The real reason UBER and LYFT tanked...

[RuleNumberOne]

They did not pay their drivers in stock and report non-GAAP EPS. UBER could have sold itself as a trillion-dollar market-cap company chasing a multi-trillion opportunity with network effects. A million dollars apiece for a billion drivers.

 

It could have shown great growth and non-GAAP profitability by collecting cash from riders and paying drivers in stock. The drivers would have paid their rent/mortgage by selling the stock to investors.

 

This idea has worked for the "cloud" "SaaS" companies:

- Collect cash from customers, offer services at a low price.

- Pay employees in stock who then sell it in the stock market.

- Report non-GAAP EPS.

[BG2008]

They did not pay their drivers in stock and report non-GAAP EPS. UBER could have sold itself as a trillion-dollar market-cap company chasing a multi-trillion opportunity with network effects. A million dollars apiece for a billion drivers.

 

It could have shown great growth and non-GAAP profitability by collecting cash from riders and paying drivers in stock. The drivers would have paid their rent/mortgage by selling the stock to investors.

 

This idea has worked for the "cloud" "SaaS" companies:

- Collect cash from customers, offer services at a low price.

- Pay employees in stock who then sell it in the stock market.

- Report non-GAAP EPS.

 

They should have paid the drivers in Uber-Crypto Medallions

[RuleNumberOne]

WDAY + NOW have 18650 employees from the latest 10-k, with around $4 billion of gross profit.

 

That is just $214 K per employee for salaries, rent, health insurance etc. This is why they have been public for 8 years and are not profitable. That is simply not enough to pay Silicon Valley employees. According to ValueLine, these two companies have added the following share counts between the end of 2012 and 2018:

 

NOW - 54 million new shares

WDAY - 66 million new shares

 

These two have a combined market cap of $90 billion. This process works very well:

Offer services to customers at a low price.

Pay employees in stock who then sell it in the stock market.

Claim non-GAAP EPS.

 

 

 

 

[RuleNumberOne]

Contrast this which CSCO which pays out a shareholder dividend per year of $90k per employee.

 

Mr. Market has rewarded NOW + WDAY with a P/S of 15.

 

At the end, shareholders will blame everyone else but themselves. They will blame the SEC, analysts, CEOs, Wall Street. They ignored GAAP and embraced "non-GAAP", but they won't blame themselves. Bernie will show up and rail about Wall Street versus Main Street.

[Spekulatius]

Just out of curiously , since you apparently work in IT, which SAAS companies do you think have a moaty product offerings? I thought this applies to NOW and WDAY, since they are somewhat integrated in ERP system and those thing are harder to detangle, once they are used for business processes.

[RichardGibbons]

I would think Coupa Software (tangled up in business processes) and Mongo DB (their Atlas offering--unlikely to be worthwhile changing your database provider?)

 

[gjangal]

WDAY + NOW have 18650 employees from the latest 10-k, with around $4 billion of gross profit.

 

That is just $214 K per employee for salaries, rent, health insurance etc. This is why they have been public for 8 years and are not profitable. That is simply not enough to pay Silicon Valley employees. According to ValueLine, these two companies have added the following share counts between the end of 2012 and 2018:

 

NOW - 54 million new shares

WDAY - 66 million new shares

 

These two have a combined market cap of $90 billion. This process works very well:

Offer services to customers at a low price.

Pay employees in stock who then sell it in the stock market.

Claim non-GAAP EPS.

 

I'll take the other side of the argument for NOW and WDAY. These are growing companies with low to no marginal cost for maintaining the next set of customers. Agreed that gross profit of 215k is less, but it is growing at 25% and its highly integrated into the company's day to day operations. Over time gross profit should grow faster than expenses and operating leverage should kick in

 

