What difference a week ago.
This time last week, in the wake of earnings from America's five largest tech companies and early results from other software companies, it emerged that tech stocks are in danger of losing their appeal.
The exchange explore startups, markets and money. Read it every morning on Extra Crunch or get The Exchange newsletter every Saturday.But then, this week's rally was launched and more earnings results came in. Overall, the third quarter numbers for SaaS and cloud companies were average to good, or at least good enough to protect historically extended valuations when comparing current revenue multiples to historical norms.
This is great news for still-private startups that have faced a recession, an erratic and sometimes uncertain funding market, an election cycle, and other unknowns this year. Ending 2020 with a market rally and strong gains from public comps should give private software companies a halo into the new year, assisting them in both fundraising and valuation advocacy.
Of course, there is still a lot more data to come, the markets are unstable, and many SaaS companies will report next month, with a one-month offset fiscal calendar from how you and I track the year. But after spending time on the phone this week with the CEO of JFrog, the CEO of BigCommerce, and the CFO of Ping Identity, I think things are going well.
Let's get into what we have learned.
Growth and expectations
Kicking off, Jamin Ball of Redpoint, a venture capitalist who subconsciously makes the moon as the research desk for The Exchange during earnings season, has a rundown of earnings results from this week's SaaS and cloud stock set they reported. As you may recall, last week we weren't slightly impressed with his cohort of results.
Here the count this week:
As we can see, there was only one lack in the group in Q3. Unsurprisingly, that company, SurveyMonkey, it was also one of three SaaS companies to project fourth quarter revenue below street expectations. My reading of that chart is seeing that just under 80% of the group that projected the best-than-expected Q4 lead is bullish, as well as Q3 results, which included a good number of companies that exceeded their targets by at least 10%.
Within the data, there are two narratives that I want to explore. The first concerns COVID frictionand the second concerns COVID acceleration. Every company in the world is experimenting with at least some of the first. For example, even companies that are experiencing a boom in demand for their products during the pandemic still face a sales market in which they cannot operate as they would like.
For software companies, reportedly in the midst of a rapid digital transformation, the question becomes whether or not the disadvantages of COVID outweigh its advantages. We will explore the issue through the lens of three companies The Exchange spoke with this week after reporting their third quarter results.
Ping Identity
Of our three companies this week, Ping Identity he had the hardest part; its shares fell sharply after cutting third quarter numbers, despite beating earnings expectations for the period.
The company's revenues decreased 3%, while the annual recurring revenues (ARR) increased 17%. Why did his shares go down if they exceeded expectations? You might read its Q4 guide as slightly soft. In the graph above it is marked as a slight beat, but it is Bass-end fell within analysts' expectations, creating the possibility of a project failure.
Investors, betting that Ping's move to SaaS would be accretive both now and in the long run, were not thrilled with its Q4 predictions.