The good news for long-term software growth
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Image Credits: Nigel Sussman
While the venture market continues to digest a new reality, the TechCrunch+ crew has been paying very close attention to software earnings. Why are we tracking earning results for Q4 2022 in March 2023? Because lots of software companies have fiscal calendars that end on January 31 of each year. That means they report their results a bit later than other companies, leading to some lag when it comes to sorting out how many of the most important public comps for startups are performing.
Hello, friends, Alex here. Anna is out this weekend, but we expect her return in short order. A big thank-you to her for letting me write the Exchange newsletter for you today. It’s great to be back!
As always, we’re looking at public-market data for tea leaves that we can relate back to the comparatively opaque private-market companies that we cover here at TechCrunch.
Salesforce, beleaguered by external criticism concerning its cost structure and investor pressure regarding its growth rate, bested expectations in its trailing results and projected greater profitability. Okta was another standout reporter from the week, beating expectations and putting up guidance that investors liked.
Other software concerns struggled, beating trailing expectations but coming up short when it came to future growth guidance. For Wall Street, what you did last quarter matters, but often what’s ahead can matter even more. Box and Snowflake failed the guidance test and took hits to their share prices.
Later in the week, Samsara also reported. The IoT platform helps companies that have lots of physical items track their assets, and it can track vehicles and driver activity. In short, it provides something akin to vital signs for real-world items. That’s not to say that Samsara isn’t a software company; it is, as demonstrated by its gross margins.
Given its subscription software backbone, we care about how it is performing. And, much like Okta and Salesforce, it’s doing very well. After reporting its results after the bell on Thursday, shares of the company were up 20% as of midday Friday. Here are the raw numbers:
- Trailing revenue estimate (street): $171.6 million
- Trailing revenue actual: $186.6 million
- Current quarter revenue guidance: $190 million to $192 million
- Current revenue estimate (street): $182.4 million
Pow!
I caught up with Samsara CEO Sanjit Biswas about his company’s results. Here’s what I learned:
- The digital transformation is not evenly distributed. This means that Samsara anticipates that its core customer markets — agriculture, construction, and so on — have decades of growth ahead of them. Other industries may be further along, meaning that software companies targeting less tech-forward industries might have, ironically, better growth moving forward than those selling to more techy concerns.
- Its larger customers are growing quickly, including posting stronger net retention than Samsara’s aggregate numbers. Per Biswas, this is due to their operational complexity. The sword to the knot of complexity is actionable data, which Samsara works to offer.
- Software companies can grow and hit profitability marks at the same time. Samsara’s results, its CEO detailed, included greatly improving free cash flow results and hitting the Rule of 40 by his accounting. (Rule of 40 is a metric that you can define in a few ways, in case you wanted to get super nitty-gritty.) Startups, there’s no excuse!
I wanted to take you through all of that to make a point: Selling software at scale does not require selling to other tech companies. Many startups begin life selling to their peers, but Samsara’s growth — and investor response! — is a reminder that every industry wants to do more with less, and if you can help them do so, they will shell out for your code.
Samsara’s gross margins are in the 70s today. It’s reached what we generally consider to be in-range SaaS revenue profitability. This leads to an interesting question: Are software prices set by top-line considerations, or are they more a multiple of underlying costs? How else could we see such a tight clustering of gross margin results in the 70s as we do?
Regardless, Samsara is good evidence that slowing software growth won’t hit every company the same. There will be outsized winners among companies regarding their financial performance. This means winning startups. Our eyes are peeled.
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