SaaS earnings bump Dropbox, Box and Sprout Social

A quick hit as we have a podcast to record, but a few public companies in the broader SaaS market reported earnings in the past week. Their results are worth unpacking as they paint a good picture of what the markets are hunting for in modern software companies.

Of course, we’re covering the firms’ share-price movements in the context of an epic selloff stemming from global conditions that are already impacting earnings.

But, hey, not all the news out there is bad. In fact, for our three companies, public investors are waving green flags. So let’s take a peek regarding why Dropbox, Box and Sprout Social — one recent IPO and two slightly-out-of-favor SaaS shops — each shot higher after reporting their Q4-era results.

Earnings, results

Let’s proceed in alphabetical order, putting Box at the top of our list. We’ll then work through Dropbox and Sprout Social.

Box’s calendar Q4-era earnings report (the company’s Fiscal 2020 Q4) beat investor expectations three times. It reported more revenue than anticipated, $183.6 million over expectations of $181.6 million; a slimmer loss than predicted, $0.07 per-share in adjusted profit against a projected $0.04; and the storage-grounded, corporate productivity company’s quarterly forecast of $183.0 million to $184.0 million was a few million ahead of expectations ($181.8 million, per Yahoo Finance).

So Box, which has seen its revenue multiple roughly halve since mid-2018 according to YCharts data, is up 6% today despite the world falling apart around it. Box’s improved valuation was also predicated on it posting its first full-year non-GAAP profit. Investors love growth beats, they treasure profit wins and they adore higher-than-expected expansion projections. Throw in some adjusted profit milestones and Box is enjoying a lovely day.

The lesson for startups is clear: Even slower-growing SaaS companies — Box grew 12% in its most recent quarter, and 14% in its most recent fiscal year — can turn heads with profits.

Now, Dropbox. We’ve gone deeper into its earnings here if you’re in the mood for a longer run-through. What matters for us today is what follows:

The company’s $446 million in revenue was $2.65 million ahead of expectations, driving 18.65% growth […] The company’s $0.16 in adjusted profit per share was two cents above expectations, while the company’s net loss per share of $0.02 was a penny ahead of projections […] Dropbox [also] promised un-adjusted profits, probably in Q4 of 2020.

This mix of results should sound familiar. Dropbox also beat revenue and profit expectations, while also making progress on profitability, as well. Its shares rose sharply following the news release, as you’d expect.

The lesson for startups is clear: Even slower-growing SaaS companies — Dropbox grew 19% in its most recent quarter, and 19% in its most recent year — can turn heads with profits.

And finally, Sprout Social. Sprout is a company we haven’t covered enough here at TechCrunch over the years. Based in Chicago and part of the 2019 IPO class, Sprout Social is a company focused on social media management on a SaaS basis. That makes it a good fit for this post; social media tooling is, like storage, a category from a prior era of startups.1 However, like Box and Dropbox, Sprout bested expectations and saw its shares rapidly appreciate.

Indeed, Sprout’s stock is up about 20% today after reporting earnings yesterday. What we’re about to say about the company probably isn’t going to be a surprise, but stick with us all the same.

In Q4 2019, Sprout Social reported revenue of $28.14, a gain of more than 26% on a year-over-year basis, nearly $1 million ahead of market expectations. The firm’s adjusted profit and GAAP net income (unadjusted profit) beat investor guesses as well. That’s a top and bottom line beat akin to what we saw from Dropbox and Box.

Here’s where things diverge, however: Sprout Social expects its non-GAAP operating net loss to worsen in the new year, from $21.9 million to $29.3 million to $25.3 million in the current year.

So what gives: Why are its shares surging? Because Sprout’s current-quarter revenue forecast (“between $29.4 million and $29.9 million”) is better than what the street expected ($29.3 million), and its full-year estimate (“between $131.7 and $133.7 million”) was also ahead of the street ($131.45 million).

The lesson for startups is clear: If you are going to run persistent deficits, you’d best grow faster than your investors expected.

You can sum our two lessons (the first two echoed each other) as simply that startups need to show better-than-expected profitability, or faster-than-anticipated, to placate the market. In between the two is the startup equivalent of stagflation. Which, for younger companies, is probably a death sentence.

 

1What does this mean? Mostly that category growth (secular expansion, kinda) is probably slower than some other SaaS categories. Other than that, we meant no disrespect.