This morning we’re back to annual recurring revenue (ARR), a metric that modern software companies love to report. It’s a forward result, a calculation of the amount of subscription revenue a startup can expect on an annualized basis. If your company did $5 million in monthly subscription revenue in July, you have $60 million of annual recurring revenue.

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The prominence of ARR makes it a critical concept to understand if you track quickly-growing private companies, and doubly so if you care about tech startups. They’re mad for the stuff. In that vein, I asked startups — tongue in cheek, mostly — to send in their ARR growth from the first half of 2019 (H1 2019) compared to the same period of 2018.

A few people did, which is fun. We’ll share those results first, and then put them into context using some public earnings results from yesterday.

Startup Results

You can still send in your H1 2019 ARR growth, as I’m accepting emails all weekend on the matter. So feel free to mail in your brag or confession to alex@crunchbase.com. We appreciate the clarity real numbers bring. Candor is good!

In that vein, here’s what was sent in:

• wrote that its “growth rate in ARR from H1 2018 to H1 2019 was 691 [percent],” which is quite good. We can presume that Uselytics didn’t have the World’s Largest revenue base at the start of 2018, but putting up nearly 700 percent growth is impressive. That’s a high watermark, frankly.
• wrote in, saying that it had “50 [percent] YOY growth rate which we just released today,” including a link to . Given that we specifically requested H1 2019 ARR growth over an H1 2018 result, we’re presuming that this metric fits the ask. Signal Vine has according to Crunchbase and is based in Virginia.

A 50 percent growth result, mind, isn’t slow. From a reasonable revenue base, that can be an impressive result. (Hold onto that number until we get to Okta’s details.)

I’d like to see more companies share more metrics, as it would help demystify the startup world some and reduce the stress that top-decile numbers can bring. Everyone in the startup world hears about the companies that are growing like hell, but fewer folks hear about startups that are merely doing well.

Now, let’s put our two startup numbers (more here, mind) into context.

Earnings Reports

Yesterday brought a raft of SaaS earnings to the public, with and and reporting, among others. Results among the ARR-creating firms were a bit mixed. Let’s get an overview of each result set, quickly.

I spoke with Okta’s co-founder and COO after the company reported its results, but before its earnings call. The company revenue growth of about 50 percent, rising sales and marketing spend, as well as minor increases to its net and operating losses.

Kerrest described the results as in-keeping with the firm’s vision for its future that it set a few years back. Okta has plenty of cash and generated around $20 million in operating cash flow in the first half of calendar 2019. And, the COO told Crunchbase News that the size of its largest 25 contracts in the second quarter of 2019 was twice as large as the same result from a year ago.

Shares of Okta are off about 6 percent this morning. Why, is the question. I’d reckon that Okta’s somewhat modest projection for sequential-quarter revenue growth is the issue.

Box, in contrast, is up a point this morning after far more modest revenue growth. But in contrast to Okta, which has seen its share price appreciate in recent quarters, Box is trading at its lowest levels since late 2016. So there’s some mismatch in context for the two companies’ earnings results.

Note, however, that the faster-growing company has had better recent public market results. ARR growth is still investor catnip, even this far into the bull cycle.

The growth point was welcome to Zuora investors this quarter, with the SaaS firm’s SaaS-focused product better than expected forward revenue guidance. That boosted growth expectation sent, and recent results, sent Zuora’s equity up over 6 percent this morning.

Summing quickly since this post has gone on longer than I meant it to, startup ARR growth rates are generally faster than those of their public counterparts. But the same mechanics and tension between growth, profit, and valuation work on both sides of the public-private divide.

Perhaps each earnings season we can get a few startups to disclose some of their performance to go along with our regular, summary glance at public company results.

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Pretend you are a SaaS company. And you have a pretty ok valuation. Nothing crazy, mind, you aren’t going to be worth as much dollar-for-dollar of revenue as say, or even will be once it debuts. But you’re a healthy SaaS company with a brand and a publicly traded stock.

Good job, it’s hard to reach this point. Most SaaS companies fail far before, so you’re a survivor. And you are worth a few billion dollars. That makes you a success as well. There have been articles written about you. Maybe your CEO has written a book. Or been on a hundred stages.

But then something bad happens. In one day, one moment, the stock market cuts your valuation by double-digit percentage points. It’s brutal, harsh, and a surprise. Things had been going so well!

Putting our little game aside, this has actually happened three times this week. Let’s explore why. The lessons here are warning signs for startups. This is what you don’t want to do once you go public.

Box, Zuora, And Pivotal

You’ve heard of the three companies: , , and .

