Category: In-Depth Analysis (Page 3 of 7)

These posts represent in-depth analysis of a particular company or general theme.

Snowflake (SNOW) Q3 FY2023 Earnings Review

December 10, 2022 / poffringa

Snowflake reported their Q3 FY2023 earning results on November 30th. The company beat revenue estimates, delivering 67% annual growth. The Q4 product revenue guide, however, missed expectations by about 2%, with annual growth decelerating to 49%. Initially, the market’s reaction was unfavorable, as the stock dropped by over 10% after hours. At the tail end of the guidance portion of the call, however, management shared a preliminary outlook for next year (FY 2024) for 47% revenue growth with 23% FCF margin. While the revenue guide was roughly inline, the implied FCF target was higher than analysts had modeled. SNOW’s stock price immediately began rising and ended the following day up 8%.

This movement underscores the situation for many software infrastructure providers currently. While investors have become attuned to the impact of the pressured IT spending environment, they are trying to see past the current macro headwinds. Coming off the Covid-inspired spending surge, macro is obfuscating post-Covid growth deceleration. Investors need to discern which companies would have maintained elevated growth for the next couple of years, separate from the broader impact of macro. Identifying the companies with real durable revenue and FCF growth could drive investment outperformance.

By effectively setting their baseline for next year’s revenue growth rate linear to the Q4 guide and increasing the FCF target, Snowflake is signaling that their growth rates are sustainable. Since a big part of the Snowflake valuation thesis hinges on the durability of revenue growth towards the $10B target by FY2029 (six years out), this guidance signals that target is achievable. Additionally, that can be accomplished with a significant increase in free cash flow, quickly approaching their 25% long term target.

A Potential Silver Lining from Recent Tech Layoffs

December 1, 2022 / poffringa

We have all seen the headlines of large technology companies announcing layoffs or hiring freezes recently. Facebook released 11,000 employees earlier in November. Amazon laid off about 10,000 employees and has instituted a hiring freeze in its AWS division. Google introduced a brief hiring freeze in August and has slowed incremental hiring since then, lowering the number of open positions significantly. Even SaaS stalwart Salesforce reduced staff by several hundred employees. And long time networking leader Cisco is cutting 5% of its workforce or 1,500 employees.

Technology companies outside of Silicon Valley have been impacted as well. Stripe laid off 14% of its workforce, affecting about 1,120 out of 8,000 total. They attributed the reason to being overly optimistic about the Internet economy’s near term growth. Their CEO emphasized the need to improve operational efficiencies and to reduce coordination costs across the organization. This posture extended to other companies in the once hot FinTech space, with Brex cutting 11% of its workforce and Chime reducing by 12%. Real estate platforms have been affected as well. Opendoor laid off 18% of its workforce or about 550 employees, while Redfin laid off 13% or 862 employees.

Datadog (DDOG) Q3 2022 Earnings Review

November 25, 2022 / poffringa

Datadog’s Q3 earnings report was well-received by the market, with the stock popping as much as 9% after the release. Considering the macro backdrop and their outperformance during 2021, I thought the results were favorable. Datadog is maintaining its rapid cadence of launching new products and cross-selling them into existing customers, supporting its elevated DBNRR. The growth rates of customers with multiple product subscriptions have been reliably intact, implying little competitive infringement either from incumbent providers or new start-ups.

Datadog continues to consolidate customer spend onto its multi-product platform. Their flywheel of outsized R&D investment generates more products to cross-sell into existing customers, creating a widening competitive moat of rapid innovation. The frictionless adoption model provides significant efficiencies for the sales team, allowing them to focus on new customer lands. With 80% of incremental revenue each quarter coming from existing customers expanding their spend, Datadog can maintain a higher allocation to R&D than competitors. This creates more products to sell, and the flywheel spins on.

In this post, I will review growth metrics, profitability and customer activity from the Q3 report. I’ll then tie that back to Datadog’s product strategy and their competitive position. Investors new to Datadog can catch up on the narrative through my prior coverage. Additionally, our partners at Cestrian Capital Research provided a review of Datadog’s quarter, with detailed financials and technical analysis. Interested readers can check out that coverage for another point of view, as they consider an investment in DDOG.

Take-aways from Snowflake Snowday

November 19, 2022 / poffringa

Snowflake held a Snowday event on November 7th in San Francisco, as part of its Data Cloud World Tour. Similar to prior Snowdays, the Snowflake team used the occasion to showcase new product innovations and to interact with customers. During the event, they made a number of product announcements and program updates. The product team emphasized that these were not just a rehash of announcements made during the Summit conference in June, reinforcing the fact that Snowflake has been continuing to innovate on its platform.

Cloudflare (NET) Q3 2022 Earnings Review

November 12, 2022 / poffringa

Expectations for Cloudflare’s Q3 2022 report were high, particularly following their strong Q2 earnings. As macro headwinds weighed on the quarter’s performance, NET sold off following the report. While I don’t see anything troubling in the results within the context of the flagging IT demand environment, the market’s reaction is understandable given uncertainties going forward. Downward pressure on NET was exacerbated by a general sell-off in software companies, following underperformance from SaaS mainstays like Atlassian.

