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Enterprise Software

Rubrik’s IPO: Evaluating the Potential of a Microsoft-Backed SaaS Player in Data Security

Rubrik’s IPO is priced at $32 per share. Microsoft is backing this company.

SaaS business – data and data-centric security – this is a growing business with overall industry growth in the low twenties, from migration of on-prem to cloud.

Co-founder is Ex Nutanix

Company-wide revenue growth was only 5%, and the company is still in an early growth stage to have decent profitability but has shown a lot of promise with declining losses last year. Sales and marketing expenses take away a lot of revenue – they’ll need to keep this high to convert pure license customers to SaaS customers, at least 2-3 years.

Net Retention Rate at 133% is good for SaaS customers but this number drops over total revenue because of the large license revenue base.

A lot of big competitors in this industry, including Dell EMC and IBM.

Overall, given the slowing revenue growth, I would prefer to wait. I suspect the valuation is coming in too hot at an estimated 8x sales without the growth. Let’s keep an eye out, it has promise but I think we’ll need a better price.

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Enterprise Software

nCino: A SaaS Player Focused on Profitability but Facing Valuation Hurdles

source: ncino

nCino Inc (NCNO) $35.75

The stock jumped 15-20% post earnings on an earnings beat and slight revenue miss, from $30 yesterday. Guidance is also decent with 15% revenue growth for 2024.

You could buy around $32 or in installments.

Positives

Focusing on profitability, makes decent cash flow of 15% and adjusted operating of 3-5%, showing an improving trend with good estimates of earnings improving 35% in years 2025-2026. 

They have the leverage to do that, it’s a SaaS business but I would have preferred gross margins in the high 80’s. That must happen over time.

They are selling to higher cohort customers, growth in customers over 100K and $1Mn is much higher than baseline growth.

There is a switching cost competitive advantage, especially when you’re dealing with larger customers, and have more than one offering.

Negatives

Sales cycles are longer given the higher value customer.

Banking and financial services software is very competitive, not much to differentiate from one another.

Price has gotten a little expensive at 6x sales with 15% revenue growth so returns going forward will be muted in comparison.

Given the weaknesses in banks and the financial services sector, I don’t expect multiples to be more rewarding than the market, even though this is a tech company, but focused on one vertical.

Categories
Enterprise Software

Klaviyo (KYVO): A Promising Buy in Marketing Automation

source

Klaviyo (KYVO) Buy – $27.50 

3-5 Years, Target $50 to $60. Annual Gain – 16 to 20%

Secular growth story – 4-year forecasted revenue CAGR of 32% 

Klaviyo (NYSE: KVYO) is a marketing automation Guru with a 10% stake owned by Shopify (SHOP) with an option to purchase an additional 5%.

Within marketing automation, there are the plain vanilla, single-channel solutions like Mail Chimp and Customer Contact, and one 800-pound gorilla Hubspot (HUBS) which is 3 times its size, and four times its valuation. Taking share from single-channel customers, the smaller Klaviyo is growing much faster at 32% than Hubspot’s 23%.

What’s special about Klaviyo – These are the main competitive advantages:

  • Klaviyo’s integrated data platform integrates customer and automated marketing data.
  • A full stack of tools to provide customers with complete marketing solutions. Single-channel solutions lack data analytics and personalized experience capacity, while marketing solution providers have no segmentation or data capabilities and cloud warehouses have all the data but zero messaging infrastructure and campaign flows.
  • Because of the integration, their targeting is much more precise, scalable, and much faster – this is automated at a large scale and machine-driven for smaller customers to self-operate. Other vendors don’t have that capability or have customers’ data stored across different datasets and databases, which are less user-friendly than Klaviyo’s solution. 
  • Its close association with Shopify, which contributed to 77% of Klaviyo’s revenue; Shopify itself is growing at 22% – so this advantage should endure for a while.

The metrics are impressive 

  • High-value customers grew faster, and customers over $50K per year grew 89%, faster than the overall 24% growth for the company.
  • The Net Revenue Run Rate stayed high at 119%, the 10th quarter with an NRR over 115%, 
  • Cash Flow Margin at 15% of sales
  • Sticky – 73% of orders were from repeat customers

Importantly, with the solid operating cash generation Klaviyo doesn’t need to choose between growth and profitability, which is a huge deal for a startup. It has a cash hoard of $724Mn. With the advantage of already having and generating even more data, M/L could likely become its core competency, which should allow it to dominate this space in the decade ahead.

Klaviyo is still under the radar and a steal at $28 a share.