Six-month change in expectations for Cloud stock

Investing Strategies Carefree Cloud Investing
1

How have expectations for Cloud stocks changed in the past 6 months? One way to get at
this is to compare the change in price vs the change in the multiple. Using data from
Bessemer Venture Partners, I compared the price changes and multiple changes for the
58 stocks in the EMCLOUD Index. Results are in the table below, sorted by the difference
in price change vs multiple change.

Although in most cases prices have dropped dramatically, on average prices have changed
less than the expectations about prices. The average price change for the past 6 months
was -34% vs an average multiple change of -42%. A striking example is BILL. The price
has dropped 21% since end of August vs a drop in the multiple of 58%. Only four stocks
have had a change in multiple lower than the change in price.

Only three stocks increased in price during the period: Mimecast (MIME), Datadog (DDOG),
and Tenable (TENB). Mimecast was the only stock with an increase in multiple.

Best to you,
Ears


                                 08/30/2021   08/30/2021   02/18/2022   02/18/2022       Price      Multiple
Ticker    Name                        Price    EV/AnnRev        Price    EV/AnnRev       Change       Change         Diff
------    ------------------     ----------   ----------   ----------   ----------       ------     --------       ------
BILL      Bill                       282.08        84.6x       224.23        35.6x       -20.5%       -57.9%        37.4%
DDOG      Datadog                    136.63        44.7x       159.02        37.5x        16.4%       -16.2%        32.6%
ZS        Zscaler                    278.17        53.3x       255.22        38.1x        -8.3%       -28.5%        20.2%
API       Agora                       30.48        16.0x         8.94         1.5x       -70.7%       -90.4%        19.8%
OKTA      Okta                       264.98        39.7x       164.67        17.9x       -37.9%       -54.8%        16.9%
ASAN      Asana                       77.87        46.6x        63.14        29.9x       -18.9%       -35.8%        16.9%
AI        [C3.ai](http://C3.ai)                       51.25        20.3x        21.19         5.0x       -58.7%       -75.5%        16.8%
SNOW      Snowflake                  297.85        77.4x       273.77        59.0x        -8.1%       -23.7%        15.6%
NET       Cloudflare                 123.42        62.3x        95.87        39.4x       -22.3%       -36.8%        14.4%
TEAM      Atlassian                  366.03        40.8x       298.07        27.5x       -18.6%       -32.5%        14.0%
ZEN       Zendesk                    123.04        11.4x       115.06         9.1x        -6.5%       -20.0%        13.6%
SMAR      Smartsheet                  80.49        20.7x        55.43        11.5x       -31.1%       -44.5%        13.3%
CRWD      Crowdstrike                286.37        52.6x       164.93        24.1x       -42.4%       -54.1%        11.7%
TWLO      Twilio                     366.68        22.5x       158.33         7.2x       -56.8%       -68.2%        11.4%
PLAN      Anaplan                     61.39        16.6x        44.78        10.2x       -27.1%       -38.4%        11.3%
HUBS      HubSpot                    701.58        26.1x       497.59        15.7x       -29.1%       -40.0%        10.9%
FROG      JFrog                       38.87        16.1x        23.57         8.0x       -39.4%       -50.1%        10.8%
QLYS      Qualys                     116.09        10.3x       114.80         9.1x        -1.1%       -11.7%        10.6%
XM        Qualtrics                   45.81        23.7x        28.74        12.4x       -37.3%       -47.8%        10.6%
NOW       ServiceNow                 641.65        22.4x       556.01        17.1x       -13.3%       -23.9%        10.5%
SUMO      Sumo Logic                  20.86         8.4x        11.59         3.8x       -44.4%       -54.9%        10.4%
PAYC      Paycom                     488.85        29.1x       318.57        16.1x       -34.8%       -44.9%        10.0%
PATH      UiPath                      64.55        41.6x        37.95        20.5x       -41.2%       -50.8%         9.5%
SHOP      Shopify                  1,549.00        41.7x       656.88        13.8x       -57.6%       -66.9%         9.3%
PCTY      Paylocity                  268.92        21.7x       192.41        13.5x       -28.5%       -37.8%         9.3%
TENB      Tenable                     44.86         8.8x        45.46         8.2x         1.3%        -7.2%         8.5%
NEWR      New Relic                   79.76         6.8x        64.98         5.0x       -18.5%       -26.4%         7.9%
PD        PagerDuty                   42.64        13.1x        31.75         8.7x       -25.5%       -33.5%         7.9%
AVLR      Avalara                    181.13        22.3x        93.40         9.8x       -48.4%       -56.1%         7.7%
BL        BlackLine                  110.81        15.7x        72.12         9.0x       -34.9%       -42.3%         7.4%
VEEV      Veeva Systems              332.65        28.1x       217.90        16.4x       -34.5%       -41.7%         7.2%
MIME      Mimecast                    68.03         7.7x        79.24         8.4x        16.5%         9.5%         7.0%
APPF      AppFolio                   120.24        11.4x       113.37        10.0x        -5.7%       -12.5%         6.8%
ZM        Zoom                       347.50        25.8x       126.96         7.7x       -63.5%       -70.0%         6.5%
BIGC      Bigcommerce                 61.02        21.2x        25.32         7.5x       -58.5%       -64.7%         6.2%
ADBE      Adobe                      665.99        20.6x       442.56        12.6x       -33.5%       -38.7%         5.2%
CRM       Salesforce                 264.97        10.5x       196.84         7.2x       -25.7%       -30.8%         5.1%
SPT       Sprout Social              122.77        36.2x        52.70        13.7x       -57.1%       -62.0%         5.0%
MNTV      Momentive                   19.65         6.6x        15.97         5.1x       -18.7%       -23.5%         4.8%
DOCU      DocuSign                   303.64        31.6x       110.28        10.0x       -63.7%       -68.2%         4.6%
BOX       Box                         25.61         4.4x        25.32         4.1x        -1.1%        -5.6%         4.5%
WK        Workiva                    143.93        16.7x       104.00        11.3x       -27.7%       -32.1%         4.4%
WIX       Wix                        224.58         9.4x        86.12         3.2x       -61.7%       -65.8%         4.1%
WDAY      Workday                    271.37        13.1x       214.47         9.8x       -21.0%       -25.1%         4.1%
YEXT      Yext                        13.51         4.3x         7.39         2.2x       -45.3%       -49.2%         3.9%
DBX       Dropbox                     31.23         5.9x        23.02         4.2x       -26.3%       -29.8%         3.5%
PYPL      PayPal                     288.47        13.5x       103.65         4.4x       -64.1%       -67.5%         3.5%
QTWO      Q2                          87.20        10.4x        62.38         7.1x       -28.5%       -31.6%         3.1%
ESTC      Elastic                    159.03        18.4x        80.99         8.8x       -49.1%       -51.9%         2.9%
RNG       Ringcentral                256.20        16.2x       146.88         8.9x       -42.7%       -44.8%         2.1%
COUP      Coupa Software             245.57        28.5x       115.97        12.9x       -52.8%       -54.6%         1.8%
EVBG      Everbridge                 155.10        17.5x        45.54         5.0x       -70.6%       -71.6%         0.9%
ZUO       Zuora                       17.02         5.6x        14.62         4.8x       -14.1%       -14.9%         0.8%
FSLY      Fastly                      43.60        14.7x        18.70         6.3x       -57.1%       -57.5%         0.4%
DOMO      Domo                        90.18        11.5x        42.20         5.4x       -53.2%       -52.8%        -0.4%
NCNO      nCino                       62.44        22.5x        42.55        15.5x       -31.9%       -31.1%        -0.7%
SQ        Square                     271.92         6.7x        97.72         3.7x       -64.1%       -44.7%       -19.4%
TWOU      2U                          36.68         2.8x         9.64         1.5x       -73.7%       -46.0%       -27.7%

