Well-funded startups, to be precise. , a company that provides banking services with a focus on pre-paid cards, saw its share price fall from the upper $40s to the high $20 after reporting its second-quarter earnings.

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What caused the firm to lose such a sharp percent of its worth? Green Dot pointed at competition from one of our most-watched startup categories, the neo-banks.

Downgrades

Green Dot did not disappoint investors by reporting underwhelming . In fact, the company beat on revenue ($278.3 million; GAAP) and earnings per share ($0.90; non-GAAP, diluted).

So what caused the firm to drop so sharply? The future. As :

Shares in the bank known for issuing prepaid debit cardsÌýfell 42% to $27.42 on ThursdayÌýafter it scaled back its revenue and profit outlook for the rest of the year, citing competition from financial-tech startups that offer checking and savings accounts.

How sharp were the changes that led to such a dramatic repricing of Green Dot’s equity, and therefore the company itself? Pretty sharp, as it turns out.

You can read the company’s entire “Updated Outlook” in its earnings report , but the short version goes as follows:

• Full-year non-GAAP revenue of $1.060 billion to $1.080 billion against prior guidance of $1.114 billion to $1.134 billion. (The company employs precise revenue numbers due to the granularity of its growth.)
• Full-year adjusted EBITDA (an adjusted profit metric) of $240 million to $244 million, down from prior guidance of $255 million to $261 million.
• Full-year adjusted earnings per share (EPS) of $2.71 to $2.77, lower than the previously expected $2.82 and $2.91 in per-share adjusted EPS.

So Green Dot expects smaller revenues, lower adjusted profit, and slimmer profit-per-share. Investors reacted by hitting the “sell” button. Let’s return now to who is to blame, from the company’s perspective.

Who Is To Blame?

Companies like , , and others are at fault, it seems. According to the , Green Dot’s CEO said the following:

Several so-called neobanks flush with new rounds of venture capital [are] spending a record amount of marketing dollars to convert customers to their largely free bank account offerings. […] There’s little doubt in our minds that the increased marketing spend from so many competitors in aggregate is taking its toll on our new-customer acquisition.

Astute and regular readers of SA¹ú¼Ê´«Ã½ News should not be surprised at this result.

Continuing our coverage of neo-banks, we noted a slide in Mary Meeker’s Internet trends report showing that, among the startup cohort, customer acquisition costs (CAC) are rising. Why would CAC rise among neo-banking startups? In short because as more companies with more dollars pursue the same sorts of channels to reach the same sort of customers, the cost to acquire a marginal customer increases.

Startups are tasked with growth. So, when a number of startups target the same customers, they are going up against companies with similar charters (fast growth) and bank accounts (venture-backed).

This happens in any category where companies compete. Especially startups. The market has seen, for example, as more companies have been founded, more money invested, and the startups themselves have gone hunting for new signups in similar space.

Your Instagram feed is a good reminder about where some venture dollars go: , , and more. The list and creative marketing campaigns continue.

Regarding neo-banks, recall how much money they have raised in rapid succession. From our coverage from just two months ago:

Money is chasing the [neo-banks]. Chime has raised a , includingÌýÌýearlier this year. Robinhood hasÌý, includingÌýÌýlast year. SoFi hasÌý, includingÌý$500 million this year. Acorns hasÌý, includingÌý.

To summarize, neo-banks are well-financed and in a hurry. Their hunger to buy new users and — hopefully — customers, is leading to more expensive CAC. And that’s dragging incumbent growth rates down.

The question now becomes can any of the wealthy neo-banks do what Green Dot already has: Grow, , and generate profit. (Green Dot had positive net income of nearly $35 million in Q2 2019. That’s more in net income than most neo-banks did in total revenue during Q2 2019, I’d reckon.)

Illustration: .

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shares were worth about $60 apiece before the company reported its yesterday. From an IPO price of $72 and a 52 week high of $88.60, Lyft was in the doldrums. Concerns about its ability to grow and cut losses were easy to understand.

But Lyft’s Q2 results showed two important things, each positive. Namely that the company could grow more quickly than expected, and that it could lose less money while doing so. In more colloquial terms, Lyft showed investors that it may have a path to profitability after all.

It’s a shot in the arm for companies like , , , and others (more on their fundraising here). The ride-hailing business was once the hottest game on the planet. Now, after Lyft and Uber each went public and quickly slipped from their IPO prices, market sentiment is more muted.

