Market Cap Check In

Investment Analysis Clubs Saul’s Investing Discussions
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As always, the SaaS companies I follow most closely are at different stages in their life cycle. But not that different! The different levels of TTM revenue make for seemingly very different valuations when you compare it to market cap as in a PS ratio or EV/S ratio. But in the long run, if the businesses continue to dominate in their respective industries and specialties, they’ve been on similar trajectories toward billion dollar revenue run rates, and some already beyond.

That’s painting with a broad brush! I admit. Yet sometimes it pays to take a step back and survey the landscape. Here are the market caps I have for some of my favorites. I typically use fully diluted share count, so your number could be off by a few billion. (What’s a few billion among friends?)

Datadog 66b
Crowdstrike 62b
Zscaler 51b
Cloudflare 72b
Docusign 55b
Snowflake 118b (technically not SaaS)
Monday 16b
Amplitude 9b

Glancing at this landscape and thinking about the long term led me to buy back into Zscaler with a small position. Zscaler looks very, very expensive based on whatever multiple you might look at, but I think it’s going to steadily grow into it and beyond. If you’re valuation-inclined like I am, you have to admit that there aren’t any absolute bargains on a PS basis right now.

This also makes me glad to build up Monday and Amplitude, as I think they are simply earlier in their journeys than these others. Time will tell.

Of course, it’s the company performance that makes me interested in these companies. The above is simply a check in on the current prices. I believe that if you think long term, they make sense.

Bear

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Bear on 11/1/2021:

Here’s what I expect for revenue and guidance:

Belief: Amplitude will report revenue of $46.2m or greater (which is at least 75% YoY growth). I believe they’ll do more, but that’s a 5% beat on the 44m high end guide, which I think would be a prudent sandbag. If they do 47 or 48m, even better. (48m would be 82% growth YoY)

Belief: Amplitude will guide for at least 51m for Q4 and 169m for the FY. If they achieve even 46.2m this quarter, 51m is just about 10% more, which is less than their 12% sequential guide for Q3. If there’s any positive seasonality in Q4, these guides could be even better, but guiding for 10%+ sequential growth means they will actually achieve, in a word, hypergrowth.

Amplitude’s Q3 report from 11/9/21:

Q3 Revenue of $45.5M, up 72% year-over-year
Q4 guidance $46 - $47 million

Bear on 11/15/21:

This also makes me glad to build up Monday and Amplitude, as I think they are simply earlier in their journeys than these others.

Me:

Amplitude feel short of your Q3 revenue expectation.
Amplitude fell short of your Q4 quidance expectation.
You are still happy adding to Amplitude.

Because I’m still learning what is and isn’t important in evaluating company performance, would Bear or anyone else please reconcile the above? Thanks.

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Belief: Amplitude will report revenue of $46.2m or greater…
Belief: Amplitude will guide for at least 51m for Q4…

Amplitude’s Q3 report from 11/9/21:
Q3 Revenue of $45.5M
Q4 guidance $47 million

Amplitude feel short of your Q3 revenue expectation.
Amplitude fell short of your Q4 quidance expectation.
You are still happy adding to Amplitude.

Because I’m still learning what is and isn’t important in evaluating company performance, would Bear or anyone else please reconcile the above? Thanks.

Great question! And I like how you cited a past post to explain your line of thinking and why you are understandably confused. In fact, when they initially reported, I did sell a good chunk of my position, because I was surprised/disappointed. But as I listened to the conference call, they explained this, and I bought a bunch back (and have added more since).

The answer is simple: I was treating this like a normal guide and expecting a normal beat, but they explained (to my satisfaction) that this 44m guide for Q3 was given just about 10 days before the end of the quarter. Therefore, it would have been quite silly for them to beat by 5% or 10% like I was expecting. They still beat by 3.4% which shows they know to be conservative!

However, the 47m guide for Q4 was given with almost 2 months left. They all but said, “Expect a bigger beat.”

All this made perfect sense, so for Q4 I am expecting $51m+ actual for a 9% beat, at least.

Zoro addressed this here: https://discussion.fool.com/some-thoughts-on-ampl39s-quotweakquo…

And MoneySpin pointed out the good customer growth and NRR increase etc: https://discussion.fool.com/ampl-q3-results-34975433.aspx

All in all, I thought it was a great quarter. My expectations had just been wrong going in. I feel like they’re better calibrated now, but of course I can still be wrong! If anyone else sees it differently, please give a detailed explanation of your perspective!

Bear

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Hello,

I bought Amplitude at $50-ish soon after the IPO and sold most of it at $78. They did explain the weak Q4 guide as due to timing and being “early in the quarter”, but that is the case for all other companies also.

Their guide at 2.2% sequential growth is extremely weak - in fact none of the hypergrowth SaaS companies provide such a weak guidance for Q4 (a seasonally strong quarter). I hope they are just being unduly conservative because if they don’t beat their Q4 guide by at least 10%, they will be punished quite severely especially at its current multiple.

P/s: even if they beat their guide by 10% and get to $51 mil, it’s still quite a deceleration on a sequential basis (Q2 QoQ: 18.6%; Q3 QoQ: 15.9%; Q4 QoQ: 12%).

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I agree that they would need to make 51-52m in Q4 in order to sustain hyper-growth (12-14% QoQ). I wouldn’t be that disappointed also in 10-11% sequentially (50+) but if they dip into single digits it would show a clear slowdown - at least in revenue growth.

Other elements, of course, will be important - guidance, new clients, new products, NRR etc.

Overall, 3% QoQ guide is VERY conservative.

Best,
V

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