☁️ Is it 2023 yet?

Cloud stocks (-10.8%) underperformed the broader market (-1.9%) for the first trading week of 2022 as Fed minutes suggested the Federal Reserve may increase rates sooner and at a faster rate than previously expected. The result? Tech/Cloud/High-growth all took a hit, while industries levered to higher rates (energy/financials) outperformed on the week.

The fed quote heard around the... financial markets:

Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated. - Federal Reserve

With cloud stocks now down ~30% from November highs and industry multiples back to pre-covid levels, investors are starting to dig into when institutional selling will abate and how quickly multiples can recover.

🐂 or 🐻: Where do we stand now?

Many growth stocks now underperforming boring peers

Michael Batnick noted $ARKK (the granddaddy of post-Covid outperformance and heavy on $TSLA/innovation names) is now underperforming regional banks since the start of Covid.

We present to you: the "flippening"

Digging into Cloud specifically, the group continues to outperform the S&P post-Covid, but is now below its tech-heavy counterpart.

$WCLD is up ~53% from February 20, 2020, above the S&P (+38%), but at much higher volatility.

While Cloud outperformed the NASDAQ for the vast majority of post-Covid trading, it's now fallen behind $QQQ (+60%) as the latter benefits from strong FAANMG performance.  

Many indicators now point to TMT being oversold

Gavin Baker with a couple of great takeaways on positioning and valuation:

1. HF net exposure to growth/TMT at 5-year lows (GS Prime)
2. "Crowded Longs (CRWD) and Expensive Tech (EVSA) baskets are 85% of the way through their typical downside move during a "rate shock" vs. indices only 40-50% of the way through" (MS QDS)
3. Software now approaching 2019 trough valuation

Industry multiples now back to pre-covid levels

The recent decline in cloud stocks seems to mesh with the average decline GS found in historical periods (29% compression on average over the last 21 years).

We're also back to pre-covid valuation levels.

As a friendly reminder, averages mean precisely nothing in public markets.

But growth multiples remain elevated

Jamin Ball has High-Growth multiples sitting at ~22x, ~85% above January 2020 levels.

But he also notes that these multiples are heavily influenced by recent high-growth IPOs which push this median up. Removing these, the median is closer to 18x.

It is a little tricky to look at high growth and compare it to pre-covid because many of the companies in that bucket now were not public pre-covid. This list includes Snowflake, Hashicorp, Gitlab, SentinelOne, Confluent, Asana, Monday.com, Zoominfo, Amplitude, Braze, UiPath, DigitalOcean, Qualtrics, Freshworks, JFrog. If I remove the recent IPOs from the high growth median bucket the high growth bucket has a median multiple of closer to 18x (it’s 22x with them). Clouded Judgement 1.7.22 - Jamin Ball

Ram Parameswaran has high-growth Software sitting at ~15x vs. ~12x averages, again biased by high-multiple names.

The question now: How long do they take to recover?

Jeff Richards posted an analysis of how long it takes SaaS multiples to recover following a crash.

It's a small sample size and SaaS crash 1.0 and 2.0 actually overlap. Excluding SaaS Crash 1.0 here's what the data suggests:

• Valuation Peak: 10.5x
• Valuation Trough: 6.9x
• % Decline: -36%
• Days to Recover: 305

A few things to note:

• Including SaaS crash 1.0 would have made averages look worse.
• Valuations this round peaked at nearly 20x and are now back to 11x, still above where these crashes started
• There's no reason valuation should necessarily return to highs this round when they were significantly elevated vs. historicals

💰 PLG FTW

Miro Raises $400M @ $17.5B Post

Originally founded as a digital whiteboard company, Miro is investing heavily to transition to a border collaboration suite as tech companies continue to embrace remote-first workforces.

Today, the company’s tools integrate with over 100 apps — including new partnerships with the likes of Atlassian, Cisco, Google Workspace, Microsoft Teams and Zoom — and offer nearly 1,000 templates designed to get users and their teams quickly working together no matter where they are. - TechCrunch

Key Stats:

• Founded in 2011 by Andrey Khusid and Oleg Shardin
• New capital pushes total funding to $476M
• Customers include nearly all Fortune 100 companies (20 have ARR > $1M)
• Since the last funding in April 2020, user base grew 500% to 30 million users

Full interview with CEO, Andrey Khusid @ Protocol

The power of PLG was a top trend I discussed in my ☁ 2021 Cloud Review

🤔 Some more food for thought on tech margins

🚀 A16z Raises $9B across three new funds

It is our role and mission to help these entrepreneurs build the best companies they can and achieve their important goals. With these new funds, including a $1.5B Bio fund, $5B Growth fund, and $2.5B Venture fund, coupled with the $2.2B Crypto Fund and $400M Seed Fund we raised in 2021, we will continue to invest across the entire spectrum of stages, writing checks as small as $25,000 and up to hundreds of millions of dollars. - Future

VC liquidity was a top trend I discussed in my ☁ 2021 Cloud Review

🐐 Philippe Laffont on making a few big calls

Founder, Coatue Management & Tiger Cub:

🧵 2021 Cloud Review

Top 5 ☁ Trends I'm thinking about:

1️⃣ First annual decline on record
2️⃣ Multiples driving relative performance
3️⃣ From Growth to Economics
4️⃣ PLG and Usage-Based Price FTW
5️⃣ Liquidity fueling a tech talent war

Read the full review: ☁ 2021 Cloud Review

And NBD, but we kinda went viral (+ a retweet by SaaS 🐐 Dave Kellogg) 👇

With blessings of strong NRR,
Thomas
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