Lyft’s results, however, could help turn the tide.

Positive Results

Lyft beat on revenue and profit in the second quarter. The ride-hailing company generated revenue of $867.3 million (+72 percent year-over-year) against an $809 million. The firm’s adjusted profit of -$0.68 per share was also ahead of an expected loss of $1.74 per share in the quarter.

Beating on both top and bottom lines is good. Doing so while raising your forecast is even better. As part of its Q2 results, Lyft raised its forecast for its full-year 2019 results and more. Here are its new performance expectations:

• 2019 revenue: $3.47 billion to $3.5 billion, up from a range of $3.275 billion to $3.3 billion. (The company’s expected year-over-year growth rate is now in the low 60s, instead of the low 50s.)
• 2019 adjusted EBITDA: -$850 million to -$875 million, about $300 million lower than its previously expected -$1.15 billion to -$1.175 billion in adjusted losses. (Adjusted EBITDA is a profit-adjacent metric that many young companies prefer to more rigorous profit metrics, like GAAP net income.)

Faster growth? Check. Slimming losses? Check. Lyft even managed to grow its “active rider” count by 44 percent in Q2 2019 compared to the year-ago quarter, while driving “revenue per active rider” up 22 percent over the same timeframe.

What’s not to like? Well, a few things. Let’s talk about the other side of the coin.

Negative Results

We’ll start our discussion of negatives by looking at the company’s costs.

Three out of four of Lyft’s main expense categories saw their cost as a percent of revenue rise compared to the year-ago quarter. Indeed, Lyft spent more as aÌýpercent of revenue on “Operations and Support” (17 percent of revenue in Q2 2019), “Research and Development” (14 percent of revenue in Q2 2019), and “General and Administrative” (22 percent of revenue in Q2 2019) than it did in Q2 2018.

Lyft did cut its “Sales and Marketing” line item sharply, from 35 percent of revenue in Q2 2018 to 19 percent in Q2 2019. However, it seems that Lyft wasn’t able to curtail cost expansion in revenue-percentage terms in other areas, casting doubt on its ability to lower losses in ratio terms in the near future.

And the impact of that is Lyft’s deficits, while falling, are still wide and persistent. The firm’s adjusted losses should reach $200 million in Q3 2019 according to the company’s own projections, for example. The unadjusted number will be worse.Ìý In Q2 2019 the company also generated an adjusted profit of around -$200 million, a figure tucked inside of a sharper $644.2 million net loss.

So, we can expect Lyft’s fully-loaded Q3 loss to be far higher than the $200 million adjusted mark.

The same principle applies to the firm’s full-year results. Yes, Lyft’s expected adjusted losses are now under $1 billion for the year. Its GAAP losses (results calculated using regular accounting rules) will be larger.

Finally, Lyft’s gross margins appear to be getting worse over time. In the first half of 2019, Lyft’s cost of revenue clocked in at 66.5 percent of top line. That gave the firm a gross margin of 33.5 percent. In the first half of 2018, the firm’s cost of revenue was just 61.3 percent. The firm’s 2018 and 2019 Q2 gross margin of about 42 percent and 27 percent tell a similar story.

There’s nuance to the figures, however. The company’s share-based compensation costs and “[c]hanges to the
liabilities for insurance required” make the resulting figures hard to fully grok. So I suspect that you can read Lyft’s gross margin results several different ways.

The figure that came up most on , notably, was “contribution margin,” not “gross margin.” You can check page 17 of Lyft’s for more on how the firm lowers its effective cost of revenue to show a higher contribution margin. Investors are more focused on the adjusted metric than the GAAP-based gross margin percentage.

So, you can read Lyft’s numbers any way you please. You can find lots to like, and you can also find a bucket of red ink and some key performance metrics that don’t look very good.

So What?

Lyft’s shares are up. That’s good for other companies in the space. To that point, when Lyft’s shares first took off after reporting its figures, Uber’s shares rose as well. Something similar, if invisible, happened to Lyft’s private-market comps.

Let’s close by talking about Lyft’s future, and the related futures of its rivals.

Tucked into Lyft’s earnings call were notes about price that are worth understanding. Lyft and Uber probably need to charge more for rides, and capture a larger share of total ride revenue, to reach real profitability. Happily at Lyft, at least, progress on that front is being made.

