Trend in cloud software: Growth Durability πŸ“ˆπŸ“ˆ

Historically, many people have overestimated how quickly software companies would decelerate growth. below chart shows rough Datadog quarterly growth expectations at IPO (orange) and actual (blue)
Datadog has grown much faster (by a wide margin) than they were expected to at IPO

The biggest effect of this? Compounding $$ growth

At IPO (Sept '19) Datadog was projected to do ~$610M of revenue in 2021. Current projections? $1.3B!

In just 2 years expectations have doubled🀯
For best in class cloud software businesses we're seeing growth rates prove extremely durable. Markets are much larger than expected, and high net retention rates (growth from existing customer base) is propping up overall growth rates
If you knew Datadog would "outperform" expectations so wildly back in Sept '19, it's fair to say the stock would have looked extremely "cheap" back then.

I think public markets are starting to price this in. One can definitely argue we've gone too far :)
Crowdstrike is another example below. At the time of their IPO (June '19) they were projected to do $756M of revenue in 2021. Current estimate? $1.4B. Just staggering overperformance in 2 short years
The broader market is appreciating what best in class software businesses are capable of. People EXPECT growth to be more durable in the future. Multiples have expanded

However this rising tide (plus many other factors like low rates ) have propped up the entire industry
Not all software companies are best in class. By definition there are only a few who deserve to be in that category

And I try and stay sober - software multiples are way too high and due for a contraction to historical averages. It doesn't feel sustainable at all currently
When multiples contract (which I believe they will), many average software companies will get thrown out with the bathwater

But what happens to the elite? Will they get the (relative) same treatment?
Multiples should come down across the board. But will they fall as hard for the best in class businesses, when there's now a broader appreciation for growth durability? Time will tell!

What businesses today are we vastly underestimating growth durability for?
If history repeats itself, there are companies who will do more than 2x the revenue in 2023 than what they're projected to do currently

I've clearly cherry picked 2 amazing businesses. But there will certainly be more in the future

β€’ β€’ β€’

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Jamin Ball

Jamin Ball Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @jaminball

26 Aug
Some confusion after hours in Snowflake. For some extra commentary on the Snowflake RPO figure (lots of talk about it this quarter), I'd point people to the pre-earnings research note Karl Keirstead at UBS published a few days ago. Screenshot below: $SNOW
To try and explain this further - RPO measures the aggregate total unrecognized contract value from all customers. Let's say a company had one customer that signed a $100k one year deal. After 6 months, the RPO would be $50k. this represents the remainder of the deal, or 6 months
Let's say instead that the same customer signed a $1M ten year TCV deal. The ACV is the same ($100k / year). However, after 6 months, this one customer would have a RPO of $950k (95% left on the 10 year deal, or 114 months of a 120 month deal)
Read 13 tweets
19 Aug
Asana and Monday are two fascinating businesses. I remember looking at private rounds many years ago and thinking "this is a commodity space, there won't be any big outcomes with a long tail of small / medium outcomes."

Both are ~$15B companies today. Software markets are huge!
Both have executed extremely well and this shouldn't be understated. What's been incredibly impressive is the growth in the enterprise segments. Both define enterprise as customers with >$50k ACV. Asana grew that segment 92%. Monday grew it 226%. Way more than just a SMB business
Both businesses have net dollar retention >110%. This might not sound good in a vacuum, but it's incredibly impressive for businesses with a large base of SMB customers. Asana ACVs are ~$3k. Monday ACVs are ~$2k.

>110% NDR is best in class for the SMB segment
Read 9 tweets
17 Aug
The acceleration across cloud software companies so far in Q2 has been very impressive. As of now, most companies with a June quarter end have reported Q2. Most accelerated. Graph below shows (Q2 YoY growth - Q1 YoY growth). Positive numbers represent acceleration (faster growth) Image
I removed 3 companies - Shopify, Olo and BigCommerce. All were major Covid beneficiaries. Q1 this year lapped a 2020 Q1 that did not see much Covid benefit, while Q2 lapped a 2020 Q2 which did see a Covid benefit. So the YoY compare between Q2'21 to Q2'21 isn't as relevant
If your curious where each would show up on the graph:

Shopify: (43%): 110% growth in Q1, 67% growth in Q2
Olo: (96%): 144% growth in Q1, 48% growth in Q2
BigCommerce: (6%): 41% growth in Q1, 35% growth in Q2
Read 5 tweets
12 Apr
Some great slides from the Crowdstrike investor briefing last week. A few call outs on what makes them such a great business, that others should aspire to:

1. TAM Expansion: The best businesses increase the size of the pie, not just their piece
2. Product Expansion Velocity: At IPO (in 2019) Crowdstrike had 10 modules. They now have 19. Amazing product development velocity
3. Upsell / Cross-Sell: Customers are using more and more Crowdstrike products. Very powerful platform flywheel
Read 5 tweets
10 Mar
I always enjoy reading Bessemer's annual State of the Cloud report. One of my favorite slides below. The takeaway? Leading cloud companies don't decelerate growth nearly as quickly as they're expected to. Why? Cloud markets are almost always much bigger than anticipated
Analysts constantly underestimate leading cloud companies ability to sustain higher growth rates for longer periods of time
I also liked the metric of Growth Endurance they discussed. This is defined as current year growth / last year growth. Nearly 1/3 of cloud companies accelerate growth! (growth endurance > 100%). Data points include every BVP Nasdaq Cloud company over last decade
Read 4 tweets
19 Jan
A trend I'm excited for this year: DataOps & the Analytical Engineer

~10 years ago DevOps was born. The role of system admins and developers merged. Infrastructure became self-serve

Today the role of data engineers and business analysts are merging. Data is becoming self-serve
Data infrastructure is becoming so powerful that the tools today allow non-technical folks to carry out the once complicated / custom code/ huge backlog jobs of data engineers.

Before getting into what this means, let's first discuss how we got here
Before 2012 the data world was dominated by transactional (OLTP) databases like PostgreSQL, MySQL, etc and analytical (OLAP) databases like Oracle, Netezza

Tools like Informatica / Talend were used to batch load (ETL) data into these databases, Tableau used to visualize
Read 25 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!