Several public cloud stocks slid to new 52-week lows last week. How is this SaaS stock slash different from what we experienced in Q1? Two graphs explain the ensuing chaos & what might lie ahead
If you compare the TLT with the WCLD, you'll see that there's significantly more to the history than just rates. (in fact, I'd suggest plotting the price of a bond instead of the yield, because I don't know you, but I have no sensibility of how 70bps increase in the 10y should compare to SaaS stocks)
Of course there's significant amount of companies missing guidances, but the main story here is the market losing patience with software companies lack of profitability. Get RNG, they are public for a decade and aren't expected to turn a profit for years. Which investor would have underwritten RNG in 2012 thought that in the 10th year they would still not have achieved profitability?
On top of that, there's SaaS companies obsession with fake metrics like FCF and Non-GAAP Operating margin. We once hate sold SQSP because of their guidance of a meager 20% fake margin, before taxes and stock-based compensation.
We're seeing some religion. Twilio is now guiding SBC (although it's still awful, but at least they now recognize that it's an expense). Salesforce is now talking about returning 30-40% of FCF to owners (despite 30-40% being SBC). But it's still not enough for investors and still not enough for the expectations that once were baked into prices (there were people talking about 40% margins like it was normal!)
(Not surprisingly, companies like SNOW that talk about SBC since their investor day, still command a mid-teens revenue multiple)
If you compare the TLT with the WCLD, you'll see that there's significantly more to the history than just rates. (in fact, I'd suggest plotting the price of a bond instead of the yield, because I don't know you, but I have no sensibility of how 70bps increase in the 10y should compare to SaaS stocks)
Of course there's significant amount of companies missing guidances, but the main story here is the market losing patience with software companies lack of profitability. Get RNG, they are public for a decade and aren't expected to turn a profit for years. Which investor would have underwritten RNG in 2012 thought that in the 10th year they would still not have achieved profitability?
On top of that, there's SaaS companies obsession with fake metrics like FCF and Non-GAAP Operating margin. We once hate sold SQSP because of their guidance of a meager 20% fake margin, before taxes and stock-based compensation.
We're seeing some religion. Twilio is now guiding SBC (although it's still awful, but at least they now recognize that it's an expense). Salesforce is now talking about returning 30-40% of FCF to owners (despite 30-40% being SBC). But it's still not enough for investors and still not enough for the expectations that once were baked into prices (there were people talking about 40% margins like it was normal!)
(Not surprisingly, companies like SNOW that talk about SBC since their investor day, still command a mid-teens revenue multiple)