From the earnings call, quotes from Lyft folks:

We exited the quarter with tremendous momentum and we’re making a substantial increase in our guidance as a result. Our guidance incorporates modest price adjustments that went live toward the end of June. More specifically, we began to adjust prices on select routes and in select cities based on costs and demand elasticities. We expect that these changes will accelerate Lyft’s path to profitability, and further, we believe these price adjustments reflect an industry trend. […]

The price adjustments are modest, but we anticipate that these changes will increase revenue per active rider on both a quarter-over-quarter and year-over-year basis, and we expect that these changes will accelerate our path to profitability and further as I mentioned, we believe these price adjustments are an industry trend. In terms of active riders, we’ve enjoyed a huge benefit in the first half of 2019 related to the publicity from our IPO.

The price changes could provide Lyft with revenue and profit lift in the coming quarters. That’s good, and it means that Uber may also enjoy the ability to raise prices. If they canÌýeach drive up per-ride rates, perhaps they can lose less money more quickly.

And grow more quickly to boot. That would help their valuations and the values attached to the tens of billions of dollars in equity currently tied to the fate of their yet-private competitors.

Lyft’s IPO was a downer for similar companies. Now, the company is pushing its market cohort in the opposite direction. That’s welcome chance, we’re sure.

Illustration:Ìý.

, parent company of the popular Snapchat social application, this morning that it intends to borrow a billion dollars.

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According to the company, the $1.0 billion in debt will have the option of converting to shares “at the option of the holders” at the end of the debt’s term in 2026. In addition to the original $1.0 billion in debt, Snap said that it “intends to grant the initial purchasers of the notes an option to purchase up to an additional $150.0 million principal amount of notes.”

Snap could raise as much as $1.15 billion in the transaction.

Snap said in the same release that it will use the funds for “general corporate purposes, including working capital, operating expenses, capital expenditures,” along with using part of the total net sum to “acquire complementary businesses, products, services, or technologies or for repurchases of Snap’s common stock.”

That’s a lot. In short, Snap is picking up a billion or more in debt to fund its operations, buy other companies, and perhaps purchase its own stock.

Why the company needs a billion dollars is the correct question at this juncture, given its long, storied, and rich history of fundraising. Let’s find out. Afterwards, we’ll compare Snap to two recent IPOs, and see if there’s a lesson in the mix for startups.

Money In, Money Out

Snap’s is impressive. Here’s a simple chart of the firm’s pre-IPO fundraising history, for example:

The company in its IPO. Also, Snap picked up two major post-IPO investments, led by and led by . Those were open-market purchases, however, and therefore non-accretive for Snap itself.

Still, with over $2.5 billion raised while private, and $2 billion from its IPO, how could Snap possibly need more money?

The firm noted in its most recent earnings report slides () that it burned through $96 million in cash from its operations in the three-month period. Its free cash flow was an even more negative $103 million. Those results, however, are improvements for Snap, a company that used to consume far more cash.

Here’s a chart of Snap’s free cash flow over the past few years:

If you want to see the impact of that burn over time, simply check in on the firm’s earnings. In , Snap reported just about $2.8 billion in “Cash, cash equivalents, and marketable securities,” which is corporate slang for what we call cash. In , that figure was down to $2.04 billion. In the figure fell to $1.57 billion.

And so on, until we get to Snap’s most recent earnings report, . Snap had $1.18 billion in cash on hand at the end of the period.

Now as you can tell from our second chart, Snap has made material progress in limiting the amount of cash that it consumes (its GAAP losses, net and operating, are far more negative due to share-based compensation, among other items). But it isn’t too close to managing to not consume cash through operations.

This means that Snap’s cash is becoming more valuable over time, as the firm spends it. Adding a billion dollars (or more) in debt solves the growing problem at a low cost. Rates are cheap right now, and Snap’s shares are on the rebound after a in market sentiment regarding its prospects. A lovely time to borrow, in other words.

And with more cash, Snap can afford to buy what it wants. That means startups that catch its eye become easier to purchase, as it will have more cash with which to maneuver.

What About Startups?

Snap sold parts of itself throughout its early history and is now looking to take on material amounts of debt. Why? Because its business has never come close to covering its costs. Snap has come closer to break-even over time (it is currently , improbably), but not near enough to limit its need for external capital.

The company has therefore always played with borrowed time, and, soon, borrowed dollars. Its unprofitability and capital hunger has come with strong costs. Snap was once worth just $4.82 per share off its IPO price of $17. Yes, it has come back near to break-even compared to that $17 mark, but the company’s life as a public company has been troubled.

