportunity for investment entities to join us.”

Alwetaid sees the large turnout for the IPO as confirmation of investor confidence in both the company and the Kingdom’s future, adding that stc’s strategy “aims to grow in new unconventional paths, play a pivotal role in digital transformation and empower the public and private sectors in line with the ambitious goals toward a prosperous and diversified economy.”

The success of the IPO highlights the strong investor appetite for opportunities in Saudi Arabia’s IT, ICT and digital transformation sectors. It also showcases investor belief in solutions by stc’s growth and profitability trajectory. 

The company’s growth strategy benefits from structural expansion in Saudi Arabia’s IT markets and the technology demand created by the Saudi Vision 2030 framework. In the years ahead, solutions by stc expect growth across public- and private-sector clients, driven by an expansive digitalization and tech transformation agenda—from smart cities and smart services to the digitalization of Saudi Arabia’s health-care system.

The recent uptick in cloud services demand nationwide is expected to continue as companies embark on digital transformations to maintain momentum in a liberalizing market. This cloud-first mindset was fast-tracked by the Covid-19 pandemic, leading to accelerated demand for Saudi-based data centers and cloud services.

Additionally, ambitious targets for the digital economy codified within the Saudi Vision 2030 blueprint are providing a further technological push. Giga-projects and smart-city clusters such as NEOM are setting the stage for ICT service proliferation, and demand is increasing for IoT technology and sensors, digitalization, apps and cybersecurity. stc Group’s 5G initiatives are galvanizing digital connectivity by creating a speedy and robust infrastructural backbone.

Macroeconomic indicators appear to bolster the case for future growth and returns in the IT sector. Despite recent advances, IT services represent just 0.7% of Saudi Arabia’s total GDP, lagging behind the 1.3% average posted by more mature markets; this indicates significant growth potential. IT growth indicators are positive: Saudi Arabia’s B2B ICT services market is expected to grow at 6.7% per annum, compared to the 3% average posted by more mature markets. By 2025, the B2B ICT services market is expected to be worth SAR 53 billion ($14.1 billion).

Intra-organizational indicators are also positive, as stc Group’s management team is composed of individuals with strong operational experience and an average of 19 years within the sector. The company’s board of directors also has significant experience across the ICT services market, putting solutions by stc in a strong position to capitalize on unfolding opportunities.

stc Group’s capitalization of solutions by stc demonstrates the company’s commitment to drive digital transformation in the Kingdom. The solutions by stc IPO is a milestone for stc Group as well as the Saudi Exchange. It makes solutions by stc the first sizeable company listed on the exchange’s Software & Services index, adding diversity to the exchange and strengthening both the financial market and local equity. It is also a milestone for Saudi Arabia—a country determined to prove that its mega-enterprises can excel in a more open, competitive market.

The company’s other notable achievements include the recent transformation of stc Pay into a digital bank; the launch of cybersecurity company sirar by stc to respond to growing cyber threats; and investments in an electronic games platform, stc play. These successes reflect the Kingdom’s move toward privatization of the telecommunications sector over the past 20 years, as well as its ambitious digital transformation plans.