SaulR80683: othalan, your instincts are usually pretty good so I’m wondering what you are feeling and seeing that I don’t see. Any clues will be appreciated.
Saul, I just read through the earnings transcript again and reviewed the finances to try and get more clues. The only thing I can spot which might be a source of my jitters is that it sounds almost too good to be true. That perhaps the excitement expressed by management outstrips the reality of what they have created.
From the transcript:
https://seekingalpha.com/article/4091662-mulesofts-mule-ceo-…
We provide a disruptive platform to help companies create an application network, in which they can quickly discover, reuse and compose application components to deliver new and enhanced services. By using an application network, companies can compose new services in days or weeks, instead of the months or years typically required with custom integration code.
The application network is analogous to the modern computer network. Just like we expect every company today to have a computer network, where you can easily plug-in laptops, servers, printers and other components to work together, we believe every company will have an application network for plugging in applications, data and devices. To build an application network, customers require key capabilities, which we provide in our Anypoint Platform.
Let me simplify this: How does some random application use data from some random unknown data source?
This is more or less a “holy grail” type question in software engineering. Mulesoft management talks as if this is a new problem with cloud computing but really this has been a problem since software engineers first tried to feed data into an application that was not expecting this data. Case-by-case this is not difficult as data interpretation is a relatively simple task. The challenge is solving this in a generic and extensible way because there are an infinite number of possible data sources and an infinite number of applications interpreting that data in their own unique way.
Reading the above quoted statement by Mulesoft management (and others in the transcript) it seems as if Mulesoft has solved this problem. Using the Anypoint Platform, a company will save development time, save money, accelerate product delivery cycles exponentially with each new product, and open up new development channels for increased corporate diversity!
I’m going out for a smoke, the software engineer part of my brain just had an orgasm!
I admit I exaggerate.
Nonetheless I think this may be why I am skeptical. I have heard similar stories before. I have worked with systems that supposedly would revolutionize software development. Those systems were frequently beloved by management and hated by most of the engineers. I have seen those revolutionary systems come with promises of a brighter future only to fade into obscurity when the excitement is not realized in the real world. Some few succeeded but many did not. Some were even truly great ideas that were brilliantly executed but failed to pass the test of real world use case scenarios.
I do hope Mulesoft succeeds with their vision as a widespread concept like “Application Networking” really could revolutionize software.
The big challenge they face is not if they can provide the service they claim, but rather if they can make money at it. Of course they can provide a framework for networking applications together. I have been doing similar things on a small (ok, tiny) proprietary scale since my first applications in the late 1990’s. All software engineers who send data between applications do the same with varying degrees of success depending on the availability of project funding and individual talent.
As an investor, I suppose my biggest question is if Mulesoft can create a large-scale generic solution at a lower cost than software engineers can create their proprietary versions which are reinvented with each new corporate project. The hope of cloud computing, SaaS, etc. is that the scope of this problem will be so big, software engineers and their proprietary versions simply won’t be able to keep up with the problem, driving business to Mulesoft’s Anypoint Platform.
Conclusions and Other Thoughts
As I put this into the context of MULE as an investment, all this might simply mean my instincts are simply saying it is too early to tell if MULE will be an amazing success or a total flop, no matter what management says. Mulesoft is clearly not just providing vaporware as they have products which have been in use for years. Yet neither is it clear that they can provide solutions efficiently enough to make a profit. End of the day I am an investor in this company. This means I don’t care how exciting the idea, I want to know I will make money.
As I think on this I am suddenly reminded of the dot-com crash of 2000. The vaporware and empty promises. This is not happening today. But I wonder if we have a different issue arising which might cause problems: Tech companies so focused on “bigger and better” they never actually get closer to making a profit. I am thinking of the recent discussion on SHOP vs HDP. Is this a widespread and growing problem across the industry, particularly in software companies? Is it possible that the ambitions of software companies have outstripped the price vs performance balance of hardware, making profitability unattainable for some companies? Or is growth taking too much focus from sustainable business practices? No answers to those thoughts and maybe it is all irrelevant. Just what came up as I let my mind wander on this whole issue surrounding MULE.
I still feel a bit jittery thinking of MULE but all this has helped that settle at least a bit. I’m still not selling my last tiny position and still not buying, but I am going to watch closer over the next few days and think it over. If I come up with any other insights I will pass them on.
As always, I may be wrong in all of this. I welcome thoughts, feedback and criticism!