The story here is similar to what we’ve seen with (currently trading under its IPO price), and (currently trading under its IPO price). In each of the three cases formerly high-growth companies saw their revenue expansion slow, leaving them with a hefty cost structure, and not much of a story to tell investors.

Snap is now on the other side of its difficult period, showing revenue growth and user growth, but for startups the lesson is pretty plain: Losses become incredibly unattractive if growth slows. And large losses even more so. Having a path to profitability is a good thing to have if you lose money. Every startup should have one.

Especially as things get a bit dicey around the world.

Illustration:Ìý

Yesterday news broke that Uber is in its sales and marketing team, a group that numbered around 1,200 before the reductions.

Uber reports its Q2 2019 earnings on August 8. We’ll know then if the company is signaling the cost cuts ahead of time to show investors it is serious about spend reductions. Or if they are yet another cost that Uber is cutting after reducing others.

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Questions regarding Uber’s profitability have stuck to the company over the last year, through its public offering and beyond.

Market worries concerning Uber’s stiff losses — over $1 billion in negative net income in the first quarter alone — have accelerated as the company’s revenue growth has decelerated. The faster a company grows the more money it can lose without spooking investors; losses in the face of rapid revenue expansion are often considered investments.

But when revenue growth stalls (more on Uber’s revenue deceleration here if you’d like a historical primer), losses become less palatable. Uber’s growth has slowed, putting its lack of profitability, and therefore its cost structure, into sharper relief.

Let’s remind ourselves of how much Uber spent on sales and marketing recently, how much it spends compared to historical results, and where that money goes. The lesson here for private companies is simple: Get your losses under control if you want a warm reception from the public markets and aren’t still doubling yearly.

Uber: S&M

First, what is sales and marketing (S&M) at Uber? A few things. From Uber’s most recent earnings (the 10-Q you can find ), here’s what Uber spends money on in the category:

Sales and marketing expenses consist primarily of compensation expenses, including stock-based compensation to sales and marketing employees, advertising expenses, expenses related to consumer acquisition and retention, including consumer discounts, promotions, refunds, and credits, Driver referrals, and allocated overhead. We expense advertising and other promotional expenditures as incurred.

The company goes on to note that it expects its S&M costs to “increase on an absolute dollar basis and vary from period to period as a percentage of revenue for the foreseeable future.” This gives it enormous flexibility to spend what it feels necessary over time to promote its brand and drive demand for its various product lines including ride-hailing, food delivery, and trucking.

Impact

Uber’s sales and marketing costs can directly impact the firm’s profitability or lack thereof. We can see this in the firm’s most recent earnings.

In Q1 2019, Uber’s “Core Platform Contribution Margin,” or the percent of revenue that Uber’s main businesses (ride-hailing, food delivery, and car leasing) contributed to the company after it paid for itself, was negative. 1

That’s to say that Uber’s core operations were not profitable in the quarter, even before the company counted “indirect unallocated research and development and general and administrative expenses.” Why did the company’s core operations lose money? Here’s Uber:

The overallÌýdecreaseÌýin our Core Platform Contribution Margin was primarily related to aÌýdeclineÌýin our Core Platform Take Rate and anÌýincreaseÌýin sales and marketing expenses as we continue to invest within our Core Platform due to expansion and competition.

So, sales and marketing costs matter to Uber as they impact the ability of Uber as you know it to generate margin; if it spends too much on sales and marketing, Uber’s future profits look mighty distant.

To summarize so far: Uber’s sales and marketing efforts vary in cost over time, Uber expects them to generally rise in dollar terms, and the line item has a big impact on profitability. Now let’s figure out how much Uber spends on S&M.

Costs

Uber spent $1.04 billion on sales and marketing costs in Q1 2019. That figure was up from $677 million in the year-ago period for a gain of over 50 percent. In the same quarter of this year Uber’s net loss came to $1.01 billion, or around the same amount.

Of course, Uber cannot cut its entire S&M budget to reach profitability. But it is useful to understand that the scale of its S&M spend and its net loss are similarly sized; Uber’s unprofitability is going to take lots of work.

