This afternoon following the close of the U.S. stock market, Netflix reported its earnings for the second quarter. It was instantly repriced by around -11 percent.
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Hello, and welcome back to the best and most magical part of the quarterly cycle: earnings season. I wanted to take a moment to detail a few trends that you should keep an eye on over the coming weeks, as every single public tech company spills the numbers concerning their recent performance.
Here at Crunchbase News, focused on private firms as we are, we don’t spend much time covering the earnings of the already public. But we do care what the market’s reactions to public company earnings tell us about how to value private companies. Crunchbase News covers high-growth private startups, often venture-backed and frequently focused on the tech space. This colors which public companies we keep an eye on.
That in hand, what follows is the Q2 2019 Crunchbase News Guide To What To Care About During Earnings If Private Companies Are Your Jam.
Things To Watch
Can strong earnings keep the Great SaaS Run alive?
Your favorite public SaaS companies are enjoying strong valuations at the moment. Indeed, according to our favorite cloud index, public SaaS and cloud firms are worth about 11x times their revenue using enterprise value in place of market capitalization.
Indeed, when you look at the Bessemer Venture Partners (BVP) Nasdaq Emerging Cloud Index over time, we can see that SaaS and cloud stocks are on a tear. Their market run has been predicated on both revenue growth, and investors’ willingness to pay more for that revenue than before.
This is what the Index looks like over the last year:
A blip in growth could see the firms’ revenue multiples compress, lowering their valuations. It’s something that we’ve seen before. But if SaaS companies can keep their run alive, their expanding valuations should provide gas to private SaaS shops looking to go public or fundraise.
What happens to tech stocks dribbles backward into private valuations. And since so many venture-backed startups are SaaS-built, how their public cohort perform is critical to understanding the VC market, for example.
Can tech shops with scary losses hearten the market?
There are a good-sized chunk of public tech, and growth-oriented companies that have steep losses that we keep tabs on. I’m thinking about the Domo’s and the Snap’s of the world. These are firms with interesting products, possibly bright futures, and outsized deficits. You could throw Luckin in there too, for example.
How the market deals with their continued losses will provide a signal to private companies concerning their burn rates, specifically how sharp losses could ding their future value.
Will Uber and Lyft manage to change their narrative?
If Uber and Lyft do well, and show investors that they have a real path to profitability, the Didis of the world could enjoy a sentiment bump. If so, more money could be made available. Of course, the opposite is also true. If Uber and Lyft struggle, all sorts of transit-based startups (Bird! Lime! All of them!) could suffer.
Crunchbase News may provide notes on the earnings results from the two big American ride-hailing companies given how many tens of billions of dollars of private companies exist in their niche.
Finally, will the recently-public tech companies perform well?
Finally, the recently public. As I am sure you’ve noticed from our endless coverage of the 2019 IPO market (more here, and here, from this week), a bunch of companies that we cover are going public this year. So many it’s actually warped our coverage away from earlier-stage firms towards a more late-stage focus.
The deluge of debuts is not done. There are a host of companies that still need to get out before the IPO window closes for all companies but the very best. That means that there are a lot of startups, backed by hundreds of millions of venture capital dollars, who are hoping for a positive quarter from the newly-public.
Embarrassing results from Fiverr or Luckin or Fastly (our list here) could limit appetite for new offerings. That could lower valuations ranges, and perhaps even delay some IPOs. That would be a big yuck for the entire Silicon Valley (broadly) ecosystem.
And that’s just a bit of what we’re watching out for. It’s going to be a fun few weeks. Make sure you’re tuned in.
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