The go-go days of software companies growing like crazy are now firmly behind us.
Data indicates that public software companies have added fewer sources of annual recurring revenue (ARR) in the first quarter of 2023 than they did a year earlier. In fact, that metric declined even more compared to the average quarterly number in 2022.
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It’s tough out there, but not every company is reporting lackluster results. Samsara, which went public in late 2021, recently proved that it is still possible to expand fast, and perhaps even more impressively, that it’s possible to hold on to value even if you listed at the end of a venture capital bubble.
TechCrunch+ caught up with Samsara’s CEO and co-founder, Sanjit Biswas, to talk about his company’s performance and the pricing and sales choices that have helped it at least partially buck the slowdown.
Let’s start with a quick refresher on Samsara and its IPO pricing. Then, we’ll explore its first-quarter performance and dig into how its sales model is providing it with a more durable revenue base than most other modern software companies.
The Samsara growth story
It’s fun to go back and read 2021-era coverage, because it was such a wild time. We even noted during Samsara’s IPO pricing run that it felt like no one was paying attention:
One more note before we can sign off on this topic for the day: Doesn’t it feel like a somewhat muted day for a decacorn IPO? Samsara raised venture rounds through a Series F! And yet this IPO feels like it’s skating right under the radar.
At the time, we hypothesized that NFT hype was consuming all the oxygen in the room, or that there were so many IPOs that year that it was just not as exciting as before. Ah, what a good problem to have!
Samsara’s late-2021 IPO set it up to raise capital and go public at a valuation that made little to no sense. We saw that happen to a number of other companies that went public in 2021.
However, Samsara priced at $23 per share, the top end of its IPO price range. Today, the company is worth $27.13 per share. That’s different.
Back when Samsara filed its S-1, we had to work a little to understand its business. So, to recap: The company collects data from first- and third-party IoT devices, which is then processed (made accessible via APIs) and then offered up through different applications. The company monitors work sites, corporate vehicles and physical locations.
How has the company fared since it went public?
In the company’s last reported quarter before it went public (the three months ended October 30, 2021), Samsara had revenue of $113.8 million, ARR of $492.8 million and persistent free cash flow of negative $40 million per quarter.
Fast-forward to its first quarter ended April 29, 2023, Samsara had ARR of $856.2 million and a free cash flow margin of just -1%. The company beat analysts’ consensus expectations for both revenue and forecast on the back of a 43% rise in revenue and a 41% increase in ARR, making investors happy and seeing its stock rise.
But how is Samsara growing at such a clip despite the generally uncomfortable macroeconomic climate?
Apparently, the company has stuck to a subscription model instead of the more trendy consumption-based pricing that has become commonplace at software companies in recent years. More importantly, Samsara prices its “subscriptions based on a customer’s number of physical assets” instead of their headcount — the latter is what we see often in the SaaS world. Samsara said that model leads to “lower risk of ACV contraction if our customers’ hiring slows or contracts.”
Given the sheer number of layoffs we’ve been seeing in the tech world, that’s not a point to miss.
I asked Samsara’s CEO Biswas how the company is managing to keep revenue steady and rising in a worsening economy. Here’s a transcript from that bit of our conversation:
Wouldn’t people turn off some devices or pull back some trucks or run fewer transit devices? It seems like you’ve got the same macro climate as anyone else, but it’s steadier for you?
Our customers, if you think about who we’re serving, it’s the garbage company, the waste management companies, the construction business and so on. When they own an asset, they utilize it. These are expensive pieces of equipment, right? They don’t turn on and turn off the way that your software gets turned on and turned off. And they have a pretty good sense of what they’re trying to use in the field. We’re very much tied to that. And our contracts are three- to five-year term licenses. So it’s actually more similar to how SaaS was sold five or 10 years ago.
Another alluring part of the Samsara resilience story revolves around whom the company sells to. Alex Zukin, an analyst at Wolfe Research asked how the company has managed “acceleration at this scale” in its recent quarter. Was it a lot of sales reps ramping? Did a new geography open things up for the company?
Samsara’s CFO Dominic Phillips responded:
We’re selling into a little bit of a different budget here. We’re selling into the operations budget for our customers, which tend to be pretty large and less discretionary than maybe some other budget categories.
In fewer words: Samsara caters to a more stable demand base (assets, not headcount) and its customers have a different budget (operations, not IT) that is less likely to get slashed when the economy shudders. That combination results in growth that far outstrips what we’ve seen at other public software companies in recent quarters.
I brought us through all of this not to simply say, “Hey look, not every tech company’s growth is falling off a cliff this year.” Instead, I want to highlight to startup founders that breaking certain pricing and sales norms can lead to a stronger foundation for your business.
Most software companies are not in the IoT market, so the direct parallels might be thin, but Samsara’s pretty solid performance should get every startup questioning if the pricing trends of the last boom (usage-based pricing, for one) and sales targets are really the best, let alone the only, way to find growth.
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