Uber has spent more over time on its S&M costs. Indeed, here’s a chart of the line item including , and its Q1 2019 earnings:

Cutting 400 jobs from that mix should cut spending; reductions in driver referrals would also help. Trims to advertising would also help. Add it all together and I can see Uber shaving the S&M line item by a material number of percent. How soon the reductions in spend will be felt, of course, isn’t clear.

Startups

Uber is the most famous former startup in America today. Its titanic size, famous problems, incredible growth, industry-defining business model, moral questions, and global battles for market share have made it an icon. And yet it is still unable to avoid the profits-versus-growth question.

For smaller, less-well-known startups, the moral is clear. If your growth slows, your losses need to come down. And it is probably better to not wait as Uber has to get started on those cuts. The sooner you start, perhaps the shallower depression from which you’ll need to steer out of.

Sure, there’s a Vision Fund 2 on the horizon, but don’t count on that to cover all your startup’s red ink.

Illustration: .

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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 SA¹ú¼Ê´«Ã½ 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. SA¹ú¼Ê´«Ã½ 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 SA¹ú¼Ê´«Ã½ 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 (BVP) over time, 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 and the of the world. These are firms with interesting products, possibly bright futures, and outsized deficits. You could throw 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?

In a similar, yet distinct vein, how and perform after earnings will be interesting.

If Uber and Lyft do well, and show investors that they have a real path to profitability, the 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 (! ! All of them!) could suffer.

SA¹ú¼Ê´«Ã½ 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. .

Illustration: . Data and chart: .Ìý

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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: , which we care about as it’s a high-profile decacorn built with an ocean of private capital (our coverage). , 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, , 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.

Uber

Yesterday Uber reported its 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,Ìýspend on Uber’s platform is rising faster than both revenue, and Uber’s adjusted revenue metric. That means that Uber is buildingÌýgross 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.

Okta

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, 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, , after its . The firm is in Asia-Pacific to serve that customer base (replete with the ability to constrain customer data toÌýthose 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 .

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.

Zuora

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 .

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. :

[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: .

On Nov. 28, , an enterprise-focused cloud storage and productivity company, its fiscal third quarter, 2019 earnings after the bell. The Bay Area-based company beat expectations regarding revenue ($155.9 million, versus $154.6 million anticipated), and per-share losses ($0.06 adjusted, versus $0.07 anticipated).

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Shares of Box were up during the day before the report and in after-hours trading.ÌýBox also raised the top end of its forecast for its current fiscal year (2019) “to $609.2 million, from $608 million,” . And its CEO that the company is on itsÌýway to “$1 billion in revenue.”

Notably, Box isn’t alone in seeing its value appreciate. The surprisingly dynamic Bessemer Cloud Index that was recently remade into a daily ticker shows a similar rebound in cloud stocks in recent days. The Cloud Index fell into the 780s (it started at 1,000) in the middle of November, before rebounding to nearly 890 before the start of trading today. That’s quite a jump in about 10 calendar days.

So, after a somewhat dispiriting decline that matched what other stocks in the market were doing, more or less, cloud is nearly back to where it was earlier in the year. Which is to say a bullish position.

So What?

Why are we looking at a public company’s earnings report, and an index of public cloud companies? After all, we focus on private companies here at SA¹ú¼Ê´«Ã½ News. We are examining Box as it’s an important example of an SaaS startup that raised lots during the unicorn era and went public on the strength of its recurring revenue growth, rather than its profitability. The firm has since started generating cash quite often (measured quarterly) and expects to turn in non-GAAP per-share profit in the period roughly aligning with calendar Q4.

So, it makes for a good example. If Box does normal SaaS things, and the markets bid its shares down, it’s an indicator of where sentiment is heading; that impacts private companies as public comps impact private valuations.

The same principle applies to the basket of cloud stocks we mentioned before. If they fall sharply, private investors take note that public investors are revaluing the sort of company that they are putting capital into; if analogous stocks go bearish, startups grow fur.

So! All that said, let’s think about what Box is worth today, compared to its current revenue. We’ll get a workable revenue multiple out of the exercise, which we can then use as a general metric for thinking about what sort of recurring revenue modern software companies (which nearly all uses software-as-a-service as a business model, like Box) need to grow into to make their trailing valuations fit.

Cool? Great.

Box’s revenue figure doesn’t break out recurring incomes (its core products) from non-recurring services income. As such, we generally treat its revenue as a single lump when we want to calculate a recurring revenue figure. This distorts the resulting figure somewhat, but don’t let it worry you, we’re shooting for close here, not exact.

