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Most companies would kill for similar value creation. Slack, however is in a tricky spot. After setting a $26 per-share reference price for its direct listing, and trading as high as $42, its stock has rapidly lost altitude. Indeed, Slack shares have fallen under the $25 per-share mark, reducing its worth to the previously mentioned $13 billion.

Slack, once a private market darling is now enduring a more difficult run as a public company. Its most call pushed its shares down by 15 percent before they recovered to a single-digit percentage loss. Later the firm’s equity depreciated anyway, falling from a pre-earnings $31 to this week’s sub-$25 range.

A good question is why; why is Slack’s stock falling? There appear to be a few possible reasons, including , a broader SaaS repricing, and the chance that Slack’s public market valuation simply got away from it. We’ll peek at each and relate the situation back to startups as we go.

Three Whys

To summarize our three thoughts, Slack’s public market declines could be built on the fear that Microsoft will blunt its growth profile with its competing Teams product, that software-as-a-service (SaaS) companies are seeing a broader repricing of their revenue (SaaS firms are valued at multiples of revenue instead of a multiplication of profit), or, that Slack was simply overvalued by public market investors when it first began to trade.

Microsoft

Redmond is not interested in allowing Slack to burrow its way into the productivity stack of the next corporate generation. We’ve covered Microsoft’s Teams push here at Crunchbase News for years, noting that the larger company was working hard to grow its internal communication tooling after in years past.

There’s no perfect way to gauge investor sentiment in relation to a single idea. But it is hard to see how public investors could be overly worried about Teams and Microsoft today, given recent Slack performance figures.

After reporting 58 percent revenue growth in its most recent quarter, Slack’s CFO reported the following concerning large accounts (the very market category we’d presume that Microsoft’s Teams product would do best amongst):

We remain focused on expansion within existing customers and growing our large enterprise customer base, and ended the quarter with 720 Paid Customers greater than $100,000 in annual recurring revenue, which is up 75% year-over-year.

That’s nice and healthy. Whatever impact Microsoft is having on Slack, and it must have at least some, regardless of what people keep telling me on Twitter, it doesn’t appear to be existential to growth in the short term.

For startups, the above indicates that even when an incumbent technology behemoth enters your market aggressively, there’s still space for you provided that your brand is strong. Slack is a verb; Teams is a competitor.

SaaS Repricing

Software-as-a-service companies have been repriced by the market in recent weeks, but not much. We’ve covered the slight decline in the value of SaaS revenue, noting that from a high of 11x enterprise value/revenue the market has .

But the multiple data from the cloud index just makes plain what we can see in the markets. The same index has been mostly flat over the past few quarters while the companies that make up the index have grown. That puts natural downward pressure on revenue multiples. But all the same, the slow change in the value of SaaS revenue is insufficient to explain Slack’s value changes.

For startups, the takeaway from the above is that public markets still value SaaS companies highly, at least when compared to historical norms. That’s welcome news for quickly-growing private companies that sell code instead of widgets.

Overpriced?

Let’s see if Slack is valued more richly now than before on a revenue basis, and how that may stack up to peers.

As we often do with SaaS companies we’ll use its quarterly revenue tally as the foundation of our ARR calculations. This blends some non-recurring revenue into the figure, but it’s the best that we can do in the case of Slack. What follows are the company’s revenue results for the past four quarters, and its implied ARR:

• Slack Q3 2018 revenue: $105.6 million ($422.4 million ARR)
• Slack Q4 2018 revenue: $122.0 million ($488 million ARR)
• Slack Q1 2019 revenue: $134.8 million ($539.2 million ARR)
• Slack Q2 2019 revenue: $145.0 million ($600 million ARR)

As we can see, Slack has rapidly grown its GAAP revenue, and its implied ARR.

Recall that Slack was worth about $7.1 billion in Q3 2018, and is worth about $13.2 billion today. Using the firm’s Q3 2018 and Q2 2019 ARR numbers, which valuation (loosely) provides the more attractive (lower) multiple?

