Hi all,
thanks much for all the insights so far and @intjudo for bringing up Samsara on this board (and to my attention, I wasn’t aware of them before 
)
I did some research to evaluate if I would like to own it or not, and share my notes here.
Generally, I find Samsara quite intriguing and a bit outside of my regulars for several reasons:
- Samsara generates hard and quick ROI:
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Hard ROI means that they offer significant cost savings that are easily quantifiable . They provide numerous examples of this on their website.
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Quick payback period: Samsara’s customers generally enjoy a payback period of only a few months. For reference, in SaaS, we usually aim for a maximum payback period of one year, so Samsara is performing exceptionally well. This makes it relatively easy to sell.
- Samsara sells to companies’ operations budget, which is “large and generally non-discretionary,” meaning that they are less affected by IT budget scrutiny these days.
Samsara may not be literally mission-critical, but it provides significant value to its customers by saving costs, digitizing operations, and improving compliance and efficiency. Companies that do not utilize these benefits and operate manually will eventually fall behind. Therefore, the more businesses that use services like Samsara, the more companies will need to follow suit. Thus, Samsara meets my criteria for a strong business model and value add.
Top-line Growth
Samsara is reporting revenue and ARR growth as indicators of their top-line growth. Last quarter, its revenue came in at $187M, representing 48% YoY growth. Full fiscal year revenue growth was 52% YoY, so we currently are definitely in a high-growth territory here.
The company has a recurring revenue stream through its “subscription business model that produces highly predictable revenue and [is priced] based on the number of assets versus seat-based pricing, resulting in a lower risk of churn if our customers’ hiring slows or contracts.”
I like that their pricing is based on assets versus seats, as this aligns value creation for their customers more closely with costs and makes the business model more resilient during slowed-down hiring or workforce reduction times (such as these days…).
In March last year, Samsara claimed that 98% of revenue is subscription-based (per assets), typically ranging from 3 - 5 years in commitment.
While Samsara is quite heavily focused on transportation and fleet management, this chart from June 2022, as well as recent customer highlights, show that it operates in multiple industries:
Although Samsara remains relatively resilient in the market, its YoY growth is slowing down. The growth rate has decreased from 65.7% to 62.6%, and then to 52%, 49.2%, and 48.3%. As a result, the Q1 2024 midpoint guide is 34%. For the full year, Samsara forecasted revenue of $838M - $848M, which represents 28% - 30% YoY growth.
Since the company has an (arguably short) history of strong beats and raises, the guidance is considered conservative, or as they called it, “de-risked”. However, similar beats as in fiscal 2023 are not expected as Samsara stated that they do not anticipate repeating their 8-ish % guidance beats.
The Q1 sequential guide is very low at 2% - 3%, dropping from sequential growth north of 10% in most quarters. Seasonally, Q1 should be rather strong, as far as the short history of IOT as a public company suggests.
The ARR came in at $795M, growing 42% YoY last quarter, and pretty much mirrors Samsara’s revenue curve.
Comparing their growth durability with my other companies, it appears on the higher end of growth durability, close to Cloudflare, CrowdStrike, and Monday.
Bottom-line Growth
Although Samsara is not yet FCF positive, the company is showing a clear and consistent trend toward achieving this goal, with each quarter producing better results.
In Q4, adjusted FCF was negative $6M, an improvement from negative $50M a year ago. FCF margin was negative 3% in Q4, up from negative 40% a year ago.
Looking at the broader fiscal 2024 outlook, Samsara expects to reach adjusted FCF breakeven by the end of this year. The company also plans to cut negative FCF in half, meaning it would produce negative $55M in adjusted FCF for the full year.
Equity dilution is expected to be around 3% - 5% in fiscal 2024 (yes, they use a notable share of stock-based compensation).
Non-GAAP gross margin has improved and appears to have settled around 73%, where it is expected to remain for the remainder of this year. In the long term, the Samsara expects this indicator to be in the high 70s% (specifically, 74-76%).
All in all, it is not there yet in terms of positive non-GAAP profitability, but Samsara is marching towards it with strong and reliable steps, supported by their fiscal 2024 outlook.
Moats
When searching for new investments, I place great importance on moats, as they make a business more resilient and set it up for long-term success and growth durability.
In the case of Samsara, there are certainly other competitors in the market. However, the company provides three interesting points of differentiation, aka, moats:
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Single, integrated platform: Samsara does not only provide “point solutions” like many of its competitors that address only specific use cases. Instead, it allows customers to fully integrate their asset operations into the platform and gain valuable insights and digitization.
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Data & AI moat: With nearly 6 trillion data points, 50 billion API calls processed, and 50 billion miles driven for analysis annually, Samsara sits on a large mass of data. It uses this data to power its AI models and continuously increase value for customers.
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Partner Ecosystem moat: Samsara’s App Marketplace is growing and includes over 220 integrations that are heavily used by its larger customers. Additionally, it has quite some insurance and OEM partners in its ecosystem.
TAM + Market
Overall, Samsara seems well-positioned and benefits from technology and ecosystem leverage. However, the IoT space is not a hidden gem, and other companies (such as Aeris, for instance) also want their share of the cake. Therefore, the moat needs to be followed closely going forward.
Fortunately, the market is large and mostly not very digitized yet: Samsara operates in a large and fast-growing market.
According to its investor presentation, the Total Addressable Market (TAM) for 2024 will be $97B, with a Compound Annual Growth Rate (CAGR) of 21% between 2021 and 2024. I expect them to update the CAGR sometime this year, as it is only indicated until 2024.
In addition to secular tailwinds such as digitization, compliance, and increasing efficiency, Samsara is also benefiting from several technological tailwinds, such as increasing number of devices connected through IoT, improving sensor and cellular network technology.