With $155.9 million in top line, our analog for Box’s annual recurring revenue figure comes to $623.6 million. Box was worth $2.57 billion before the start of trading today,Ìý. Simple division gives us a current ARR multiple of 4.12.

That’s a somewhat low multiple, compared to other companies and figures that we have seen this year. However, with Box growing just over 20 percent year-over-year in its most recent quarter, the company is likely paying a revenue-multiple tax. The faster your ARR growth, mostly, the higher your revenue multiple will be.

Returning to our notes on Box’s public market performance, Box is trading lower than it did at the start of the year, and far under its early-summer highs. If that is attributable to its slowing growth I can’t say for sure, but I suspect it’s at least a few pieces of the puzzle. The lesson in this earnings report is that growth remains as critical to SaaS valuations as it has been; Box’s slowing growth rate’s impact wasn’t sufficiently erased by rising profitability at the company. Its value has therefore fallen in revenue-multiple terms.

And that brings me to my final point. I’ve thought about retiring Box as our regular ARR benchmark a few times, mostly because Box is now so much larger than private market SaaS companies that its maturity makes it an increasingly poor comp. But what we didn’t have, until recently, was something good to use in its place.

But the new Cloud Index probably fits the bill, even though it doesn’t provide similarly granular multiples. Still, given that it is a basket of SaaS stocks, it’s probably a healthier way to stack public sentiment against private companies.

So, I hereby commit to not covering Box’s next earnings report, at least here. It’s probably no longer sufficiently pertinent.

Illustration:

It’s been an earnings season . But the third quarter run isn’t over. This week both and will report recent financial performance. And there are a few IPOs on deck to boot.

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So let’s quickly get our minds around the upcoming market signals that will help set sentiment during the rest of the third quarter. Bear in mind that great reports from Microsoft, Alphabet, and Amazon have been contrasted by nasty reactions to Twitter, Facebook, and Netflix’s own quarterly reports.

The could be melting.

Regardless, here’s your micro cheat sheet of what to keep in mind over the next five days:

• Apple earnings on Tuesday.ÌýIt “typically the least exciting period for Apple,” but the company’sÌýreport will include a host of mind-bending numbers. Investors revenue $52.3 billion in the period, including 42 million iPhones sold. The street also $2.16 in per-share profit, up from $1.67 in the year-ago quarter.
• Square earnings on Wednesday.ÌýSquare has been a public-market rocket ship. Its arc has been hot. Now Square has to keep the streak alive. Investors $0.12 in per-share profit and revenue of $367.9 million. We’ll see if Jack’s other project can avoid a 20 percent correction.
• Tesla earnings on Thursday.ÌýThis is the week’s real goat rodeo. Everyone in tech andÌýfinance will have their eyes glued to the Musk Show, which, after all, is either going to skyrocket and turn profitable this year () or . Either way, investors are just under $4 billion in revenue and a loss of around $2.81 per share.
• Sonos IPO on Thursday.ÌýThe venerable Sonos is hoping to get out while the market is welcoming. Not a bad idea. The hardware company’s debut will give us another quick check on the state of the IPO market that has welcomed theÌýodd Bloom Energy offering and anÌýawkward Domo flotation.Ìý(Catch up on our prior coverage here.)
• The Arlo Technology offering. I am proud to report that SA¹ú¼Ê´«Ã½ News has so far produced a full 55 words on the matter. We’ll have a quick primer up when it prices, so don’t worry about being behind.

Of course, other companies will report their second-quarter results and news will crop up. But the above should give you a bit of a map to the end of the first month of the third quarter. Good luck!

From TheÌý:

Bitmain Technologies, the world’s largest cryptocurrency mining company, is reportedly considering an initial public offering in Hong Kong or an overseas market with U.S. dollar-denominated shares. Beijing-basedÌýÌýis also said to be raising further cash at valuation around $14 billion.

Chip designer ARM Holdings has agreed to buy analytics providerÌýfor around $600 million, according to a Bloomberg story citing unnamed sources. Silicon Valley-based Treasure, founded in 2011, previously raised $54 million in venture funding.

Startups vie to disrupt homebuying

So far this year, investment in North American residential real estate startups has already surpassed totals for all of 2017. Leading the funding surge are Opendoor and other companies looking to shake up the way homes are bought and sold.

