Hi, I am new to the forum and I greatly appreciate all the information you all so graciously share.
I was recently listening to a podcast with Gavin Baker and Patrick O’Shaughnessy where they discussed software companies during the pandemic. Baker discussed the fact that many businesses may and have stopped paying software bills during the pandemic. Specifically, he stated that software bills are low on the list of outstanding debts and companies will pay employees, mortgages, rent, etc. before software bills and software companies will have little recourse. Further, he stated that businesses have sought and received reductions in cost due to the pandemic.
I know this may not have much of a long term implication, but I was just wondering your thoughts on the above.
Some of the larger firms like Cisco are supporting their SMB clients by accepting deferred payments.
Perhaps our SAAS companies with sufficient cash reserves to manage their operating expenses would be negotiating similar terms with their SMB clients. Another thought I had was that the incremental operating cost to continue supporting an already existing customer hopefully is not significant.
I listened to that podcast and read his post
I think generally speaking saying “Baker discussed the fact that many businesses may and have stopped paying software bills during the pandemic” isn’t really useful. It’s too general. It’s kind of the same as saying “there’s a pandemic and businesses will be hurt.” I think Gavin’s general point is that all SAAS companies are not immune to business downturn.
But you have to try to pick the best companies and invest in those. You have to create a strategy and stick to that strategy. If my strategy is to find fast growing, high margin, capital light companies then I don’t try to guess what will happen in the macro environment. I just try to find the best companies that will prosper regardless
My takeaway was software is becoming cyclical so if some think that SaaS companies are going to escape the jury is out and we will find out which SaaS companies did indeed do better. Most other companies and especially since the nature of SaaS is use/seat based licenses, it be easier to turn the spigot on and off and pay for only what you use.
So based on that and implications for near term I think AYX, DDOG, COUP might see some slow down. CRWD, ZS, OKTA should benefit due to increased reliance on remote workforce and security is not optional. ZM we all know so enough said on that.
Interested in knowing how others view it.
I don’t quite understand this. If businesses are not paying their bills for their software / subscriptions, how long would it be before the vendor cuts them off from their software?
I mean, if this software is needed to run the business, I think it will get paid for.
Am I being too simple about this?
Well, Ruhaan pointed out that “per user” licensing can be reduced by clients reducing their users.
This survey provides more colour to the debate :
"We surveyed CEOs, CROs, and CCOs of late stage private cloud companies (e.g., Forbes Cloud 100) and publicly-traded SaaS companies (e.g., BVP NASDAQ Emerging Cloud Index). These companies generally represent the “best of the best” of what the cloud offers. So, to some extent, they are a bellwether for technology.
Here’s what we learned:
Retention is of high interest right now
The first learning came from the survey responses themselves. We emailed a population of 82 respondents and received 41 surveys back. If you aren’t in the market research business, a survey response rate (without an incentive like a gift card) of 50% is almost unheard of. The fact that busy people took time to respond means that this is topical.
Churn rates are going to go up significantly in SaaS
Of our respondents, 77.5% believed their anticipated Net Retention Rate (with the benefit of upsell) would decrease by at least 3% and up to 20+%. Of those companies, 40% believed it would reduce by 11% or more."
I would add ROKU to the list as they are a B-C company rather than a B-B company. I think if people are going to be pretty much stuck at home for several more months ROKU will see both demand for the device and utilization of the service increase. I don’t think the device produces much revenue (priced near cost I believe), but increased device sales drives increased utilization. So more users will be using it more often.
I agree about CRWD, ZS, OKTA and ZM. I also agree that COUP might see some tapering off. I’m uncertain about AYX and DDOG as I think an argument can be made for either of those to at least maintain present levels if not increases.
As it’s late where I am, I won’t make that argument right now. Leave it as an opinion for now.
I’m uncertain about AYX and DDOG as I think an argument can be made for either of those to at least maintain present levels if not increases.
I think there’s a lack certainty in general. I do like Alteryx more than Datadog more in general at this point because Alteryx has already been focusing on selling to large enterprises for at least the past couple of quarters. DataDog says that most of its deals have been green field opportunities, which means it’s probably selling to a lot of smaller players, my logic being that larger enterprises probably have some sort of monitoring set up that Datadog would be replacing, and hence not be green field.