• Slack Q3 2018 implied ARR multiple: 16.9x
• Slack Q2 2019 implied ARR multiple: 22x

As you can see, Slack’s ARR multiple today is higher than it was. And both its Q3 2018 and Q2 2019 ARR multiples are far above what the Bessemer index sports. (Note: we can’t directly compare the results as we are doing ARR calculations using market cap on one side, and enterprise value/revenue on the other. But the gap is large enough to show Slack as an outlier.)

Now recall that Slack was worth far more a few months ago. That means that its ARR multiple was evenÌýhigher before. Slack’s declines, therefore, feel much more like the firm inching closer to market norms than it being repudiated by public investors. You simply cannot say that Slack is being dissed by public investors when it is still richly valued compared to its comps.

The lessons for startups in the above is that top-tier SaaS companies can command strong revenue multiples, but that they are not unlimited. No matter who you are.

Wrapping Up

Yesterday, , a managing partner at shared a chart with Crunchbase News () that detailed the premium that faster-growing SaaS companies enjoy over their more slowly-growing peers. In this context, we can add a final wrinkle to Slack’s revenue multiple declines.

It’s perfectly reasonable to say that Slack’s falling net retention rate (from 138 percent in the quarter ending April 2019 to 136 percent in the quarter ending July 2019) implies a slower future growth rate. And that is causing investors to reprice Slack downward, akin to what Richards’ chart would lead us to understand.

But Slack is still a richly-valued SaaS company putting up quick growth from a position of wealth; the company has more cash than the ferrous financial institution. So while Slack’s falling share price makes for good headlines, upon closer look the situation appears to be more return-to-senses than dramatic diss.

Illustration: .

, a richly valued private company long-expected to go public, is seeing use of its platform rise by about a third year-over-year, recent reporting indicates. The unicorn also sports a strong balance sheet. In contrast to the recent and IPOs (more here), not to mention twisting S-1, Airbnb appears to stand on firm footing.

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The company’s gross bookings grew 31 percent year-over-year in the first quarter of this year to $9.4 billion (the dollar value of spend on its platform; the company collects a percentage of the total). That growth came after the Airbnb’s revenue, a different metric, grew by 40 percent in 2018, according to .

The publications also reported that Airbnb had $3.5 billion in cash (and equivalents, we presume) at the end of the first quarter, giving the firm the sort of war chest that 2019’s late-stage market can explain. (Slack’s piggy bank was similarly stuffed before its direct listing.)

And the company has managed to grow as large as it has while generating positive adjusted profit, :

Airbnb previously has said its finances were positive on the basis of earnings before interest, taxes, depreciation and amortization in both 2017 and 2018. This is a different metric than profitability.

It’s an impressive set of metrics. Of course, for a firm valued at around $30.5 billion (post-money following ), we expected something good.

But gross bookings expansion and adjusted profit are pretty far from GAAP fundamentals. What about, say, revenue?

The Take

If Airbnb saw $9.4 billion in gross bookings in Q1 2019, what percent of that did it take home as revenue? That’s a very good question, and it’s not simple to estimate.

Airbnb has a that it makes money, including charging hosts, charging folks renting space on its platform, and accruing fees related to its Experiences product (things to do, not just places to stay).

Even inside those groups there is variance. We can’t tell from where we sit what Airbnb’s average guest service fee is for example. (The firm notes that it is “typically under 13% of the booking subtotal.”) And we similarly cannot tell what the average host service fee is (the company states that it is “fee is 3% for most hosts,” but it may drift higher in some cases).

We also do not know what percent of Airbnb’s bookings, if any, operated under the company’s new host-only fee structure for hotel-like products (which Airbnb charges “from 14% to 20%” for, or more) in Q1 2019, the period for which we have the bookings figure. Airbnb also takes 20 percent from Experiences revenue.