WeWork is just one of SoftBank’s real estate plays

Speaking of big real estate bets, take a look at SoftBank. The heavy-spending startup investor has been a repeat investor in WeWork and, most recently, its WeWork China subsidiary. SoftBank has other real estate and building companies in its portfolio too, indicating an sustained appetite for large deals in the space.

Viacom is acquiringÌý, a media company targeting Generation Z, in a deal reportedly valued around $25 million. The purchase marks a steep drop in valuation for Los Angeles-based Awesomeness, which had been valued at $650 million in 2016.

Chances are you have about Facebook’s that sent its stock down sharply in after-hours trading. The trend continued this morning, with Facebook’s equity shedding around 18 percent of its value at the open.

The company’s repricing by public investors flips several narratives on their head. First, that Facebook’s model, andÌýperhaps the social media corporate method itself, allowed the company to maintain operating margins in the 40s.

Facebook’s Q1’18 operating margin wasÌý. In its most recent quarter, operating margin wasÌý. Looking ahead, Facebook expects future operating margin to land in the “.”

Second, that leading tech stocks could do no wrong. It’s now well-known that a has been driven by outsized technology wins. The biggest tech companies — five of which were worth over $4 trillion recently — kept the public game afoot as a group, each putting up even better earnings results as time went along.

It seemed like that would persist in the second quarter, with both Alphabet and Microsoft beating expectations. However, Facebook’s disastrous earnings, coupled withÌý, have dispelled some of the magic.

Each of these changes impacts startups. The first issue, the problem of rising costs related to running a social media company, implies that startups building inside the market niche can expect either higher content moderation costs at scale than they did before, or that they must find a different approach to growth. Slower growth, of course, is aÌýcontra-valuation tonic.

And the second lesson shows that the great valuation boom that added $1 trillion in value to the industry’s biggest winners in about a year could be coming to at least a pause, if not a long-term finale. If that is the case, more than just social-focused startups could see their worth nipped in the private markets.

Cohorts

But Facebook is harming itself and the yet-to-go-public alike. It’s also not a good day for Snap and Twitter either. The two firms that have long toiled in Facebook’s shadow as smaller, less profitable – and less consistent in terms of both revenue and user growth – public social media firms.

The Menlo Park Meltdown has Twitter down 3.5 percent as of the time of writing, and Snap is offÌý3.4 percent.

Notably, Twitter has worked through its own molting period in recent years, working to clean up Nazis and bots alike. Snap has fewer problems of that sort of issues but is a walking cost factory. So Facebook’s recent lessons still apply. Snap just started teaching them first, ironically.

Things are still fresh, and surprise from Facebook still new. Things may come back. But today you can be glad that you . The so-called smart money didn’t see any of this coming.

Morning Report: Happy Snap earnings day!

Happy Tuesday and welcome to an extremely interesting earnings day. Two companies of note to us will report after the bell: Ìýand . One will make a lot of money, while the other will lose a lot of money. Can you guess which is which?

Correct, Snap will detail another period of deficits, but that’s almost beside the point. No one expects it to make money (yet). Instead, Snap’s user growth, revenue expansion, and cost control will be under the microscope.

So, before the market’s close (hell, they just opened), here’s a teaser of what to expect.

According to the analysts summed by the , here are theÌýaverage expectations for the firm’s quarter:

• Revenue of $243.55 million ($149.65 million in the year-ago quarter)
• Per-share adjusted losses of $0.17 (-$0.20 in the year-ago quarter, adjusted)

In that year-ago quarter, Snap’s operating expenses totaled $196 million, while its gross profit was negative when share-based compensation expenses were included. That’s the baseline that Snap investors will measure from.

User growth is also on the menu. Snap’s decelerating user growth has weighed on its share price. However, during Q4’2017, new users got back to speed, as :

Snap’s flagship app, Snapchat, added 8.9 million daily active users in the quarter that ended Dec. 31. That’s the largest jump since the third quarter of 2016. The company now has 187 million daily active users, surpassing analysts’ estimates of 184 million.

That got investors more than excited. If Snap can meet financial expectations and beat on user growth, it could put up back-to-back earnings wins. Given , such a result could do wonders for morale.

All this is even more exciting as Twitter recently reportedÌýreal GAAP net income during its Q1’2018 earnings download. Meanwhile, Facebook is heading into its own F8 conference after strong earnings and nearly infinite troubles.

So keep your eyes peeled after the bell. We’re counting down until Snap tells us more.