SaaS Earnings And The Zoom Vs. Slack Gutcheck (Podcast)
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By Daniel Shvartsman
A thing you can do with this quarter's round of SaaS (software as a service) company earnings is pull up their transcripts and count the number of times they say some form of the word accelerate. A brief sample:
- Fastly (FSLY) - Management says it four times.
- Twilio (TWLO) - Management says it seven times (analysts say it another six times).
- Datadog (DDOG) - Management says it four times, and raises one amplify.
- Atlassian (TEAM) - Management only says it once.
- New Relic (NEWR) - Management also only says it once.
And not for nothing: the first three names are in our top gainers after earnings, the latter two are not.
Which isn't to say there's causation. I just point to that because this is the first recession of the full SaaS age, and the companies therein are not only passing the test, they're, well, accelerating their dominance. The nature of the coronavirus lockdowns has played into the hands of cloud providers and wholly digital companies.
Zoom (ZM) hasn't reported earnings yet, but it's been the most visible beneficiary of this trend. At least, that's how the market sees it. Akram's Razor posted an article last week about why he thinks Slack (WORK) is actually better positioned for this climate and, ultimately, a more valuable company. The market isn't buying it though, with Slack up only 33% year to date (ZM hasn't quite tripled, but it's not far off at 151% YTD share price appreciation). It's been an ongoing topic on The Razor's Edge as well.
So, as we're wont to do, we talked about what's going on in SaaS, starting with some of the names above - there's some good DDOG vs. NEWR discussion in here - and then drilling into the differences between WORK and ZM, and how the market perception might change.
- 3:00 minute mark – What explains a big move like Twilio's
- 7:00 - The broader valuation context
- 15:00 - The prevailing dynamic of competition
- 21:00 - Valuation pair mismatches – DDOG/NEWR, PD/EVBG, WORK/ZM
- 36:30 – Leaving the 10x EV/sales barrier in the past
- 46:00 – Where does Slack go when the light bulb turns on?
- 55:30 – The NFLX parallel for Zoom and the search for a pivot
- 1:03:00 – Slack earnings preview
See also My Current View Of The S&P 500 Index: August 2020 Edition on seekingalpha.com