WDAY - Maintains benefits, payroll, tax , org data , onboarding, recruiting functions ( this part is not that great) . It also has integrations into the ledger, cost center data etc. Once you install this product it is very difficult to uproot without significant cost. Even if you do, you end up arriving at the same place. I doubt there would be any big cost savings. It makes sense to acquire customers while they can. ARR of 1m or so for such a product is not a lot for medium to big companies. I would posit that there is some pricing power also left. They are also going after the financial management and planning market which is adjacent to where they sit in the HCM space. They are competing with Oracle , its a newer code base. They have tie ups with Deloitte,/consulting firms which have a Workday practice for implementations (HCM and financials) . This lowers risk of implementations for firms adopting these SAAS solutions. The drawback i would say is as they go lower down the enterprise ladder, the more price sensitive it becomes and they have to get their pricing right

 

NOW - Maintains incident workflow, change management,  tech services work flow, project costing and planning, allocation of resources, time management. maintains inventory of assets, integration into ledger and reporting to senior management. Again i would say that they have some amount of pricing power left.

 

Very sticky, only chance of doing away with these solutions is if the company implementing these solutions is going through a tough time. I think the NOW is more richly priced than WDAY

[RuleNumberOne]

I think of the moat in terms of how much engineering effort it would take to replicate the company and whether there are enough engineers hireable in that space to make such a company.

 

The only SAAS company I can think of that is without GAAP profits and that has a big moat is AMZN. Others such as MSFT, ADBE, ADSK already had a wide network-effect moat that just continues with SAAS. SAAS by itself does not confer or widen the moat.

 

There is stickiness associated with NOW and WDAY. But the market caps are way too big and the revenue/employee too small, the technical-effort bar too low. As a reference point, Oracle bought Peoplesoft for $10.3 billion when Peoplesoft had $2.9 billion in revenue with 12,000 employees in 2004. I don't know how much Peoplesoft was trading for before the hostile takeover premium. Also, I don't know the market conditions in 2004 when the takeover happened.

 

I think every SAAS company that has IPO'ed in this bull market will eventually trade at a valuation less than half their current valuation. SAAS means these companies build an app on AWS - but so can their competitors. To fight competition because the technical-effort bar is not high, enterprise SAAS companies price their product well below cost and survive by paying their employees in stock. I can't think of any enterprise SAAS company with a moat that is worth even half its market cap.

 

Right now every house/building in every street in the Bay Area is building a web service on AWS. When the tide goes out eventually, these startups can be acquired in a firesale and there will be plenty of engineers who can build AWS apps looking for work.

 

@Spekulatius, since you know physics, can you tell me what it would take to replicate BRKR?

 

 

 

Just out of curiously , since you apparently work in IT, which SAAS companies do you think have a moaty product offerings? I thought this applies to NOW and WDAY, since they are somewhat integrated in ERP system and those thing are harder to detangle, once they are used for business processes.

[muscleman]

They did not pay their drivers in stock and report non-GAAP EPS. UBER could have sold itself as a trillion-dollar market-cap company chasing a multi-trillion opportunity with network effects. A million dollars apiece for a billion drivers.

 

It could have shown great growth and non-GAAP profitability by collecting cash from riders and paying drivers in stock. The drivers would have paid their rent/mortgage by selling the stock to investors.

 

This idea has worked for the "cloud" "SaaS" companies:

- Collect cash from customers, offer services at a low price.

- Pay employees in stock who then sell it in the stock market.

- Report non-GAAP EPS.

 

This is a completely false statement. Uber pays their engineers in about half stocks and half cash as well, just like their tech competitors.

Regarding the day to day drivers, the cash cost is real, no matter paid in stock or cash. You can't compare that with SAAS operators like Splunk, which has bare minimum operating cost.

[Spekulatius]

I think of the moat in terms of how much engineering effort it would take to replicate the company and whether there are enough engineers hireable in that space to make such a company.

 

The only SAAS company I can think of that is without GAAP profits and that has a big moat is AMZN. Others such as MSFT, ADBE, ADSK already had a wide network-effect moat that just continues with SAAS. SAAS by itself does not confer or widen the moat.

 

There is stickiness associated with NOW and WDAY. But the market caps are way too big and the revenue/employee too small, the technical-effort bar too low. As a reference point, Oracle bought Peoplesoft for $10.3 billion when Peoplesoft had $2.9 billion in revenue with 12,000 employees in 2004. I don't know how much Peoplesoft was trading for before the hostile takeover premium. Also, I don't know the market conditions in 2004 when the takeover happened.