In this post, I will cover the highlights from Cloudflare’s Q3 results, focusing on growth drivers, profitability measures, customer activity and product highlights. I will tie this commentary back to the general thesis for investment in Cloudflare, concluding that the broader story hasn’t changed. Additionally, our partners over at Cestrian Capital Research recently published a review of the earnings report, including financials and technical analysis. Interested readers can check out that coverage for another point of view, as they consider an investment in NET.

Hyperscaler Q3 2022 Earnings Review

November 2, 2022 / poffringa

As we kick off Q3 earnings season for software infrastructure companies, the hyperscalers set the tone with mixed results. AWS and Azure experienced further deceleration in revenue growth, while Google Cloud surprised with a slight acceleration. On the surface, one could conclude that the growth story for cloud infrastructure is coming to an end. However, I think the broader behaviors we are witnessing are expected reactions to tightening macro conditions following periods of robust spending over the last two years. Additionally, some other factors may be impacting the growth of the hyperscalers that are separate from demand for cloud infrastructure and digital transformation in general. Let’s look at the results.

Datadog Dash 2022 Recap

October 25, 2022 / poffringa

Datadog introduced a number of new products and enhancements at their annual user conference last week. Expectations were high coming into the event, as Datadog often holds back new releases for several months in order roll out a parade of goodies. Once again, they stepped up the pace, highlighting 18 separate product announcements versus 10 at Dash a year ago. The breadth and scope of their product reach continues to expand.

While the feature list is sprawling, Datadog’s product strategy is consistent. They remain focused on serving all needs of a modern DevSecOps function from a unified interface and shared data set. This creates advantages in efficiency and clarity over bundling together multiple open source and commercial point solutions, eliminating toggling between tools and reconciling inconsistent performance indicators. While Datadog reaches further into new areas like developer tooling and security, they are disciplined about delivering what is relevant for a DevOps context. This deliberate strategy should allow them to continue to grow their addressable market without infringing on core offerings of entrenched competitors in adjacent categories.

Snowflake Cybersecurity Vertical and the Powered By Program

October 18, 2022 / poffringa

One of Snowflake’s newer growth strategies, beyond their core data platform, is to enable other companies to build their businesses on top of Snowflake. The value proposition is that new companies with a heavy data processing function in their product can bootstrap their launch by leveraging Snowflake’s platform. There are multiple benefits in taking this approach, including reducing time to market, eliminating infrastructure overhead and avoiding hiring dedicated technical staff. Snowflake has invested years building out and refining their data platform for high scale operations.

In most cases, it doesn’t make sense for a new vertical software provider to build their own data platform, which arguably duplicates a lot of Snowflake’s functionality. Given Snowflake’s high volume, they are likely able to provide a new business with data processing capabilities for the same or lower cost than if they tried to manage their data platform themselves. This allows the new business to focus on their core competency, not figuring out how to build a big data solution.

Cloudflare Birthday Week Recap

October 13, 2022 / poffringa

After promoting 20 products and enhancements to general availability during GA Week, Cloudflare rolled through Birthday Week with even more announcements. The pace of product execution is staggering. As is typical with Birthday Week, we got a view into what to expect next from the Cloudflare product team, along with some interesting new go-to-market programs. These were all couched under Cloudflare’s mission to help build a better Internet, with a thoughtful balance of monetized and free services.

As with GA Week, I was impressed by the breadth of announcements. These spanned multiple product categories and several stand to leapfrog product capabilities forward, potentially ahead of competition. We are also seeing more examples of disruptive pricing models, where Cloudflare is leveraging their massive network scale and ownership of infrastructure to undercut competitive offerings. They appear poised to capitalize on their long time investments in data centers and global network capacity.

To get caught up on Cloudflare’s announcements from GA Week, readers can check out my prior coverage. For Birthday Week, Cloudflare provided a treasure trove of information through their blog, Cloudflare TV and press releases. This content was consolidated into a Birthday Week landing page and a handy end-of-week listing of all announcements.

In this post, I’ll try to review all the major announcements from Birthday Week and provide some perspective on what each implies for Cloudflare’s business growth. Our partners over at Cestrian Capital Research recently published an update on Cloudflare, including financials and technical analysis. Interested readers can check out that coverage as they consider an investment in NET.

Cloudflare GA Week Recap

September 27, 2022 / poffringa

After a break of just a few months, Cloudflare scheduled two of their Innovation Weeks back to back. The first was dubbed GA Week and brought a number of beta products to general availability. This served to clear the decks for Birthday Week, which is when Cloudflare traditionally introduces their next wave of future products. While expectations are always high, Cloudflare really delivered A LOT.

They announced so much, that I have to break my coverage into two posts and limit the depth to the major announcements. I consolidated all the GA Week news into this blog post summarizing the major changes, including perspective on what this means for Cloudflare’s evolving product offering. As I write this, Birthday Week is ongoing, delivering even more exciting announcements. I plan to cover that as well and will publish a summary sometime next week.

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