Ser Jing and I manage an investment fund that invests in a number of software-as-a-service (SaaS) companies.
Over the past few weeks, a handful of them reported their quarterly earnings results. Here’s a quick summary of how they performed and highlights from their respective analyst briefings.
DocuSign Inc (NASDAQ: DOCU)
The leader in e-signatures posted a solid set of results for the quarter ended 30 April 2021. Revenue was up 58% year-on-year to US$469.1 million, billings grew 54% to US$527.4 million, the gross margin improved to 78%, and free cash flow more than tripled to US$123.0 million. DocuSign’s free cash flow margin (free cash flow as a percentage of revenue) is also now a healthy 26%.
To me, the most impressive part was that the company’s revenue grew 9% sequentially. This is a solid achievement considering that DocuSign’s last three quarters prior to the latest reporting quarter have been positively impacted by COVID-19.
In the quarter ended 30 April 2021, DocuSign added 96,000 and 11,000 net new total customers and enterprise and commercial customers, respectively. These translate to respective sequential growth of 10.7% and 8.8%, and should set DocuSign up well for the rest of the year.
DocuSign’s CEO Dan Springer said the following in the company’s latest earnings conference call:
“Since the start of the pandemic, DocuSign has helped accelerate access to healthcare, government, education, small business lending and many other services around the world. What began as an urgent need has now transformed into a strategic priority. And as a result, DocuSign has become an indispensable part of many organization’s business processes.
Put another way, once businesses usually transform their agreement processes, they simply don’t go back. We believe this trend will only accelerate as that anywhere economy continues to emerge.”
MongoDB Inc (NASDAQ: MDB)
The leading NoSQL database provider started its fiscal year 2022 with a bang.
For the first quarter of fiscal year 2022, revenue climbed 39% year-on-year to US$181.6 million and the company turned free cash flow positive this quarter (US$9.6 million) from a negative figure (-US$7.4 million) a year ago.
MongoDB also recorded sequential revenue growth of 5.8%, which should set it up nicely for the coming quarters as the company laps last year’s strong results.
During MongoDB’s earnings conference call for the first quarter of fiscal year 2022, CEO Dev Ittycheria said,
“As we look to the future, there are a number of reasons why we are bullish about our long-term prospects.
First, we are seeing increased adoption, enterprise adoption of Atlas. In the first quarter, approximately two-thirds of new business won by our field sales team was Atlas, more than double the percentage from 2 years ago. Not only are our customers choosing more of Atlas, they’re building or moving mission-critical workloads onto Atlas, which is the biggest driver of growth of our more than 1000 six-figure customers.
Second, cloud partners are recognizing the value that MongoDB and Atlas bring to their own businesses. Using Q1 as an example, we had a record co-sell quarter with AWS, GCP and Alibaba. We are seeing increasing opportunities to expand ways we partner with cloud providers through both technical integrations as well as go-to-market initiatives to enable more customers around the world to derive the benefits of using MongoDB.
Finally, our C level customer conversations indicate that our application data platform strategy is clearly resonating in the marketplace. Customers increasingly tell us that they prefer to standardize on a general-purpose platform, rather than use a myriad of single function databases that add more cost and increase the complexity of running workloads in the cloud.”
Veeva Systems Inc (NYSE: VEEV)
Continuing the winning theme, Veeva, which provides a suite of cloud software solutions for the global life sciences industry, announced a good set of results for the quarter ended 30 April 2021.
Revenue grew 29% from a year ago to US$433.6 million, operating income rose 47% to US$128.4 million and the company added 59 new customers to bring its customer account above 1,000. On a sequential basis, Veeva’s revenue grew 9.2%.
Veeva’s CEO Peter Gassner shared the following comments during the company’s latest earnings conference call:
“Our level of partnership with the industry is noticeably increasing, and there are multiple reasons for this. With every quarter of customer success and reliable delivery, Veeva becomes a more trusted partner. Our expanding product footprint, with products such as CDMS, Safety, MyVeeva, and Data Cloud, also makes Veeva a more strategic partner. The move to a digital-first way of working is also making technology and data more strategic overall to our customers. And finally, our move to operating as a public benefit corporation is encouraging to our customers as they look to us for long-term partnership.”
Okta Inc (NASDAQ: OKTA)
Okta, the leading identity and account management company, reported a 37% year-on-year rise in revenue to US$251.0 million for the quarter ended 30 April 2021. The company’s current remaining performance obligation rose 45% year-on-year to US$899 million, setting it up nicely for the next 12 months. Okta’s free cash flow margin also improved to 21% from 16% in the same quarter a year ago.
Notably, Okta’s revenue grew by 7.3% sequentially, which shows that the company can still grow from its high base in the last fiscal year. Okta also added 650 net new customers in the quarter bringing its total to 10,650.
