Cloud News & Opportunities
Free edition - Brain-Pong, Prosus, Google vs Oracle, Pexip Q1-21, the richest billionaire in each US state
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Elon Musk’s Neuralink is developing a fully-implanted, wireless brain-machine interface with the goal of enabling people to use their mind to operate computers and mobile devices. The company now posted a video showing a monkey playing a computer ping-pong game entirely with its mind via the Link hardware and embedded neural threads.
Amazon defeated the warehouse union push at its Bessemer, Alabama warehouse as more than half of the 3,215 ballots cast voted against joining the Retail, Wholesale and Department Store Union. More here.
Prosus, which is one of the largest technology investors in the world and Tencent’s biggest shareholder, has sold a 2% stake in the company for $14.7 billion. After the transaction, which is the world's largest block trade on record, Prosus still owns a 29% of the Chinese tech giant. More here.
Box will receive a $500 million financing from private equity firm KKR in the most important strategic move the company has made since IPO. Box will most likely use the investment to buy back shares from activist investor Starboard Value, who might otherwise claim a majority of board seats and force a sale of the business. After the investment, Aaron Levie will remain CEO of Box, but the company will add Bethany Mayer as independent member and chair of the board as well as another board member from KKR. More here.
After the announcement, the Box’s share price dropped 10%. With 10% NTM expected revenue growth, the company is currently trading at a TEV / NTM revenue multiple of 4.2x. While that is a bargain price, there are good reasons for it including limited growth prospects, commoditization of technology and governance risk. The company needs to pivot and we will see if KKR can help it do so.
Snapchat has acquired an app called Screenshop to provide a new feature that will recommend clothes users can buy based on photos they upload to the messaging app. Screenshop was first released in late 2017 with the promotional assistance of Kardashian West, who supported the company as an adviser. Snap plans to announce the e-commerce push at its annual developer conference in late May. The transaction shows how Snap has made commerce a bigger priority since the start of the pandemic. More here.
Twitter held talks with Clubhouse around a potential acquisition of the live drop-in audio networking platform, in a deal that would value the company somewhere around $4 billion. While the strategic discussions were going for over several months, they have now been discontinued, though the reason they ended isn’t known publicly. Interestingly, Twitter has its own product very similar to Clubhouse, called Spaces — a drop-in audio chatroom feature that it has been rolling out gradually to its user base over the past few months. More here.
Google vs Oracle. In the huge copyright battle between Google and Oracle, the US Supreme Court now ruled in favour of Google, which would otherwise have had to pay Oracle $8 billion for incorporating pieces of Oracle’s Java software language into the Android mobile operating system. More here.
Facebook’s data breach from 2019 involved personal data including phone numbers, Facebook IDs, full names, locations, birthdates, bios and some email addresses of over 500 million accounts as a report showed last week. More here.
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Bright Health Group, the US based digital health company, is planning for an IPO that could raise $1 billion and value the company at more than $10 billion. According to Crunchbase, the company has raised $1.6 billion to date from investors, including Bessemer Venture Partners and NEA. More here.
Flipkart, the Indian e-commerce giant controlled by Walmart, is aiming for an IPO in Q4-20. The company could be valued at as much as $35 billion as it goes public. More here.
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Active
Docebo (DCBO) - Target price: $70 (+63% to current PPS)
Wix.com (WIX) - Target price: $350 (+19% to current PPS)
Pexip (PEXIP) - Target price: $20 (+93% to current PPS)
The company released a trading update this week, with a few interesting highlights:
ARR increased to $87.2 million in Q1-21, growing 54% YoY
Of that 54% YoY growth, 50 percentage points are from new customers and 4 come from existing customers
After annual churn of 9%, the company showed a net revenue retention rate of 104% with existing customers over the last twelve months
Net new ARR in Q1-21 was $5.4 million vs $9.5 million in Q1-20
ARR Growth
There has been a significant decrease in ARR growth from 73% in Q4-20 to 54% in Q1-21. This is partially explained by Q1-21 being the first quarter in which YoY growth includes the Covid-19 related spike in ARR in Q1-20. Lets take a closer look at the net new ARR (NNARR) development over time. Shown below, we can observe that in Q1-20, NNARR spiked from $4.3 million in the previous quarter to $9.5 million, the highest in the company’s history. Over the course of Q2 and Q3, NNARR decreased incrementally to $7 million before it jumped back to $9.1 million in Q4. One could reasonably argue that the fluctuation to some degree mirrors global lock-down situations. On the other hand, Q4 tends to be a strong quarter in the year. Nevertheless, the drop of NNARR to $5.3 million in Q1-21 is notable and Q2-21 will provide valuable insights into how much of the new demand for video conferencing solutions will remain as lock-downs are increasingly lifted.