, Box’s CEO, is a famously active executive which helped make his company far better known than it otherwise might have been. And that’s not a diss, nearly no one can make enterprise productivity and file storage hot. Levie actually pulled that off during the later-quarters of his company’s pre-public life.

Zuora is a stranger cookie. The firm is a SaaS company that powers SaaS companies. And that’s jolly good, really. The firm is a veteran of its space, and while it might not be as well known outside of tech as Box and Levie, it’s a name inside of the industry.

And Pivotal is a company that helps other companies use and manage clouds. As fewer companies want to build out their own server footprint, companies like Pivotal help firms use the cloud more intelligently. At least, that’s the idea.

So, what happened to each of our companies? Here’s the scorecard of their respective share prices after their results came out:

• Zuora: -29.7 percent on May 31 2019
• Box: -14 percent on June 4, 2019 (before recovering in later trading)
• Pivotal Software: -41 percent on June 5, 2019

We’re keeping Box as an example even though it recovered somewhat quickly as the initial market response to its earnings report meets our criteria. Here’s what each company did to garner the shocks, according to contemporaneous coverage:

:

The San Mateo company’s stock dropped [to] $14.72 after it said it expects revenue for 2020 to be between $268 million and $278 million — short of the $292 million expected by Wall Street analysts.

:

Box lowered its outlook for the year, leading to a sharp drop in the stock price. Box said it expects revenue for full year fiscal 2020 of between $688 million and $692 million, well short of the average analyst estimate of $702 million, according to Refinitiv.

:

Pivotal […] lowered its full-year revenue guidance and now expects sales of $756 million to $767 million, well below the Refinitiv consensus estimate of $803 million.

The theme is pretty simple. If you are a SaaS company that has long been valued on a hybrid of revenue quality (high-margin, recurring revenue) and growth, losing one of your two arguments in favor of your valuation is painful. To see three of these in such quick succession underscores the situation; this can happen to anyone, regardless of where they operate in the SaaS universe.

Illustration: .

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Yesterday was a pretty big day in the earnings cycle. Each quarter, public companies disclose their recent financial performance. It’s a key moment for every concern, showing off recent performance to investors, and usually making projections for the future.

Three tech companies that we care about reported their own results yesterday: , which we care about as it’s a high-profile decacorn built with an ocean of private capital (our coverage). , because it’s a recently-public SaaS company growing quickly, making it a measuring stick for how public investors are valuing unprofitable growth (our coverage). And, , as a SaaS company selling SaaS-tooling, is a firm that is an obvious temperature-check for SaaS itself (our coverage).

Let’s quickly examine these, digging up in each case the lesson for private companies.

Uber

Yesterday Uber reported its as a public company. After releasing its results, shares in the company rose and fell before settling up about 2 percent.

What did the firm do to earn the bump? Here are the vital statistics, making comparisons to the year-ago quarter:

• Gross Bookings: $14.6 billion (+34 percent)
• GAAP Revenue: $3.1 billion (+20 percent)
• Adjusted Net Revenue: $2.8 billion (+14 percent)
• Operating Loss: $1.0 billion (-116 percent)
• Adjusted EBITDA: -$869 million (-210 percent)
• Net Cash Used In Operating Activities: $722 million (-143 percent)
• Contribution from Core Platform: -$117 million (year-ago result positive)
• Contribution from Other Bets: -$71 million (-255 percent)

That’s a lot of numbers, I admit. Let me walk you through them. First, spend on Uber’s platform is rising faster than both revenue, and Uber’s adjusted revenue metric. That means that Uber is building gross spend over time that it takes less of a cut from, meaning that its newly acquired gross bookings are less efficient for its business. Uber Eats did over $3 billion in gross booking during the period but generated revenue of just 17.4 percent of that total. In the same quarter Uber’s ride-hailing business brought in 20.7 percent of its own gross bookings total.

Moving on, Uber’s operating loss shot higher, as did its adjusted EBITDA. Its net loss also worsened, but I didn’t share it above as the year-ago result was impacted by a divestment. Finally, Uber’s two businesses both had negative contribution. That means after they paid for themselves, they contributed negative profit to the company.

But as Uber had signaled that all this was coming, its shares rose. The lesson here is that normal rules don’t appear to apply to Uber. The firm just posted slim year-over-year growth for a growth-oriented company while losing a pile of money and watching its core business fail to contribute to the rest of the company’s costs.

If you can figure out why Uber’s stock picked up a few points after all that, email me.