How do you sum that up without an income statement? You can’t, but we can hazard a few guesses to get our hands around the company’s directional scale.

Let’s presume, in the first quarter, Airbnb only generated revenue from bookings that had split fees between hosts and renters. That’s likely the bulk of the firm’s revenue in the first quarter. Using just the three percent host fee rate, Airbnb’s revenue for the quarter came to $282 million. That’s a lot!

From here the situation gets harder to parse. For every one percent of gross bookings that you calculate the firm takes, its Q1 2019 revenue rises by $94 million. That’s insane. And it helps us understand why the firm is worth so much money. (Translation: scale.)

The only odd thing that I can summon out of the situation is that Airbnb is only profitable on anÌýadjusted basis. That’s nearly always the same thing as saying that on a GAAP basis, counting pesky costs like share-based compensation, it is not profitable. So what is the company spending all its nice money on? Surely its revenue sports pretty good gross margins, leaving it with plenty of gross profit to spend on its operating costs?

And that’s why I’m hesitant to estimate Airbnb’s revenue today, even using our new facts about its size. Looking at the plain-text of the company’s fee policy, Airbnb looks like a behemoth. But surely it can’t spend all that money and more (on a GAAP) basis just running itself, so I presume my internal revenue calculations for the firm are off, somewhere.

This is a company that can go public today. It would find welcome markets and open arms. So why wait? No one else seems to be.

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Today Uber reported its Q4 financial results this morning. TechCrunch Ìý(more from CNBC , FT , and WSJ ), so let’s take the figures and talk ourselves through them. Recall that when Uber reported its third-quarter financial results we cited slowing growth and persistently high losses as the takeaways.

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Uber’s fourth quarter was much the same. The company’s revenue grew a slim 2.3 percent from the third quarter of 2018 to the fourth, rising from $2.95 billion to $3.02 billion. From the second quarter of 2018 to the third, Uber managed a roughly 5 percent revenue gain quarter-over-quarter; the deceleration is real, it seems.

(Dear Uber: alex@crunchbase.com would be a great place to send your Q1 2019 results this April if you aren’t public by then!Ìý°Õ³ó²¹²Ô°ì²õ!)

Uber’s Q4 revenue result was up around 25 percent from its year-ago $2.4 billion figure. In Ìýthe ride-hailing giant’s revenue grew 12 percent from the sequentially-preceding quarter. A year later, Uber’s growth rate landed at around a sixth of that pace.

Alright, Uber is slowing down. Is it losing less money at the same time?

Slowing Growth, Stiff Losses

Not really.

While Uber’s growth is slowing, the company’s losses aren’t. Coverage of the company’s financial results out today detailÌýa host of profit metrics, but we’ll stick with net income-related results as they are a bit harder to mold.

Uber’s net loss also fell from $1.1 billion in the fourth quarter of 2017 to a far slimmer $865 million during 2018’s matching period. However, without a tax benefit, Uber’s net loss was a far steeper $1.2 billion in 2018’s Q4, up from the year-ago result.

That seems a bit yucky, so let’s talk about cash usage. Uber’s up-or-down net loss pace was coupled to an operating cash burn of nearly $650 million in the quarter. That feels high. Looking for the positive, Uber has plenty of cash, and it will likely raise more in its IPO. (.)

Let’s Go Public?

All this matters more than usual due to Uber’s impending IPO. The company’s race with rival ride-hailing service Lyft is spilling into public view as both companies pursue a public offering. There’s reason to believe that each wants to get out first. So what we are seeing from Uber today we’ll likely see again in an S-1.

That means that these results are likely relevant to Uber’s IPO hopes. The public offering will likely be the most watched debut since Facebook’s own.

You have to score Uber’s results yourself, but how the company will convince investors that it has strong growth ahead and a path to, at least, sub -$500 million quarterly EBITDA will be interesting.

Top Image Credit: .

