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Independent Software Providers and the Cloud Vendors

July 26, 2020 / poffringa

Early in the evolution of cloud computing infrastructure, the cloud providers were rapidly expanding their offerings. For a while, it seemed they would leave no room for independent providers in a land grab to address every segment of software infrastructure. As the landscape has matured and enterprises increasingly implement a multi-cloud strategy, it has become clear that independent providers can not only co-exist, but thrive, in this environment. Examples are Datadog for observability, Twilio for communications, MongoDB for databases and Fastly for CDN.

This blog post examines the history of cloud service providers and the evolution of their offerings. As cloud vendors have defined broad categories of software services, they have left openings for nimble, focused independent software vendors to leverage the same cloud infrastructure to deliver substantially better product offerings in some segments. From this, we can draw observations about why they are succeeding and what they need to continue doing. Investors occasionally raise competitive concerns for independent software providers that cloud vendors will choose at some point to crush them. I posit that threat has passed in many categories. This post seeks to help investors understand what has changed and how to reason about the risks going forward for their favorite independent software company investments.

Smartsheet (SMAR) Stock Q1 FY2021 Earnings Results Review

July 16, 2020 / poffringa

Smartsheet (SMAR) released their Q1 (April end) FY2021 earnings report on June 3rd. They delivered a strong beat on revenue and EPS for the prior quarter. However, billings and forward revenue guidance were below expectations. The market responded by dropping the stock price by 23% the next day. This followed a strong run-up before earnings on expectations that SMAR would be a COVID-19 beneficiary. Smartsheet also released a number of product enhancements during the quarter, primarily focused on providing tools for organizations to manage their COVID-19 response. In this post, I review Smartsheet’s Q1 earnings results and other business updates. I then dig into the competitive landscape for collaborative work management, which has evolved significantly over the past year and attracted more entrants from adjacent categories. As a consequence, I have sidelined my personal investment in SMAR until Smartsheet’s competitive position in the expanded collaborative work management category becomes more clear.

Fastly Edge Compute Explained

July 2, 2020 / poffringa

Fastly (FSLY) has experienced an incredible run over the past several weeks. The share price has more than doubled since releasing Q1 earnings on May 6. This can be primarily attributed to the major increase in guidance for Q2 and the rest of the year. There have been other surprises as well, like the observation that Amazon.com has been using Fastly POPs for content delivery. A lot of investor excitement is also pinned on the upcoming release of Compute@Edge, which represents a significant extension of Fastly’s current CDN offerings. Since the product is in beta, it isn’t clear how sizable the revenue impact will be. Given this, I thought it would be worth spending some time examining how Fastly has approached building new technologies in the past and what this might mean for their future edge compute offering. I also wanted to share my understanding of the technical underpinnings of the platform and how these differ from other serverless offerings currently on the market. Whether Fastly’s surge represents a one-time COVID-19 driven bump or they will sustain long-term usage growth remains to be seen. With this information, investors can decide for themselves if the Fastly story is hype or their edge compute platform represents the beginning of something fundamentally disruptive.

MongoDB (MDB) Stock Q1 FY2021 Earnings Results Review

June 28, 2020 / poffringa

MongoDB (MDB) released their Q1 (April end) FY2021 earnings report on June 4. They reported a significant beat for Q1, exceeding revenue estimates by 12% and improving profitability metrics. Guidance for the remainder of the year was mixed, with revenue targets raised slightly and profitability mostly inline. Most impressive was growth in the cloud offering, Atlas, which now contributes 42% of total revenue. MongoDB also released a number of product enhancements just after the earnings report, coinciding with their annual user event. MongoDB is continuing to expand their reach beyond a core database solution into ancillary functions that enable easy application of data to common use cases, like mobile apps, analytics, data visualization and search. In this post, I review MongoDB’s earnings results and other business updates. I also dig into the product releases and competitive landscape. For a refresher on the MongoDB investment thesis, please see my full analysis published in November of last year.

