A lot of the world is busy digesting Twitter being rebranded to “X,” but more serious things are happening in the world of tech: Worldcoin is here!
I kid. What actually matters today is that we are embarking on another earnings cycle, which means we can study tech’s largest and wealthiest companies’ results to get some perspective on the state of the economy as it relates to tech goods and services. Hardware and software, in other words.
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Of course, we’ll see some familiar themes in this cycle, but there are enough new trends going on that I wanted to pause and talk through a few points that we should all look out for.
Note that the earnings season affects the startup world in a few ways. Most importantly, it provides a directional signal: When public tech companies report rapid growth in a particular area of their market, investors gain interest in younger companies that may benefit from a similar wave of demand.
And, of course, startups should care about these results, as they can reprice the public companies that form their core comparable cohort, which can make it easier or harder to fundraise and help determine exit values.
It’s a big deal, in other words.
As we noted this morning on Equity, this week we’ll hear from Microsoft, Alphabet, Spotify, Snap, Roku, and many more. Given the breadth of companies reporting this week, we are officially heading into the breach.
Now, on to what we should all keep in mind for this particular earnings cycle! This will be fun, I promise.
Five things to look out for
Where AI hype is turning into dollars
By now, you’re probably more than bored of nearly everyone telling you how AI is about to change everything, bro. We feel you.
But with Microsoft rolling out a pricing package for AI-powered services relating to its Office suite and GitHub already charging for Copilot, we’re in the era when generative AI starts generating revenue.
So, where are the dollars actually landing? If tech shops spend this entire earnings cycle simply talking about AI instead of mentioning what sort of lift it is providing, that’ll be notable and, potentially, worrying.
For startups focused on AI these days, the higher their ability to actually generate revenue from new AI services, the better, as it will indicate that the market is more than just curious about the technology.
How long it takes to close deals
In recent quarters, we’ve been hearing software companies complaining that it’s taking longer to close deals. When buyers have more leverage, deals can take ages to close as pricing negotiations drag on.
We’re looking for tidbits that can tell us if deal timelines are getting shorter since that could bode well for startups.
Pricing power, or lack thereof
We’ve seen net dollar retention (NDR) dip at many public software companies in recent months. It won’t be a scientific calculation, but if we see NDR figures rising at public software companies, we can infer that pricing power is slowly shifting back toward the middle. For startups, that would again be good news.
Continued NDR erosion, however, would imply that the pressure on software sales is not letting up, which would be more than a little bearish for younger tech companies. Startups have to not only sell their products, but they also have to market their corporate prospects to potential clients.
For a company like IBM, a more difficult software sales market is a burden, but it’s not something it can’t survive. Startups have to face the same challenges in addition to a lot more, so NDR metrics are important to track.
Where growth can be found around the world
Sure, the U.S. market is the SaaS jewel of the world, but the economy here is only so good.
If other parts of the world offer more growth, we’ll have a good idea of where in the world startups are best positioned to do well.
Rates. Rates. Rates.
Finally, the price of money. The U.S. central bank is expected to raise the interest rate by 25 basis points this week and, perhaps, signal a slowdown of rate hikes thereafter. That could impact everything from fintech earnings to the value of tech stocks. Keep an eye out for interest rates and their impact on corporate earnings.
We could toss in a few more things, like how infrequently we hear about crypto on various earnings calls, but this list will do for now.
TechCrunch+ will, of course, provide good context and analysis of all the key news, but when you are reading on your own, we hope this list helps!
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