Is the vaunted cloud acceleration falling flat?

Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. 

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Is the vaunted cloud acceleration falling flat?

This week we’re taking a look at the bad side of the cloud software market. In case you were avoiding the news over the last week, tech and software stocks are struggling. Not much compared to their 2020 gains, mind, but after months of only going up their recent declines have been notable. (As I write to you, the tech-heavy Nasdaq is headed for its worst week since March.)

The pullback makes some sense. Having watched SaaS and cloud valuations get stretched to historical highs, Slack’s earnings were an endcap on a good, but not-quite-as-good-as-expected set of results from public cloud and SaaS companies. 

As we’ve noted, most public software companies are not seeing their revenue growth accelerate. Some public software companies may be seeing their growth deceleration slow, but the number of public software companies actually accelerating in 2020 is tiny. The actually-accelerating group is Zoom, and maybe one or two other companies. 

Why is that, given all that we’ve heard about the presumably accelerating digital transformation? Slack earnings are a good explainer. The enterprise communications company’s recent filings explain that its COVID-bump has somewhat dissipated, while a number of COVID-related problems are persisting. 

Seeing recently risen valuations slip in the face of a lack of materially accelerated growth and some churn issues is reasonable. 

Does this matter for startups? Some. Public software valuations are still elevated compared to historical norms, which helps software startups defend their valuations and raise well. And there are plenty of startup hotspots as we’ve noted, including API-delivered startups enjoying time in the sun, as well as edtech startups that caught a COVID-related tailwind.

I am chatting with investors from a16z, Bessemer, and Canaan next week at Disrupt about the future of SaaS, collecting notes on the private-market side of this particular issue. So, more to come. But for now, I think we’ve seen the top of the peak and are now dealing more with reality than hype. Or, as public investors might say, the COVID trade has run its course and earnings will set the tone moving forward.

Market Notes

Moving on to market notes, a fintech stat, and some other bits of data for your consumption and edification:

• Fintech is staying hot, with M1 Finance doubling its AUM from $1 billion to $2 billion in about half a year. TechCrunch covered M1 reaching the $1 billion AUM threshold because it’s a Chicago company and I could not resist the fintech data point. Then M1 raised $33 million at $1.45 billion AUM in June. Now it’s at $2 billion. 
• Our read? The savings and investing boom that helped power Robinhood to new revenue records, along with other players, is continuing.
• More evidence of that? Alpaca, a startup that delivers equity-trading capabilities via an API, is seeing insane growth. (That piece has more notes on API-led startups in case that is your jam.)
• Quickly turning to the public markets, JFrog is about to show the power of profits in today’s markets, and next week should see a number of debuts of JFrog, Sumo Logic and Snowflake. Palantir is the week after. (More notes here if you need them.)
• Oh, and folks are pricing Palantir at a fraction of its final private valuation. Whoops. Maybe that’s why so many insiders are selling now? Big ups to Danny for that story. (Also, yowza this is not at all good.)

A brief interlude: Disrupt is next week, you should come. You can enjoy it from the comfort of your couch. 

Various and Sundry

SaaS and cloud earnings continue to trickle in, which means I spent a good portion of my week talking to more execs at public companies. Short notes from Smartsheet, nCino and BigCommerce to follow, along with some final thoughts for your weekend.

• On the valuations front, Smartsheet CEO Mark Mader told TechCrunch that “investors are thinking about how to balance historically high multiples with historically high potential returns in the space that’s still very young.” 
• He added that no one doubts that cloud “is going to be the answer” to a lot of stuff, or that “people are [going to] change how they work,” but did note that cloud companies are not impervious to macro headwinds, because “cloud companies serve non-cloud companies,” and not merely companies in sectors that are excelling.
• This fits neatly into our notes on Slack above. More on Smartsheet’s earnings here.
• nCino had a good quarter, beating expectations and guiding well during its first public earnings report. However, like many other SaaS and cloud companies, it has lost some valuation altitude in recent weeks. It’s still miles above its IPO price, however.
• I was curious about how the post-IPO period has been for the company’s CEO, Pierre Naudé, and his response was fun. Like all new public company CEOs, he made sure to note how quickly his team got back to work after the debut, but he also told The Exchange that he does now spend time that he used to invest in customers and “innovation” talking to analysts and investors. 
• Being a public company, therefore, has time and focus costs that are worth considering, as we see so many tech shops approach the public markets.
• And then there was BigCommerce, which went public quite recently. I got back on the horn with CEO Brent Bellm, wanting to learn a bit more about the current state of the e-commerce market. 
• Here’s what the CEO had to say, lightly edited and condensed for clarity:

“I think it’s staying pretty hot. The surprising thing in the post-pandemic weeks was just how rapidly growth accelerated, and consumer and business adoption grew. We all kept saying ‘well at some point stores will reopen, and the growth rates will come back down.’ But the growth rates for actual sales running through stores continued to be very strong. You know, whether you look at our customer set, or [at] credit card data from Bank of America or others […] you can see quite clearly that e-commerce remains very, very hot. It’s a permanent change in behavior. Consumers have found a lot more places where they now like to buy online and reasons to like to buy online, and companies have found new and more effective ways to sell.”

• This is probably a good reminder to turn our attention back to e-commerce when we get a chance post-Disrupt. 
• And, finally, read Natasha on why rolling funds are blowing up, something that we talked about on the podcast this week.

That’s all the room we have. Hugs, fist bumps, and good luck.

Alex

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