Morning Markets: A few startups wrote in to share their ARR growth, so let’s examine the lay of the land.
This morning we’re back to annual recurring revenue (ARR), a metric that modern software companies love to report. It’s a forward result, a calculation of the amount of subscription revenue a startup can expect on an annualized basis. If your company did $5 million in monthly subscription revenue in July, you have $60 million of annual recurring revenue.
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The prominence of ARR makes it a critical concept to understand if you track quickly-growing private companies, and doubly so if you care about tech startups. They’re mad for the stuff. In that vein, I asked startups — tongue in cheek, mostly — to send in their ARR growth from the first half of 2019 (H1 2019) compared to the same period of 2018.
A few people did, which is fun. We’ll share those results first, and then put them into context using some public earnings results from yesterday.
You can still send in your H1 2019 ARR growth, as I’m accepting emails all weekend on the matter. So feel free to mail in your brag or confession to email@example.com. We appreciate the clarity real numbers bring. Candor is good!
In that vein, here’s what was sent in:
- Userlytics wrote that its “growth rate in ARR from H1 2018 to H1 2019 was 691 [percent],” which is quite good. We can presume that Uselytics didn’t have the World’s Largest revenue base at the start of 2018, but putting up nearly 700 percent growth is impressive. That’s a high watermark, frankly.
- Signal Vine wrote in, saying that it had “50 [percent] YOY growth rate which we just released today,” including a link to this news release. Given that we specifically requested H1 2019 ARR growth over an H1 2018 result, we’re presuming that this metric fits the ask. Signal Vine has raised $3.4 million according to Crunchbase and is based in Virginia.
A 50 percent growth result, mind, isn’t slow. From a reasonable revenue base, that can be an impressive result. (Hold onto that number until we get to Okta’s details.)
I’d like to see more companies share more metrics, as it would help demystify the startup world some and reduce the stress that top-decile numbers can bring. Everyone in the startup world hears about the companies that are growing like hell, but fewer folks hear about startups that are merely doing well.
Now, let’s put our two startup numbers (more here, mind) into context.
Yesterday brought a raft of SaaS earnings to the public, with Zuora and Okta and Box reporting, among others. Results among the ARR-creating firms were a bit mixed. Let’s get an overview of each result set, quickly.
I spoke with Okta’s co-founder and COO Frederic Kerrest after the company reported its results, but before its earnings call. The company reported revenue growth of about 50 percent, rising sales and marketing spend, as well as minor increases to its net and operating losses.
Kerrest described the results as in-keeping with the firm’s vision for its future that it set a few years back. Okta has plenty of cash and generated around $20 million in operating cash flow in the first half of calendar 2019. And, the COO told Crunchbase News that the size of its largest 25 contracts in the second quarter of 2019 was twice as large as the same result from a year ago.
Shares of Okta are off about 6 percent this morning. Why, is the question. I’d reckon that Okta’s somewhat modest projection for sequential-quarter revenue growth is the issue.
Box, in contrast, is up a point this morning after reporting far more modest revenue growth. But in contrast to Okta, which has seen its share price appreciate in recent quarters, Box is trading at its lowest levels since late 2016. So there’s some mismatch in context for the two companies’ earnings results.
Note, however, that the faster-growing company has had better recent public market results. ARR growth is still investor catnip, even this far into the bull cycle.
The growth point was welcome to Zuora investors this quarter, with the SaaS firm’s SaaS-focused product turning in better than expected forward revenue guidance. That boosted growth expectation sent, and recent results, sent Zuora’s equity up over 6 percent this morning.
Summing quickly since this post has gone on longer than I meant it to, startup ARR growth rates are generally faster than those of their public counterparts. But the same mechanics and tension between growth, profit, and valuation work on both sides of the public-private divide.
Perhaps each earnings season we can get a few startups to disclose some of their performance to go along with our regular, summary glance at public company results.
Illustration: Dom Guzman
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