I have been playing with Volfan’s proposed metric of R40 divided by the forward 2019 EV/S ratio. I through in a couple of the larger cloud companies to see where they fit in as well. Here’s what I found
Wix: 9.28
TTD: 8.86
MSFT: 8.58
TWLO: 6.73
PAYC: 6.49
SHOP: 6.04
SQ: 5.81
ADBE: 5.45
CRM: 5.23
AYX: 4.56
NEWR: 3.67
ZS: 2.73
NTNX: 2.36
OKTA: 1.89
MDB: .72
Hi Bodhibob,
I was fascinated by your table and tried to see if I could find some explanation.
First, I’d say that where a company is on its trajectory is important. For instance, Mongo is just starting out and has only about $200 million in revenue this last year. That’s tiny and very early, and companies just starting out have much higher losses compared to revenue until they get some scale. However, their adjusted net loss as a percent of revenue last quarter was about 24.5%, improved from 37.0% and 45.0% sequentially. And if you look back year-over-year it’s improved from 44.5% the year before, and from 58.5% the year before that.
Okta is also very early in its life with just $400 million in revenue, twice Mongo’s, but its loss was less than 4% last quarter, compared to 27% the year before.
Second, some companies may have their price held back by other concerns, such as political and danger of war for Wix, headquartered in Israel, The Trade Desk by being in advertising where so many other companies have failed, so it’s hard for them to get the full stock price credit they deserve, and Microsoft, because it’s so large that no one sees them doubling much less quadrupling any time soon. Their relatively low prices compared to revenue may put them up at the top of your list.
Third, companies like Mongo, Okta, Zscaler, Elastic, and Alteryx have huge goals and huge expectations of literally taking over worldwide fields of storage, identity, security, search, and data analysis, while for instance Wix and Paycom are in little niches of helping people set up free websites and low and middle size payrolls. This may help explain higher prices in relation to profits for Mongo, etc.
Then there is Twilio, which is also taking over a world-wide field, and has a high stock price, but, at $600 million revenue, is established enough now that it is actually making a little money.
Fourth, basing forward EV/S on guidance and consensus estimates is… well, to be gentle, I’ll say an uncertain process, as some of these companies guide so low that I don’t even bother reading guidance any more for most of them. Larger S, of course, makes EV/S smaller, and makes your number above larger.
Interesting table though.
Thanks
Saul