Why did Mulesoft expend so much effort in the earnings call giving a sales pitch for why their product is so amazing? I am an investor not a customer. A certain amount of this is normal but it seems excessive here.
Maybe it’s because they just went IPO in March and this was their 2nd call with investors as a public company. Maybe they decided to explain this to analysts who have just started covering the company.
By their own admission, Mulesoft is creating its own market with the idea of the Application Network. To me, this sounds like thy are (at least partially) selling companies a product they do not yet know they need. How does that effect sales and marketing costs? Can they decrease sales and marketing costs as a percentage of revenue to help move towards profitability, or will the need to continually create new market awareness be a continuing drain?
Yes, the sales cycle is lengthy and therefore costly. They said on the earnings call that the sales cycle is 6 months to a year. They also said that as their product gets more complex (adding new features and capabilities to maintain and extend their advantage versus the competition) they are seeing the sales process lengthening. On the positive side, they are getting more and more deals referred by their partners; I think they said 25% of their deals came in through partners which makes these deals less costly to sell with a higher close rate (I assume). Another note: MULE is selling to enterprises and they have only 1170 customers but the customers are very large compared to a WIX or SHOP. MULE also said that full implementation for MULE’s offering takes a year so their customers are make a huge investment in time and resources and are unlikely to switch (switching costs to a competitor are huge). It’s a major decision for a customer to use MULE, and, again, this makes the sales process long, complex and costly but it also makes their offering very sticky.
As Saul already pointed out, the metrics over the past 2 years looks very good.
Here is the customer count each quarter:
655
716
758
839
946
994
1071
1131
1170
Rising steadily. Each new customer they get is a potential reference for future customers.
Here is their average support and subscription revenue (in $000) per quarter:
89
99
105
115
125
136
143
152
164
Rising steadily. The average customer is spending more and more each quarter.
Here is the average net retention rate per quarter:
112%
116%
121%
125%
122%
120%
117%
116%
116%
Rising constantly. Customers are staying with MULE and spending more.
Below was the revenue growth rates:
q/q 1 yr 1 yr(rec) q/q (recurring)
138% 91% Q1 16
70% 77% Q2 16
65% 70% Q3 16
62% 70% 73% 63% Q4 16
56% 62% 67% 62% Q1 17
57% 60% 62% 55% Q2 17
45% 54% 55% 44% Q3 17 (guidance)
42% 49% 49% 39% Q4 17 (guidance)
Revenue growth rates are decelerating. My guess is that they will probably beat their guidance though. I would expect growth rates to be around 60% but we will see.
Chris