                                                                        Average          -34.4%       -42.3%         7.9%
                                                                        Median           -34.0%       -43.4%         7.6%
                                                                        Min              -73.7%       -90.4%       -27.7%
                                                                        Max               16.5%         9.5%        37.4%
11 Likes
2

While an average 42% drop in the multiple might seem extraordinary, it appears so only because
multiples at the end of August last year were so extraordinarily high. I love this quote today
from Jim (mungofitch) on the Mechanical Investing board…

The thing is, given how amazing valuations have been lately, it will take what might usually count
as a bloodbath just to get back to what used to look average.

Even with the fall in the last six months, the multiple for Cloud stocks is still considerably above
what used to look average. In fact, it’s still higher than any point in the years before it blasted off in 2020.

Ears

3 Likes
3

Hi Ears
Over the last several months I have observed a correlation. Presuming Saul’s selections to be the gold standard, it appears nearly identical results can be obtained by sorting cloud stocks based on the next twelve month multiple or even the last twelve. A couple of other filters need to be added, the rule of 40 and gross margins of 60+. This method is vastly more “carefree” than getting entangled in all the bandwidth spilled on such things as the latest CFO comments, ARR, etc.
Do you think changes in multiples expectations would have much impact on the correlation I have observed?
Five

2 Likes
4

Hey Five,

Do you think changes in multiples expectations would have much impact on the correlation I have
observed?

Expectations have been changing over the last several months. If you’ve observed the correlation over
the last several months, wouldn’t that say that they have no impact? Not having access to your data,
and me not having plotted the changes in expectations in more granular detail, it’s hard to comment.
Bottom Line: I don’t really know! :slight_smile:

Anytime I see a small number of observations it raises a red flag about the Law of Small Numbers.
So, there’s that.

Interesting observation. Thanks for sharing!

Ears

5

Nasdaq closing in on “Crash Territory”

https://discussion.fool.com/compq-nasdaq-nearing-crash-territory…

Russell 2000 is even closer to “Crash Territory”

https://discussion.fool.com/iwm-approaches-crash-territory-again…

$GOLD is very bullish at this moment on all charts as all three are showing breakouts:

https://discussion.fool.com/gold-is-very-bullish-35056634.aspx

$SPX S&P 500 - What is hot, what is not. Only one sector had a gain for the week last week: Consumer Staples

https://discussion.fool.com/eow-18-feb-22-spx-its-eleven-sectors…

Lastly, the Fed is scrambling. Most Fed watchers are saying Powell will increase rates .25 basis points 7 to 9 times, starting in March 2022. Barron’s looks at the Fed this past weekend:

https://discussion.fool.com/barron39s-the-fed-is-scrambling-3505…

6

Add a more bearish thread of mine from twitter. Glad I waited these out instead of jumping them like so many did on Friday:

https://twitter.com/peregreine/status/1495391993480024070

Every one of these cryptos I placed on watchlist for a hopeful breakout have broken down instead.

To see these same charts, with unchanged trendlines and patterns I drew, just go here for my LIVE 24/7 public crypto charts.

Address pinned to my bio for my LIVE look at specified cryptos:

https://stockcharts.com/public/1386393