Okta

Since its IPO, Okta has been busy growing somewhat outside the media spotlight. Worth a little over $12 billion, the firm doesn’t have the same profile as, say, which is worth just a smidge more, but that doesn’t mean it’s not an interesting shop.

Following a revenue beat and a promised uptick in spend, shares of Okta rose 6 percent in after-hours trading.

I caught up with its COO, , after its . The firm is in Asia-Pacific to serve that customer base (replete with the ability to constrain customer data to those servers so that their information doesn’t touch the United States for obvious reasons), and announced a few new high-profile clients including the newly-famous .

But all that is company-specific. What can we take away for private companies? That revenue growth is still well-liked by public market investors. Okta grew by 50 percent year-over-year, its subscription revenue grew 52 percent year-over-year, and customers that pay the firm $100,000 or more each year grew 53 percent.

And while Okta’s GAAP net loss sharply grew 41.4 percent to $51.8 million in the quarter, it generated $21.3 million in cash from operations. There’s more information in those figures. Notably that you can spike your all-in losses provided that at-scale growth is hot. And, I’d argue, that you are still a firm with a clear path to profitability. Strong operating cash flow means that Okta can reign in its GAAP results in reasonable time.

So startups, if you want to start the year just over $60 per share and break $110 by the end of May, follow Okta’s performance.

Zuora

If Okta is a bull case-study, Zuora is a bear warning. Shares of Zuora fell by just over a third after-hours, following its .

Zuora, a company that provides billing tooling to subscription companies, beat expectations regarding its quarterly loss while essentially meeting revenue forecasts. But the future is what tripped the company up. :

[T]he company said revenue for the full fiscal year will come in at between $268 million and $278 million, well below the $291.1 million average analyst estimate, according to Refinitiv.

Splat. If the top-end of your revenue guidance is under the consensus mark, that’s bad.

The lesson for private companies in this is that if you are going to continue to lose money as a public company, you still must have the growth to back it up. The market had one set of expectations for Zuora, and Zuora had a very different set of projections. And the market repriced Zuora from the former to the latter after it found out.

I am not sure if we should view weakness in Zuora’s results as indicative of weakness in SaaS. But certainly the company’s struggles can’t be viewed as overly rosy for the sector, Okta aside.

And now, back to our regularly-scheduled private market coverage!

Illustration: .

Zuora’s was a fun affair. We covered it somewhat extensively, digging into its IPO filings, its pricing dance, and its first-day performance. Hell, we even wrote about its CEO’s book that came out this year.

But that’s all past now. Zuora reported its third set of earnings as a public company last week, putting them far outside our usual remit of private companies hoping to get to an IPO. But Zuora’s core business—powering subscription businesses—gives it unusual perspective into the companies that do constitute our normal fare.

To get that perspective on the record, I hopped on the phone with Zuora’s CEO () and its CFO ().

The State Of Subscriptions

Zuora’s brass is bullish on a few things.

It believes subscriptions are coming to new areas of the economy where they haven’t become the norm. The company is willing to bet ahead of the curve on industries making the jump to recurring incomes (away from discrete sales), citing media as one area it got to early. And Zuora believes that smaller publishers alongside juggernauts like the New York Times will continue to benefit from a subscription model.

According to Zuora, publishers have to have a “swing factor” in its view of “unique content.” If you do, readers should sign up and help publications avoid an “advertising death spiral.” The media portion of Zuora’s business has grown 35 percent year-over-year for years, according to management

Second, Zuora doesn’t believe consumers are burned out on subscriptions. The company’s key wager (that most things are moving to a recurring model) depends on individuals being willing to take on more subs per-person. I wonder if I have too many, but Zuora isn’t sweating it.

“On a macro level, everything in the future is going to subscriptions,” the company said.

I was also curious if we’ve reached and passed the peak of the SaaS wave. Tzuo and Sloat don’t think so. In their view, tech is going to keep grinding towards recurring payments until the industry looks quite a lot different than it does now, even this far into the SaaS era.

It’s hard to argue with the company on the point, as it was early to recurring software payments. So far its perspective has paid off.

2018 is hot for IPOs, doubly so in contrast to the last few lackluster years. Yes, , and , and 2017 were disappointments of varying degree for venture capitalists and employees alike who were hoping that long-held shares might shake loose from the private market.

But the fourth time’s the charm, I suppose and 2018 may make up for some lost time. To that point, a few companies have managed to go public this year that stood out from the normal springtime enterprise IPO cycle.

Indeed, we’ve seen some famous unicorns finally go public in 2018, and it’s been annoyingly satisfying to write some conclusory notes concerning companies that spent more time in the shadows than perhaps anyone might have anticipated.