Source: Author
Product & Partnerships
In December 2020, the company launched its Private Cloud offering, which is tailored to address the specific needs of large public sector and enterprise customers. Private Cloud is a new deployment option for Pexip’s video conferencing platform to allow customer to maintain full control over their data while being scalable within large environments and (almost) hardware agnostic across conference rooms.
Additionally, Pexip Health was launched in February, specifically designed for healthcare practitioners who want to provide video visit solutions to their patients.
Pexip also announced the launch of a native integration with Epic, the world’s largest electronic health record system which is currently used by more than 250 million patients worldwide. From this partnership, the company already saw several new contract wins.
Key new contracts wins in Q1-21 include
A $0.8m ARR contract with New South Wales Health in Australia
A $0.3m ARR contract with the UK Foreign, Commonwealth & Development Office; another example of a contract win through Pexip’s interoperability solution with MS Teams
Honeywell, USA, also including a MS Teams interoperability solution
Public trading
Since its high around $13.8 in late February, the company’s PPS declined by 17% until the middle of this week before the trading update. The drop was in line with the broader cloud software market, but in the two days after the announcement, the PPS fell another 11% closing the week at $10.3. Due to its fantastic January and (most of) February, Pexip still outperformed the Cloud Software Index (WCLD) by 39% since the beginning of the year. After the drop at the end of this week, Pexip is trading at an attractive multiple of 9.4x NTM revenues, assuming a conservative 40% NTM revenue growth rate.
Source: Author
Interoperability
One of Pexip’s USPs is interoperability. As of March 2021, Pexip is still one out of only four certified vendors to offer an interoperability solution with Microsoft Teams and the only vendor to offer a Google Meet interoperability solution, making Pexip’s solution especially attractive for customers with a large number of conference rooms equipped with hardware solutions from different vendors; which is most large enterprises.
Takeaways
Pexip focuses on government and large enterprise customers, which typically have longer sales cycles. This means we should expect see a prolonged period of high growth from new customer throughout 2021 as large organizations switch to video conferencing solutions with a strong security and interoperability offering.
As shown in the company’s very directional product innovation and partnership building, Pexip is strengthening its competitive advantage in a niche part of the market. Given that video conferencing is already being commoditized, this is the smart thing to do in order to create differentiation and defensibility.
The decrease in net new business generated in Q1-21 is concerning but not alarming. Nevertheless, low net new ARR this quarter cautions to set a more conservative growth outlook for the company. For that reason I decrease my price target to $20. For Q2-21, increased churn with smaller customers is likely. Gross new ARR with enterprise customers will be the most important metric to watch.
NEWS | IPO & SPAC | OPPORTUNITIES | READING
💎 The richest billionaire in each US state.
🏠 The Godfather’s Hearst Estate is on the market for just $105 million.
📈 Around 40% of the US equity market is held by households.
💬 Zoom’s CRO Ryan Azus on “Building and leading an early-stage sales team”.
💰 Breakdown of Biden’s $2.3 trillion infrastructure plan.
🎵 70% of U.S. teens own AirPods.
🤖 CB Insight’s AI 100: The Artificial Intelligence Startups Redefining Industries.
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Disclosure: I am long DCBO, PEXIP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from paid subscribers of my newsletter. I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: I am not a registered investment, legal or tax advisor or a broker / dealer. All investment / financial opinions expressed by me are from personal research and experience and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.