 

I think every SAAS company that has IPO'ed in this bull market will eventually trade at a valuation less than half their current valuation. SAAS means these companies build an app on AWS - but so can their competitors. To fight competition because the technical-effort bar is not high, enterprise SAAS companies price their product well below cost and survive by paying their employees in stock. I can't think of any enterprise SAAS company with a moat that is worth even half its market cap.

 

Right now every house/building in every street in the Bay Area is building a web service on AWS. When the tide goes out eventually, these startups can be acquired in a firesale and there will be plenty of engineers who can build AWS apps looking for work.

 

@Spekulatius, since you know physics, can you tell me what it would take to replicate BRKR?

 

 

 

Just out of curiously , since you apparently work in IT, which SAAS companies do you think have a moaty product offerings? I thought this applies to NOW and WDAY, since they are somewhat integrated in ERP system and those thing are harder to detangle, once they are used for business processes.

 

BRKR would be hard to replicate. They are the leaders in many specialized analytical fields where it takes decades to build up competence. They do have competitors in most, but those tend to be smaller. Also, my understanding is that Bruker is mostly a rollup, starting from analytical solutions like Nuclear magnetic resonance. They have been acquiring niche companies for a long time.

 

Similar companies are A (Agilent) and PKR (Perkin Elmer), but they are more in life sciences. All those companies have a high margin service business as well. I would think that all those would be very hard to replicate, as there are many different niche products that each require specialized know how to build in addition to having a customer base that used these products for a long time and isn’t likely to switch.

 

I personally use Agilent and to a lesser degree Perkin Elmer products. I have used Bruker products a few years ago. Users tend to stick with a product family for a long time, often spanning decades.

[rohitc99]

I think of the moat in terms of how much engineering effort it would take to replicate the company and whether there are enough engineers hireable in that space to make such a company.

 

The only SAAS company I can think of that is without GAAP profits and that has a big moat is AMZN. Others such as MSFT, ADBE, ADSK already had a wide network-effect moat that just continues with SAAS. SAAS by itself does not confer or widen the moat.

 

There is stickiness associated with NOW and WDAY. But the market caps are way too big and the revenue/employee too small, the technical-effort bar too low. As a reference point, Oracle bought Peoplesoft for $10.3 billion when Peoplesoft had $2.9 billion in revenue with 12,000 employees in 2004. I don't know how much Peoplesoft was trading for before the hostile takeover premium. Also, I don't know the market conditions in 2004 when the takeover happened.

 

I think every SAAS company that has IPO'ed in this bull market will eventually trade at a valuation less than half their current valuation. SAAS means these companies build an app on AWS - but so can their competitors. To fight competition because the technical-effort bar is not high, enterprise SAAS companies price their product well below cost and survive by paying their employees in stock. I can't think of any enterprise SAAS company with a moat that is worth even half its market cap.

 

Right now every house/building in every street in the Bay Area is building a web service on AWS. When the tide goes out eventually, these startups can be acquired in a firesale and there will be plenty of engineers who can build AWS apps looking for work.

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i have worked in the enterprise software space for last 20 years and was with oracle when it accquired PSFT. These software have a stickiness but there is limit and pricing elements to it. It also depends on the type of application. replacing core operations software such as for banking or supply chain for a manufacturing company is tough. very few companies bother to do that unless there is a merger or accquisition.

however outside of the core, in areas such as HR, analytics, expense management etc ..the stickiness is much lower. we have moved from psft, to oracle SaaS to SAP SaaS in a span of 2 years for various reasons. it needed 6 months to make the transition and was not a big deal.

also most of these softwares at least in the enterprise space are very similar ..they are different flavors of vanilla with a lot of marketing speak and BS thrown in by the vendor.

 

After having worked in the SaaS space from a user and company IT standpoint i can tell you that the onpremise software is richer in function (as they were developed over 20 years) and a lot of SaaS products are more show and tell for now. they are ofcourse developing rapidly and reaching there. But there isnt a massive difference from the old ERP software ..there are benefits for sure ..but its way oversold