But how are they doing now, with a little bit of time on public markets? Let’s quickly take a peek at a few unicorn IPOs that we have seen this year and how they are holding up:

• Dropbox
  • IPO price: $21
  • Price today: $30.10
  • Percent change: +43.33 percent
• Spotify
  • IPO price: N/A; reference price set at $132.
  • Price today: $161.03
  • Percent change: +21.99 percent
• Zuora
  • IPO price: $14
  • Price today: $19.62
  • Percent change: +40.14 percent
• DocuSign
  • IPO price: $29
  • Price today: $38.69
  • Percent change: +33.41 percent
• Pivotal Software
  • IPO price: $15
  • Price today: $18.42
  • Percent change: +22.8 percent
• iQiyi
  • IPO price: $18
  • Price today: $18.35
  • Percent change: +1.94 percent
• Bilibili
  • IPO price:
  • Price today: $10.40
  • Percent change: -9.6 percent

All but one of the companies I felt were big enough to warrant mention today are up. Not bad.

Some of the above names are less well-known, I admit. But it is critical for us at Crunchbase News, and everyone, really, to keep eyes on China’s startup market. There is so much money flowing through the world of Chinese venture that it’s nigh-staggering.

The scale of that cash and the value creation it implies (through spiraling valuations, and so forth) is a global story. And, therefore, so too are the exits of those same companies, especially when they list abroad.

Moving past China, what we can see in the list is a very warm welcome from the markets to recent, large tech IPOs. And all those companies went out before the markets fall apart! That makes the permabear that sleeps on top of my heart happy.

More when the next set of IPOs list. (Just for fun, .)

From The :

U.S. wireless carriers Sprint and T-Mobile announced plans to merge in a stock transaction that values the combined company at around $146 billion. The combined company, which will go by the name T-Mobile, also plans to build a nationwide 5G network.

, a provider of logistics software and services for freight shippers, announced that it has raised $100 million in fresh funding from Chinese courier firm SF Express. The new round brings total funding for the five-year-old, San Francisco-based company to more than $300 million.

The Hive raises new fund for AI

, a Silicon Valley venture investor and startup creator, has raised $26.5 million for a new fund that will focus on artificial intelligence-powered applications for the enterprise.

Latina founders challenging the diversity stats

Crunchbase News profiles three Latina founders who are scaling up startups in areas ranging from smart mattress covers to legal tech to mobile networking.

The Zuora IPO inched closer to live this morning, as the company set terms for its debut with a proposed price range of $9 to $11 per share, per its . At the upper end of its range, Zuora could raise as much as $126.5 million in its IPO, at currently-denoted terms.

At midpoint, using Zuora’s greenshoe-filled post-IPO share count, Zuora would be worth $1.04 billion, give or take. Taking into account options, RSUs, and the like, that figure rises to just about $1.3 billion.

The firm’s last, known post-money valuation was around $1.1 billon (give or take), according to Crunchbase. So, the firm is looking at a slightly down IPO value on a non-diluted basis, presuming mid-point pricing. However, recent IPO Dropbox managed to raise its range, and then price above that heightened band. So, perhaps Zuora has more space to run.

We’ve already covered the company’s financials here, but let’s remind ourselves of what the company has in store as we head into its pricing cycle:

• Revenue growth of 48.6 percent from $113.0 million to $167.9 million (YoY, last two fiscal years).
• Net losses of $47.2 million, up from $38.8 million the fiscal year prior.
• Around $25 million in operating cash burn in its last fiscal year, along with about $16 million in investing cash burn during the same period.
• About $48 million in on-hand cash.

So, Zuora needs to raise capital to fund its GAAP and non-GAAP unprofitable business, thus making its IPO pricing a bit more material than it was for Dropbox say, or for Spotify’s impending direct listing.

What we care about is how the public markets value a company as unprofitable as Zuora is today that is also growing north of 50 percent. Zuora thinks that about a 6x trailing revenue multiple is right. We’ll see.

From The :

• Another hotly anticipated IPO is in the wings. Shares of  are slated to begin trading Tuesday on the New York Stock Exchange. The offering will be watched closely for its size and well-known brand, and also because the music streaming company is using an unusual IPO method called a direct listing.

IPO warming could thaw unicorn offerings

• It’s also worth noting who hasn’t filed to go public. A number of high-profile unicorns that were expected to launch IPOs years ago have instead remained private. Industry insiders believe robust public markets, coupled with Dropbox’s strong debut, could usher in more big-name offerings.