Besides that, Samsara has a comparatively small market cap of around $10B, so technically, it potentially has a lot of runway to grow.
Go-to-Market Strategy + Execution
Samsara has been showing healthy development in Sales & Marketing spending as a percentage of revenue, which has led to the acquisition of more customers with less $$$. In their latest report, they mentioned elongated sales cycles but reported no changes in their pipeline. (Does this sound familiar? 
)
Samsara isn’t only using its sales force to target (large) customers, but it also benefits from a strong partner ecosystem, especially with insurers who act as referral partners. Insurance companies benefit from Samsara because it helps them resolve claims more quickly and effectively. Insurers don’t have the technology, access, and data to do it themselves.
Therefore, Samsara has formed mutually beneficial partnerships with many, including large, insurance companies.
Product Strategy + Execution
Samsara seems to have a very customer-centric product strategy and focuses on driving adoption and value creation above monetization at all costs. An example of this:
An analyst asked if IOT plans to become a digital record company and monetize that (records meaning that truck drivers must keep records of their driving times, and Samsara is allowing them to digitize that): “[…] price and package the platform to best align with what our customers need and how they want to consume it. But today, there are no plans to break that out and monetize it separately. We’re trying to drive adoption and really get customers to get as much value from this data as possible because that’s ultimately what makes us essential as a system of record, is to be that source of data to have a high-quality clean data, and that has value for the customer and then we can also do things like better train AI models and other benchmarking data sets behind the scenes with that.”
Additionally, adoption metrics indicate that Samsara is successfully fulfilling its mission of providing maximum value. The number of adopted modules, used workflows, digitized documents, and logged reports are all significantly outpacing revenue growth year over year. This suggests that Samsara is currently generating more value than it charges for, providing a cushion for future revenue momentum.
Samsara is also continuing to invest in its ecosystem and product integrations, such as with OEMs and payroll, which is particularly important for its data moat and enterprise customers. Speaking of customers…
Customer Activity
Samsara’s customer metrics look very promising and outgrow current and projected revenue and ARR, which is a positive indicator for me:
- $100K Customers:
- Samsara added 124 large customers in Q4, resulting in a total of 1,237. This cohort grew 53% YoY and is now making up 48% of our total ARR (up from 45% a year ago).
- $1M Customers:
- It added 5 super large customers in Q4 and now has 51, representing 65% YoY growth of this cohort.
- Added a record of new logos Q4, core customers (>5K in ARR) are now more than 19,000.
- New customers represented 51% of net new ACV in Q4, up from 44% in the same quarter last year.
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DBNRR was 125%+ for large customers and is expected to remain above 120+% throughout 2024, reduced due to macro uncertainty)
Especially the large customer metrics are a positive result. And not by accident:
- Samsara made significant investments in its product development to make the platform “enterprise-grade”. That means integrations, scalability, flexibility, and security, are all built into the product.
- Sales & Marketing investments: The go-to-market motion in the large customer segment is very different from the midmarket, and Samsara made the adjustments necessary.
Another noteworthy highlight was Samsara’s first $1M ARR government deal. The public sector is interesting for Samsara, as it involves many complex, large, physical operations. Once some US states implement Samsara’s platform, it can serve as a reference.
However, the sector also has challenges, such as longer sales cycles and the need for additional integrations. Nevertheless, the public sector could become one of Samsara’s top 10 industries not only in the US, but also in Canada, Europe, and Mexico.
Risks
An obvious risk for all companies is a decline in the moat and strengthening competition: According to the company, competition remains consistent with previous quarters.
Samsara differentiates itself by “being a modern platform, a platform where the majority of our customers now are using multiple apps, which is exciting to see. And it’s also – we’re differentiated in the sense that we’re open in the number of integrations that we offer, which is now up over 220.”
However, we cannot exclude emerging competition, potentially also from the OEMs themselves (e.g. Scania). In this case, however, I expect Samsara still has the data moat advantage, as well as the equivalent of a “multi-cloud compatibility”, which I like to see in my other software stocks. Meaning, it is compatible with multiple OEMs, systems, insurance, and other third-party parties involved.
Another noteworthy risk is that Samsara’s services are not purely software-based and rely on some hardware components, which are manufactured in Taiwan. While Samsara claims to have very good relationships and visibility into its work with multiple suppliers, there is a risk of geopolitical issues, supplier concentration, and supply-chain problems. This is the most important risk that needs to be considered.
My Thoughts & Investment Decision
Overall, I view Samsara as a great addition to my portfolio: The company enjoys many SaaS-like benefits, such as high growth, scalability, recurring revenue, and high gross margins. Yet, it provides some diversification in that it
- sells into a different budget (operations versus IT budget),
- provides a quick and easily quantifiable ROI (easier to prove than SaaS),
- is emerging in a massive worldwide TAM that is largely undigitized so far.
The company has shown relatively durable growth, yet it surely is no fully resilient, 100% YoY-growing magic pill. Despite not having achieved non-GAAP profitability yet, Samsara is on a clear path toward profitability.
While there are risks related to potential supply chain issues and competition, I appreciate Samsara’s deliberate and customer-centric strategy, which positions them for future success.
Although Samsara’s valuation may not be cheap after a 67%-YTD run-up, I prioritize investing in great companies rather than solely focusing on valuation.
With a large TAM and strong market position, I see a lot of future potentials to grab for Samsara.
For now, I have a 2% starter position and may opportunistically increase it to 5%.
And here you have it, I hope this was helpful
Best
LisaOnCloud9
PS: If you are interested, I also wrote a more extensive review with graphics and stuff in @mooo and my investment diary: Samsara Stock: The IoT Company with Promising Potential?
