I was one of those Saul mentioned that got out of Monday during Apr/May, and saved myself the bigger drop in May/June. It is now above where I sold after this pop today, so kudos to those that still own it.
I exited for a few reasons (like heavy competition), but it was the massive FY guide in Q4 that was the biggest reason, with them projecting a major increase in costs as a major road bump to going positive in op and especially FCF margins (which touched positive for 2Qs).
If you recall, the reasons in Q4 were given spending more for the land grab (S&M) and an ambitious product roadmap (R&D). This translated into their guide for Op Loss of -30% for the FY, and -44% for Q1 (showing the spend was expected to be front loaded).
We are now – as we said in Q2, we now would like to invest in further grow the business, not only in 2022, but also beyond 2022. Therefore, we took advantage of the fact that we finished the year with cash flow positive much ahead of what we said even in the IPO. We have a massive opportunity ahead of us. This is the time for us to grab land, to increase our market shares. And as you saw in the script, we are coming with new products, innovation, and product road map is a big thing for us this year. So we said, let’s take advantage of the fact that we are actually well ahead of what we anticipated or where we anticipated to be and continue to invest and drive hyper growth for the foreseeable future. So this is the number one priority for us, but we do it with scale, and therefore, also mindful to the returns that we are doing and other business initiatives that we are currently pursuing.
Q1 in May reinforced my decision. They put up the lowest QoQ growth ever while this projected spend was going up, including from the Super Bowl ad (+$11M) and incr hiring (+$10M). Op margins backslid -30pp to -40%, and FCF -25pp to -15%, as warned. Meanwhile, they added +220 employees (nearly double the prior Q).
They beat their guide of op margin at -44%, doing -40% for +$3.2M beat. In turn, they guided Q2 to op margin of -30%, and raised the FY op guide +8M to -27%.
Fast forward to Q2 results today. They did +14.0% QoQ revenue growth (2nd lowest after last Q), yet op margin rebounded +28pp back to -12.4%. Not inline w/ the downward trend before Q1, but right back to it. FCF margin on the other hand worsened a bit to -15.6%, which is -13pp YoY. They are still hiring like mad, adding +205 employees, growing headcount +75% over the past year (yow!).
It feels like they had some ambitious plan (per the guide of -30% op margin just 3mo ago), and got majorly cautious (doing only -12.4%). There was some talk about hiring slowing, but they said it was according to their earlier plan for this entire FY. Analysts just shrugged it off and asked about EU weakness over and over.
So my questions are…
- why the enormous sandbag in op loss guidance for Q2?
- what happened w/ the plans for that $17-19M+ in expected spend, between guide (-35-33M) and actual (-15.4M)?
- why no mention of this adj in CC? or any questions on it at all?
I’m sure investors are happy to see op margin come in way way better than guided … but… why? In turn, they increased FY op guide by +27M to go from -27% to -21%, with Q3 guided to -18%. It was all attributed to Super Bowl and hiring in Q1, and then they hired nearly the same headcount in Q2 (so assume a similar $10M impact or so). As impactful as the Super Bowl ad was on spend… what were they expecting to spend even more on this Q?
But besides these questions on what the CFO is doing on op margin guides… plenty of positives this Q, including +200 new custs>50K (great growth against a hard comp) and the NRR for custs>50K at 150% (largest custs get larger, per this new KPI in Q1). NRR overall is +14pp YoY (upsell is working).