Midsized VCs squeezed as supergiant funds rise

• Supergiant venture funds of $1 billion or more are accounting for an ever-larger chunk of capital raised for the asset class. That’s contributing to a decline in the market share of mid-sized funds of between $100 million and $500 million, a Crunchbase News analysis finds.

• , a startup providing custom chip designs, raised $50.6 million in a round led by Sutter Hill Ventures, Spark Capital, and Osage University Partners.

Illustration Credit:

Last Friday, filed to go public, sending financial reporters scrambling as their week was supposed to close. Given that you have a life and therefore likely missed this S-1, let’s explore the company’s IPO document. To get an accurate picture, let’s first take a look at how Zuora got this far.

The Past

Zuora was early to the SaaS game (indeed, if I recall correctly, I first saw Zuora mentioned in regards to subscription billing in a print magazine). How early is somewhat notable.

Founded in 2007, here are two Zuora press release headlines that I dug up for context

• ““
• ““

Those dates put Zuora early on the software-as-a-service train. Not first, mind, but early enough to make Zuora one of the more venerable companies in the subscription space.

Indeed, if you look at the United States’ , queries for “SaaS” started to pick up in middle-late 2006. Zuora the caught the wave and a bundle of cash at the same time. According , Zuora has raised $242.5 million.

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The company’s last known round, at $115 million, saw participation from a  of investors including Shasta, Greylock, Index, Benchmark, BlackRock, and Marc Benioff. And that money was put to work.

Expensive Growth, And Other Potential Sins

Zuora’s S-1 indicates a $100 million offering. That figure is a placeholder that will be replaced later when the company files an update to its S-1 with pricing information. For now, we’re in the dark.

As a reference point, Zuora’s last round (that $115 million investment) valued the firm at around $1.1 billion post-money,  making it a unicorn.

Before we can look at the hard numbers, let’s talk calendars. Like many SaaS companies, Zuora operates on a slightly amended fiscal calendar. Its fiscal years close on January 31 of the next calendar year. So Zuora wrapped its fiscal 2018 as January 2018 ended.

Here are the key details performance details from its last three full fiscal calendars:

Instead of reciting that to you, you can see the raw figures yourself. But let’s talk about them together.

First, Zuora’s fiscal 2017 saw a decline in the firm’s net loss and an increase in its top line. That’s a great bump in operating margin for a company looking to go public. But the trend slowed in Zuora’s fiscal 2018 as the company’s net loss grew to $47.2 million from $39.2 million.

The firm’s 48.6 percent growth from its fiscal 2017 to its fiscal 2018 could be the ticket for Zuora to get itself public. But there is something inside of Zuora’s revenue mix that is notable: it’s professional services make up more than a fourth of its revenue and lose money.

So when we consider Zuora’s revenue, we know that only 72 percent is recurring. (That’s low for a SaaS company.) That revenue mix means that 44 percent of Zuora’s new revenue in its fiscal 2018 came from services, a portion of its top line that was gross margin negative in the year.

That fact, incidentally, helps explain why Zuora’s revenue rose nearly 50 percent in the year but its gross profit only grew around 36 percent. What that means is the firm had less margin to use to fund operations than its revenue growth might imply at first look.

And it wasn’t enough to cover Zuora’s growing operating costs, so the firm lost more money in fiscal 2018 than in its fiscal 2017.

Finally, why is Zuora going public? The firm has $48.2 million in cash on hand; however, it consumed around $24.4 million in cash during its fiscal 2018. That was offset by $15 million in cash provided from “financing activities.” In short, Zuora needs cash to keep growing and operating.

More when it prices.

From The :

• Facebook shares slumped in early trading following allegations that Republican-linked voter profiling company  harvested personal information from 50 million user profiles. Facebook has suspended the firm’s account.

Zscaler soars 106% in Nasdaq Debut

• Shares of cybersecurity provider  more than doubled in first-day trading Friday, after the company priced the offering above the projected range. The San Jose, Calif.-based company ended the day with a valuation of nearly $4 billion.

• And the IPO news for companies with ‘Z’ names continues. , a provider of enterprise subscription billing and management software, has filed to go public in an offering that would raise up to $100 million. The Silicon Valley company previously raised over $240 million in venture and growth funding. Meanwhile, in other IPO news, , the Netflix of China, is seeking to raise up to $2.4 billion in an offering on Nasdaq.

Fintech funding looks robust

• Since last year, venture investors have put about $7 billion into U.S. fintech startups. Crunchbase News takes a look at where the money is going, with a focus on rising early stage stars.