☁️ Market Conditions
[Week 2, 2022] 📉 Cloud stocks fall another 3.4%, ⏸️ Justworks delays IPO, 🚀3 bullish signs on cloud spending. Let's begin 👉👉
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Cloud stocks fell another 3.4% for the week ending January 14th, 2022. Inflation remains the top concerns for tech investors as the US CPI increased 7% YoY in December, an acceleration from 6.8% in November and the largest increase since 1982. Recent IPOs (-3.7%) and broader Software (-1.6%) were also relative underperformers as "long-duration" tech continues to face pressure on potential rate increases. Energy continued to outperform as colder weather pushed up oil and gas prices.
ELI5: High inflation signals > possible rate increase > high-growth, unprofitable terminal value decreases > multiple compression
Still don't get the concept of Inflation? Check your Netflix bill.
The longest-duration, hyper-growth and non-profitable tech companies crashed further this week, now down a shocking 49% from its record highs in Feb 2021 (down 7 of the last 9 weeks) - ZeroHedge
We've now seen a version of this chart cut 100 different ways... prior corrections in software stocks saw a ~27% decline on average. We're at 22% (again averages mean nothing).
Elad Gil, Silicon Valley’s Biggest Solo Venture Capitalist, notes still plenty of room for SaaS stocks to fall (again, based on long-term valuation averages).
Usually private markets are 2-3 quarters behind publics. So next few months will be telling - Elad Gil
Falling public market valuations don't necessarily tie to company fundamentals or signal a change in industry demand (although they certainly can). But public multiples may impact private companies in a few indirect ways: 1) could lead to a dreaded down round (only if you need capital), 2) your IPO may be pushed out (see Justworks below), or 3) if they're too high, negatively impact exec recruiting (Liquidity fueling a tech talent war)
📰 Software is eating the world. Make sure you're not the prey.
Justworks Delays IPO on "Market Conditions"
Capital markets playing hard to get after record 2021
IPO market has slammed on the breaks in the last ~6-8 weeks after a fairly easy 2021. More than 60% of 2021 IPOs are currently trading below their IPO price (per Refinitiv) as threats of raising rates compress high-growth multiples.
In a fairly normal move during market turbulence, Justworks is delaying its IPO due to "market conditions," but leavings its S-1 on file with the SEC.
Databricks CEO, Ali Ghodsi, went on CNBC confirming this is just a fire drill. Demand remains robust and growth will offset any multiple compression (although investors are already shifting focus From Growth to Economics).
As long as you have growth rates that are growing as fast as we are growing, then actually that growth rate will break through the multiple compression that’s happening in the market, sooner or later - Ali Ghodsi
3 Bullish Signs on Cloud Spending
Morgan Stanley CIO Survey Points to "early innings" of cloud
Kleiner Perkins remains bullish on analytics, AI, and security in 2022
JPM investing $12B+ in global tech spend
And this year, roughly 30%, 40%, 50% of all our apps and all data will be moving to cloud-related type of stuff. This stuff is absolutely totally valuable... if you sat in this room and look at the power of the cloud and big data on risk, fraud, marketing, capabilities, offers, customer satisfaction, dealing with errors and complaints, prospecting, it's extraordinary. - Jamie Dimon
🎩Ed Sim with a full write-up in his newsletter:
💭Tweets I'm Thinking About
1) Lessons on Scaling a Low-Code
2) CEO Concerns: Attract & retain talent, accelerate digital transformation, supply chain
3) Thoughts on customer economics
With blessings of strong NRR,
Thomas
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