☁️ State of Cloud May 2022

Cloud stocks ripped 5.5% in the week ending May 27, 2022 but underperformed major indices

• 🤳 SNAP back. Snap, the social media app you never use any more, fell 40% and dragged down tech stocks on Tuesday as the company noted the macroeconomic environment deteriorated faster than expected. PINS, FB, TWTR, and GOOGL all sank.
• 🛒 Shoppers shop. Earnings from major retailers offset investor concerns that higher interest rates would limit consumer spending and potentially push the economy into a recession.

👉 What killed tech in 2020?

Multiple compression AND fundamental decline

We've now come full circle on multiples

Cloud stocks are now trading back at 6.8x (vs. ~20x peak)

High-growth names at only 8.4x (vs. >40x peak)

📉 Next Question: Are fundamentals at risk?

What happens in a recession?

Shocker, growth slows

And earnings can miss estimates

(meaning today's fwd multiples might be overstated)

Clouded Judgement 5.27.22

Have We Hit The Bottom? Follow Up from Last Week: Caveat to everything in this post - we can try to analyze fundamentals as much as possible (valuation fundamentals in the face of rising rates / inflation, as well as business fundamentals in the face of a recession). Right now, none of it matters :)…

Clouded JudgementJamin Ball

💡 This is not 2020

Some important points:

1️⃣ SaaS is now dominated by recurring revenue which drives revenue and keeps the lights on

2️⃣ Tech revenue in 2000 was “capex” = easier to defer/turn off

3️⃣ “Software contract is better than first-lien debt.”

🤷‍♂️ So where does that leave us?

👍 Demand appears to remain strong

But certain business models are certainly more or less exposed

👇 It's hard to beat the capital efficiency of a scaled SaaS in a low-yield environment

📌 A reminder

It's harder to rip out a CRM

Drives revenue/keeps lights on = first-lien debt

Vs. a data warehouse

🤺 And consumption-based pricing cuts both ways:

👉 Now what do you need to think about?

During a recession: Sales cycles, CAC, and discounting all go up

Check out last week's update: Chewing Gravel

💵 ANOTHER reminder to watch your cash

@Katzenberg has been through a few challenging periods and wrote a great piece on surviving and thriving during a recession:

Taking control during a downturn

As the economy tightens, Glean AI CEO Howard Katzenberg gives actionable tips on how to maintain growth, margins and morale - 1) Control your cash outflows and inflows, 2) Control the narrative, 3) Control the competitive landscape, and 4) Control your efficiency.

Glean AIHoward Katzenberg

🌊 In choppy waters, you have to move fast

Bringing on a finance exec... "makes all the difference in the world when times get tough and you need someone who is analytical, forward-thinking, etc."

💥 Check us out on Twitter!

With blessings of strong NRR,
Thomas
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