Morning Markets: Welcome to one of our irregular looks at the public markets. Here’s a taste of earnings season to help inform your view of the private markets.
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Yesterday was a pretty big day in the earnings cycle. Each quarter, public companies disclose their recent financial performance. It’s a key moment for every concern, showing off recent performance to investors, and usually making projections for the future.
Three tech companies that we care about reported their own results yesterday: Uber, which we care about as it’s a high-profile decacorn built with an ocean of private capital (our coverage). Okta, because it’s a recently-public SaaS company growing quickly, making it a measuring stick for how public investors are valuing unprofitable growth (our coverage). And, Zuora, as a SaaS company selling SaaS-tooling, is a firm that is an obvious temperature-check for SaaS itself (our coverage).
Let’s quickly examine these, digging up in each case the lesson for private companies.
Yesterday Uber reported its first set of earnings as a public company. After releasing its results, shares in the company rose and fell before settling up about 2 percent.
What did the firm do to earn the bump? Here are the vital statistics, making comparisons to the year-ago quarter:
- Gross Bookings: $14.6 billion (+34 percent)
- GAAP Revenue: $3.1 billion (+20 percent)
- Adjusted Net Revenue: $2.8 billion (+14 percent)
- Operating Loss: $1.0 billion (-116 percent)
- Adjusted EBITDA: -$869 million (-210 percent)
- Net Cash Used In Operating Activities: $722 million (-143 percent)
- Contribution from Core Platform: -$117 million (year-ago result positive)
- Contribution from Other Bets: -$71 million (-255 percent)
That’s a lot of numbers, I admit. Let me walk you through them. First, spend on Uber’s platform is rising faster than both revenue, and Uber’s adjusted revenue metric. That means that Uber is building gross spend over time that it takes less of a cut from, meaning that its newly acquired gross bookings are less efficient for its business. Uber Eats did over $3 billion in gross booking during the period but generated revenue of just 17.4 percent of that total. In the same quarter Uber’s ride-hailing business brought in 20.7 percent of its own gross bookings total.
Moving on, Uber’s operating loss shot higher, as did its adjusted EBITDA. Its net loss also worsened, but I didn’t share it above as the year-ago result was impacted by a divestment. Finally, Uber’s two businesses both had negative contribution. That means after they paid for themselves, they contributed negative profit to the company.
But as Uber had signaled that all this was coming, its shares rose. The lesson here is that normal rules don’t appear to apply to Uber. The firm just posted slim year-over-year growth for a growth-oriented company while losing a pile of money and watching its core business fail to contribute to the rest of the company’s costs.
If you can figure out why Uber’s stock picked up a few points after all that, email me.
Since its IPO, Okta has been busy growing somewhat outside the media spotlight. Worth a little over $12 billion, the firm doesn’t have the same profile as, say, Lyft which is worth just a smidge more, but that doesn’t mean it’s not an interesting shop.
Following a revenue beat and a promised uptick in spend, shares of Okta rose 6 percent in after-hours trading.
I caught up with its COO, Frederic Kerrest, after its earnings report. The firm is opening new infrastructure in Asia-Pacific to serve that customer base (replete with the ability to constrain customer data to those servers so that their information doesn’t touch the United States for obvious reasons), and announced a few new high-profile clients including the newly-famous Zoom.
But all that is company-specific. What can we take away for private companies? That revenue growth is still well-liked by public market investors. Okta grew by 50 percent year-over-year, its subscription revenue grew 52 percent year-over-year, and customers that pay the firm $100,000 or more each year grew 53 percent.
And while Okta’s GAAP net loss sharply grew 41.4 percent to $51.8 million in the quarter, it generated $21.3 million in cash from operations. There’s more information in those figures. Notably that you can spike your all-in losses provided that at-scale growth is hot. And, I’d argue, that you are still a firm with a clear path to profitability. Strong operating cash flow means that Okta can reign in its GAAP results in reasonable time.
So startups, if you want to start the year just over $60 per share and break $110 by the end of May, follow Okta’s performance.
If Okta is a bull case-study, Zuora is a bear warning. Shares of Zuora fell by just over a third after-hours, following its earnings report.
Zuora, a company that provides billing tooling to subscription companies, beat expectations regarding its quarterly loss while essentially meeting revenue forecasts. But the future is what tripped the company up. Here’s CNBC:
[T]he company said revenue for the full fiscal year will come in at between $268 million and $278 million, well below the $291.1 million average analyst estimate, according to Refinitiv.
Splat. If the top-end of your revenue guidance is under the consensus mark, that’s bad.
The lesson for private companies in this is that if you are going to continue to lose money as a public company, you still must have the growth to back it up. The market had one set of expectations for Zuora, and Zuora had a very different set of projections. And the market repriced Zuora from the former to the latter after it found out.
I am not sure if we should view weakness in Zuora’s results as indicative of weakness in SaaS. But certainly the company’s struggles can’t be viewed as overly rosy for the sector, Okta aside.
And now, back to our regularly-scheduled private market coverage!
Illustration: Li-Anne Dias.
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