DocuSign (DOCU) Stock Q1 FY2021 Earnings Results Review

June 19, 2020 / poffringa

DocuSign released their Q1 (April end) FY2021 earnings report on June 4. They delivered a strong beat and raise across all metrics. Following several software companies that moderated their full year revenue growth, it was encouraging to see DocuSign increase revenue targets for both the next quarter and full year. While much of this can be attributed to spend pull forward due to COVID-19 and associated remote work trends, in DocuSign’s case, it is hard to imagine these trends reversing. Companies will not go back to paper agreements once digitized. More compelling for the bull case is the emergence of the full lifecycle of agreement processing and programmatic integrations with systems of record and end-user applications. These use cases should continue to drive high demand for the DocuSign’s services into the future, particularly considering the TAM and largely greenfield opportunity. In this post, I review DocuSign’s earning results and other recent business updates. I also take a look at continued progress with agreement automation, the competitive market and future opportunities. For a detailed refresher on the DocuSign investment thesis, please see my full analysis published in April.

Elastic (ESTC) Stock Q4 FY2020 Earnings Results Review

June 12, 2020 / poffringa

Elastic released their Q4 FY2020 earnings report on June 3. They delivered a strong beat on growth metrics and demonstrated profitability improvements. If judged based on Q4 metrics alone, the results were outstanding. However, management set forward revenue guidance lower than expected – inline for Q2 and 8% less for the full year. This left investors and analysts confused, particularly as management asserted that all top-line metrics were steady in May. Management attributed the reduction to general conservatism around macro conditions and the start of their fiscal year. The markets reacted by pushing shares down 3.8% the next day, after a nice pre-earnings run up. Sell-side analysts uniformly raised price targets and almost all maintained buy equivalent ratings.

Okta (OKTA) Stock Q1 FY2021 Earnings Results Review

June 3, 2020 / poffringa

Okta released their Q1 (April end) FY2021 earnings report on May 28. They delivered a significant beat on both revenue and earnings for Q1 and slightly raised estimates for Q2 and remainder of the year. Management applied some conservatism to the forward estimates, in anticipation of possible customer spending slowdown in Q2 and Q3. Following the results, most analysts increased price targets and maintained buy ratings. Commentary on the earnings call was upbeat. In this post, I review Okta’s earnings results and the evolution of their platform offering. I also examine recent activity from competitors and the broader opportunity in the evolving identity space. As a refresher, please see my previous analysis of Okta for a full explanation of their products, addressable market and competitive positioning.

Datadog (DDOG) Stock Q1 2020 Earnings Results Review

May 28, 2020 / poffringa

Datadog released their Q1 2020 earnings report on May 11. The company delivered their typical beat and raise, exhibiting no noticeable slowdown from COVID-19. The market rewarded the stock the next day with a 24% jump, on top of a 47% run-up previously in 2020. Unlike other software companies impacted by COVID-19, Datadog kept annual guidance and even raised revenue targets by 5% over their prior estimate. Analysts and management were upbeat on the earnings call – price targets were raised across the board. In this post, I will review Datadog’s earnings results and then examine the broader observability space, as several competitors announced earnings recently as well.

Fastly (FSLY) Q1 2020 Earnings Results Review

May 19, 2020 / poffringa

Fastly released their Q1 2020 earnings report on May 6. The results were a blow-out. Q1 actuals were comfortably above estimates for revenue and profitability. Q2 projections and full year raise were even more impressive. At the midpoint, Q2 annualized revenue growth was increased over 20%. Much of the outperformance was provided by the COVID-19 situation, but management anticipates the tailwinds from higher usage across their product set to continue through the year. On top of this, the new Compute@Edge beta release is progressing nicely and should drive incremental revenue streams in 2021. The stock surged almost 46% the day after earnings, as the market digested the stellar results. All analysts raised their price targets. In this post, I will parse out the earnings results, give an update on the CEO transition, check in with comparisons to Cloudflare and then draw conclusions for the investment thesis going forward.

Alteryx (AYX) Q1 2020 Earnings Results Review

May 14, 2020 / poffringa

Alteryx released their Q1 2020 earnings report on May 6, 2020. Results were mixed – they beat Q1 estimates for revenue and were almost inline on EPS. However, the headline surprise came with a substantial reduction in Q2 revenue and EPS estimates as a result of a COVID-19 driven slowdown. The stock initially dropped by as much as 10% the next day, but gradually recovered to close down 2.9%. Following the results, most analysts lowered their price targets. Alteryx also made a major product announcement on May 11th and has recently posted some very interesting new job openings. There is a lot to unpack here and I will try to cover all the new activity, in addition to the earnings report. Then, we can look at what this means for the investment thesis going forward.

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