This is a very very small sample size so take it for what it’s worth.
I’m at a relatively new company that’s growing very fast. We’re at a stage where we are using a lot of different platforms and products.
Zoom is probably out most critical tool. We use it for everything and I don’t have any inside details or knowledge, but I could see our usage growing 10x over the next 3-5 yrs.
We use several different project management tools. Monday.com being one of them, Notion another, Airtable, Salesforce, etc…basically too many.
I tried to get some traction around us switching over from Monday to Smart Sheet and I just couldn’t do it. Their customer service people were friendly enough, but the experience working with them to schedule meetings, get demonstrations, etc was just not great and ultimately they couldn’t convince us that Smart Sheet is the right tool (when it probably is the right tool).
So that scares me as an investor.
Atlassian (TEAM) and Zoom spend very little on sales and marketing… their products just work. SMAR spends a ton on Sales and Marketing and sure their revenue is growing really fast. But it’s growing off a very very small base.
I’m staying away and realize I could be 100% wrong.
Austin,
Thank you for sharing. I always appreciate your efforts.
I checked my GAAP numbers for % of Revenue for S&M:
SMAR 56%
AYX 51%
MDB 50%
OKTA 54%
ZM 52%
ZS 52%
If my numbers are correct, SMAR S&M expenses don't seem all that crazy compared to many others.
As far as actual revenue base:
SMAR $178M with 60% growth (last FY)
AYX $204M with 55% growth (last FY)
MDB $155M with 52% growth (2018 numbers when they had a comparable revenue base, 73% S&M)
OKTA $160M with 60% growth (2017 numbers when they had a comparable revenue base, 65% S&M)
ZM $151M with 149% growth (2018 numbers when they had a comparable revenue base, 58% S&M)
ZS $190M with 51% growth (last FY)
Again, if my numbers are correct, SMAR S&M % does not look that bad and the revenue base does not look like it's growing off a very very small base compared to the others and their S&M expense when they were generating about the same amount of revenue.
They all seem reasonably close.
Can you help me to see what you are seeing?
Thanks,
Daniel
(I do have positions in all of the stocks mentioned)
I don’t recall the exact number but I found that SMAR, for every dollar they spend on S&M, they generate $.65 in net new revenue for that year. And that number has held steady for a few years. When they spend more money to create less and less net new revenue, that is a warning sign. A flashing red warning sign with danger written below it. However that sign is not flashing now. Also, I expect TEAM to have a lower % s&m spend to revenue compared to SMAR because they are bigger more mature with more name brand recognition.
When I did the comparison with other companies I drew the same conclusion as Daniel. No position in SMAR as I am neutral toward it.
Saul, that’s possible. But TEAM has around 9x more revenue so IMO given that and how little TEAM spends on marketing, they have a product that is much easier to sell.
The real question is if SMAR is truly redefining the project management category or not.
If they are, it could be a fabulous long term investment. I don’t think they are. But I could be very wrong about that.
TEAM is my only non Saul stock and it’s 10% of my portfolio.
I think an exception to the above 50% growth rule should be made in this case.
I am also not a techie but due to what I’ve heard from someone who uses their products- they are ubiquitous.
Not only that but their two CEO’s are described as basically brilliant businessmen possibly on the level of a jobs or bezos
Thanks for your post. I retired from an IT position in a Fortune 50 aerospace firm about nine years ago. So, my observations are stale by now. When it comes to specific products, my observations are probably no longer valid. Nine years represents several generations of technology revisions, injections, obsolescence and change. Just the same, when I retired there were two PM tools most often used. Primavera was used on most very large multi-project program initiatives. MS-Project was used for most everything else. This was true where I was located within my division. It may or may not have been true corporate wide. As an aside, my observations about processes and how decisions actually get made in a big company I think are still largely valid.
Anyway, when Smartsheets was introduced to the board I went to their website to try and figure out what the product actually did. It was never very clear to me, both before and after browsing their site. Could be indicative of why they have sales presentation problems.
I think your assessment that they have a “general purpose tool” may be at the heart of the problem. They may try to address too many functions with a tool that is poorly partitioned. I’ll explain that by example. If you browse the Alteryx site you will find that they have a large, well integrated tool set. The tools are discrete though they are designed to compliment and work well with one another. But, they target different user groups which typically exist in the corporate structure but have different responsibilities. IMO, Smartsheets has not taken the approach of creating separate, integrated tools. At least, that’s the way it appears to me. They’ve kind of thrown everything under one umbrella. I think it’s confusing.
I have a small position in SMAR. I’m not sure I’ll hold on to it. When I buy a company, I like to feel like I have a decent idea of what their primary products/services are. With SMAR, I’m a little unclear about what they actually sell and who they target as their end user.
One of the 3 branches of my company just moved to Smartsheets and I think we’ll be next. Currently my PM tools are MS Project for customer-facing schedule reporting and MS Excel for weekly resource planning & all financial accounting. I sat in on a single meeting with a Smartsheets salesman and couldn’t walk away thinking “oh so THAT’s what they do!” The guy kept saying they don’t want to replace our Excel or Project - they just want to help us do what we’re doing. No I don’t want that, I want a new piece of software to do it all!
We’ll see if/when we move to Smartsheets, and just how useful the software really is.
They guys who are using it now seem to like it, from the PM side and also the engineers.