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Last week reported its third-quarter financial results, including gross bookings of $12.7 billion (up 34 percent year-over-year), net revenue of $2.95 billion (38 percent greater than its year-ago result), and a GAAP net loss of $1.07 billion (down 27 percent from the year-ago quarter).

The figures look pretty good. Uber’s aggregate commercial platform spend is up more than a third, the company’s own revenue is up a similar amount, and losses are falling. However, things are a bit more complicated than it seems from the top line, year-over-year figures.

Uber grew quickly from its year-ago third quarter. But compared to the second quarter of this year, its most recent growth was a bit slack.

We can show that by comparing its third-quarter, sequential growth pace to its second quarter result. Here’s Ìýon the company’s recent figures: “Revenue for Q3 was up five percent quarter over quarter at $2.95 billion [while] gross bookings were up six percent quarter over quarter[.]” In contrast, Uber grew its revenue 8.2 percent in the second quarter from the first, and its gross bookings 6.2 percent.

So revenue growth fell from over 8 percent on a sequential-quarter basis to 5 percent in the third quarter. That’s steep. (Uber’s second quarter also featured higher year-over-year growth results, and even then deceleration was the story.)

And the company’s net loss appears small compared to its year-ago figure, falling 27 percent. However, the greater-than-one-billion-dollar deficit is larger than its Q2 2018 net loss by over $100 million and far greater than Uber’s first quarter results which touted divestment-juiced profit.

Uber has lost more money in prior quarters, but for a company to see its losses expand in a quarter in which its growth slows, while it is prepping for an IPO, is a bit much.

That’s the question I can’t get out of my head. If Uber is still investing in its business, letting its losses scale as it seeks to grow new revenue sources before it goes public, that’s fine. But to do that while hurtling towards an IPO feels odd.

And that’s why I think that Uber broke out Uber Eats’ revenue this quarter. The Uber effort is now about a sixth of its full gross spend. And it’s growing quickly. Over there, the company seems to be saying, isÌýgrowth.

If the revenue slice will be enough for investors to get past a company that is currently running a net margin of worse than negative one third isn’t clear.1

Uber is nearly 10Ìýand has . And it just posted a $1 billion loss in a quarter that saw, again, slowing year-over-year growth, replete with sequential-quarterly growth slowdowns. Yeesh.

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Just a few months ago, software-as-a-service (SaaS) companies and other public firms that provide cloud-based products were flying high. Their stocksÌýwere sharply higher than the popular American indices, and companies in those categories enjoyed high revenue multiples.

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Now, as the broader market hits turbulence into the Q3 earnings season, those same cloud companies are pulling back.

Here’s what the (now theÌýBVP Nasdaq Emerging Cloud Index), which tracks SaaS and cloud stocks’ performance over time, looked like in recent days:

Blue: Cloud Index. Red: Nasdaq Index. Green: S&P. Purple: DJIA. The chart begins in August 2013.

That’s a pretty severe drop! And, the recent downturn seems to be the largest in raw percentage terms of any we’ve seen since the 2016-era SaaS crash (that’s the point where the Cloud Index falls under the other lines about mid-way through the chart).

But while I would love to call for panic, I think what we’re seeing instead is some froth blow off the top of the SaaS market. Of course, if the broader market corrects further, we could see the SaaS market dip even more.

But certainly, everyone knew that this was going to happen at some point. If historical SaaS multiples were considered fair when they were in the low single-digits, revenue multiples as high as 10x weren’t going to last.

SaaS and cloud revenue multiples could fall by half and still be fairly valued by some historical models. Perhaps drops in individual stocks wouldn’t be that extreme, as the companies in question would grow during their declines, adding to their revenue base and thus blunting their value drop. Some.

The stock market can correct faster than any one company can grow, however.

We don’t call tops here at Crunchbase News, but we’re seeing some signs that the Never Ending Bull Market might be losing steam. For startups that depend on public-market comps to help value themselves, this is big news (more on that here).

Happy Wednesday!

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