Okta’s CEO, Todd McKinnon, is bullish on the company’s prospects of becoming a primary cloud provider as it expands its capabilities and integrates with its recent acquisition of Auth0. He said the following in the company’s latest earnings conference call:
“Okta is well-positioned to become the standard for digital identity. The Okta and Auth0 platforms are made up of core technologies that are flexible, extensible, and incredibly customizable to make that spectrum possible. By building a platform that connects with everything and meets every identity use case, over time, we’ll push the technology ecosystem to be safer and create more value for everyone. Together, Okta and Auth0 create a powerful combination.
We’ve strengthened our position as the world’s leading independent identity cloud. We’ll create even more powerful network effects that will drive platform innovation, allowing us to better serve our customers with a broader range of use cases and audiences. And as a result, we’ll capture more of the massive and growing $80 billion identity market opportunity even faster. The world is still in the early stages of modernizing its identity infrastructure.
The secular trends I mentioned earlier that have been driving our business will continue to drive our business for years to come. With that as a backdrop, we’re establishing a new long-term financial target, which is a significant step-up from our prior FY ’24 framework. Given our market-leading position, unmatched technology portfolio, and the massive market opportunity, we’re confident that we can grow our revenue base to achieve $4 billion in FY ’26. With growth of at least 35% each year, along the way, we will continue to invest in driving product innovation and our go-to-market initiatives while targeting a free cash flow margin of 20% in FY ’26.”
Salesforce (NYSE: CRM)
One of the pioneers of SaaS business model, Salesforce had a strong start to fiscal 2022. Revenue was up 23% year-on-year to US$5.96 billion, current remaining performance obligation grew 23% to US$17.8 billion, while the weighted average diluted share count only increased 2.9%.
On a sequential basis, Salesforce’s revenue rose 2.4% which is decent as Salesforce has a seasonal sales cycle. The compant’s CEO Marc Benioff is as bullish as ever. During Salesforce’s latest earnings call, he commented:
“Now, for fiscal 2022. I’m thrilled we are raising our revenue, our guide by $250 million to $26 billion. This is one of the largest raises we’ve really ever had. It represents 22% projected growth year-over-year. And we’re not just raising revenue. And again, thanks to Amy, we’re raising our operating margin to 18%. So that is incredible. And in a few years, we’re going to be doing $50 billion ($21.25 billion in 2020) and by the fiscal year 2026. So that is an incredible thing.”
He also touched on why he believes Slack will make a good addition to Salesforce. He said,
“And this pending acquisition of Slack also. We’ve never been better positioned for the future. This is an all-digital, it’s an all work from anywhere world. It’s made our companies, Salesforce and Slack, more important to customers than ever. So bringing them together is so exciting. And once this merger is approved, we’re going to be able to build Slack and all of our products will all become Slack-first. It’s going to make our customers more productive.
We’re going to work with software companies on building incredible new capabilities like we’ve seen these amazing examples of what Slack can do. I’ll tell you we’re really excited about creating this number one enterprise applications company.”
Zoom Video Communications Inc (NASDAQ: ZM)
One of the biggest winners of the COVID-19 pandemic, Zoom continues to post excellent results.
It reported a 191% year-over-year increase in revenue to US$956.2 million in the quarter ended 30 April 2021. GAAP net income increased more than eight-fold to US$227.4 million and free cash flow increased by 80% to US$454.2 million. The free cash flow margin for the quarter was an industry-leading 48%.
On a sequential basis, Zoom’s revenue grew by 8.4%, allaying fears that customer-churn from the reopening of economies around the world would impact Zoom’s revenue growth.
Although Zoom’s growth is expected to slow from the incredible numbers seen in FY2021 (326% revenue growth), Zoom still expects total revenue in 2022 to be between US$3.975 billion and US$3.99 billion, compared to US$2.6 billion in FY2021. This translates to growth of 50% at the low end.
Zoom’s CEO, Eric Yuan, said in the company’s latest earnings call:
“In a recent survey we conducted, 80% of U.S. respondents agreed that all interactions will continue to have a virtual element post-pandemic, and that figure was even higher in many of the other markets we surveyed. The hybrid model is here to stay, and Zoom Events will be an excellent solution for our customers who are looking to create and host company events with a versatile and powerful solution.”
Yuan also highlighted some big customer wins during the quarter, which demonstrates Zoom’s strong value proposition in the midst of heavy competition from the other tech giants that are trying to shoulder their way into the videoconferencing space.
Summary
It has, without doubt, been a great start of the year for the SaaS companies in our portfolio.
Although the amazing growth in 2020 is not expected to repeat, the above-mentioned companies continue to see strong secular tailwinds and are executing well.
Sequential growth from the last quarter also shows that these companies are continuing to grow and are experiencing minimal customer-churn despite the reopening of the economy.
Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Ser Jing and I currently have a vested interest in the shares of Veeva, Zoom, Salesforce, MongoDB, Okta and Docusign. Holdings are subject to change at any time.