The TechCrunch Exchange: Startup and Market Insights

Welcome to The TechCrunch Exchange, a weekly newsletter focused on startups and market trends. This publication is derived from the daily Extra Crunch column, offered freely for your weekend review. Interested in receiving it directly in your inbox each Saturday? Sign up here.

Let's delve into discussions surrounding finances, emerging companies, and current IPO speculation.

A brief update regarding related initiatives: Equity is expanding its coverage. Additionally, TechCrunch is hosting its Justice and Early-Stage events. I will be conducting an interview with Zoom’s Chief Revenue Officer at the latter. Furthermore, The Exchange itself is preparing to release several updates next week, including analyses of companies achieving $50M and $100M in Annual Recurring Revenue (ARR) – such as Druva – and a comparison of consumption-based pricing models versus traditional SaaS structures, featuring insights from CEOs at Fastly, Appian, and BigCommerce.

Earnings Reports from DoorDash and Airbnb

This week marked the first earnings reports for both DoorDash and Airbnb as publicly traded companies, signifying their full transition into the realm of successful unicorn exits. While consistently monitoring the earnings season, we’ve identified key takeaways relevant to the startup ecosystem.

To begin, DoorDash exceeded growth projections in the fourth quarter, reporting $970 million in revenue compared to the anticipated $938 million. This discrepancy is likely attributable to the recent nature of DoorDash’s public listing and the challenges in forecasting during the pandemic. Despite this substantial growth, DoorDash’s stock experienced an initial decline following the report, although it largely recovered by Friday.

The initial stock dip was likely due to the company’s larger-than-expected net loss, a common occurrence during the first few quarters after an IPO. However, this concern was partially alleviated during the earnings call, where the CFO indicated “an acceleration in January relative to our order growth in December as well as in Q4.” This is a positive indicator. Conversely, the CFO also noted that “starting from Q2 onwards, we’re going to see a reversion toward pre-COVID behavior within the customer base.”

Key Takeaway: Anticipating a Shift

Takeaway: Major corporations are forecasting a return to pre-pandemic consumer patterns, although this shift isn’t expected immediately. Companies that thrived during the COVID-19 pandemic are facing increased scrutiny, with expectations that favorable conditions will diminish as the year progresses.

Airbnb's Performance and Investor Sentiment

Airbnb, in contrast, has seen its stock rise by approximately 16% today. This increase is attributed to exceeding revenue expectations, despite also incurring significant losses. Airbnb’s net loss in Q4 2020 was more than ten times greater than DoorDash’s. The differing market reactions – a boost for Airbnb versus a dip for DoorDash – can be explained by Airbnb’s substantial revenue beat ($859 million, compared to an expected $748 million) and its perceived potential for future expansion; investors anticipate continued growth.

The Growth Trade Continues

Takeaway: Investors remain receptive to substantial losses, provided a compelling narrative of future growth is presented. The emphasis on growth persists, even as companies that have already benefited from pandemic-related trends face heightened examination.

Implications for Startups

For startups, the degree of valuation pressure or advantage may hinge on their position relative to the pandemic’s impact. Are they experiencing the waning of a tailwind – such as remote-work focused SaaS companies? Or are they poised for growth – like those in the restaurant technology sector? This is a crucial consideration before seeking funding.

Market Observations

The past week witnessed a particularly active period for funding announcements. Crunchbase News, where I previously worked as a journalist, recently published an insightful article detailing the significant volume of substantial funding rounds observed this year. Even when considering companies beyond the largest deals, investment activity remained exceptionally high.

Several funding events that I didn’t have time to cover in detail this week nonetheless attracted my attention. These included a $90 million investment in Terminus, a platform focused on account-based marketing (ABM) and go-to-market strategies, as well as Anchorage’s $80 million Series C round. Anchorage provides secure cryptocurrency storage solutions for institutional investors.

Foxtrot Market also secured $42 million in Series B funding, enabling them to expand their rapid delivery service of goods popular with younger, urban consumers. Considering these companies individually, it’s striking to observe the diversity within the technology landscape.

Terminus assists businesses in enhancing their sales efforts, while Anchorage prioritizes the security of digital assets like Ethereum. Foxtrot, on the other hand, focuses on convenient access to everyday items.

Each of these ventures has demonstrated sufficient growth to justify significant venture capital investment, securing not just additional funding, but notably large rounds relative to their stage of development. The 'Series' designation, while commonly used, doesn't always accurately reflect a company’s maturity.

I playfully refer to this segment of the newsletter as Market Notes, acknowledging the impossibility of comprehensively documenting the entirety of the technology market we follow. These companies and their recent funding rounds serve to illustrate this very point.

A Collection of Observations

Let's examine a couple of noteworthy points gleaned from recent earnings reports. The first pertains to Root, presenting a puzzling situation, and the second originates from the results released by Booking Holdings.

This week, I had the opportunity to speak with Alex Timm, the CEO of Root Insurance, immediately following the release of their financial figures. Consequently, I lacked substantial insight into the investor reaction to these results. My initial assessment was that Root possessed significant capital reserves and ambitious expansion strategies.

Timm expressed optimism regarding his company’s improving financial performance, specifically concerning loss ratios and loss-adjusted expenses – metrics of interest to those following the insurtech sector. He also highlighted growth experienced during the pandemic period.

However, the company’s stock price subsequently dropped by 16% today. A review of the analyst call reveals shifts in Root’s economic projections, particularly regarding premium-ceding variances over the coming quarters, making it difficult to accurately forecast full-year growth. It appears Root’s business is undergoing a substantial transformation, a process that is notably transparent.

The company could have potentially launched its IPO in 2022 with its current advancements already in place, but instead opted to raise considerable funding last year and proceed with a public offering now.

Considering the performance of other newer insurance companies, such as Lemonade’s continued strong valuation, MetroMile’s stock is also experiencing a decline, while Root has lost over half its value since its IPO. Should this current re-evaluation of neo-insurance companies persist, we may observe a slowdown in private investment within this sector. This is a potential trend we will continue to monitor throughout the year.

Turning to Booking Holdings, the parent company of Priceline and other travel-related businesses, we were interested in any insights they might offer regarding the future of business travel. This is relevant as it could provide clues about the evolving landscape of remote work and office culture, impacting areas like startup hub locations and software sales. Therefore, The Exchange secured a call with the company.

Booking Holdings’ CEO, Glenn Fogel, did not offer an explanation for the company’s record-high stock price despite experiencing significant year-over-year revenue decreases. He did acknowledge that the pandemic has altered expectations surrounding business interactions, potentially reducing short-term business travel as meetings increasingly shift to video conferencing.

However, he remained optimistic about the future of conference travel – a positive sign for TechCrunch, perhaps – and travel in general.

Regarding the outlook for travel, no definitive conclusions can be drawn at this time. Booking Holdings is currently hesitant to make predictions, acknowledging the uncertainty surrounding the recovery timeline. This is understandable, and perhaps a clearer picture will emerge after another three months of vaccine distribution, offering a glimpse into a potential partial return to normalcy.

Finally, you can access Apex Holdings’ SPAC presentation here, and Markforged’s here. I also recently published an article on the buy-now-pay-later industry here, collaborated with Ron Miller on an analysis of the Digital Ocean IPO here, and shared thoughts on Toast’s valuation and the Olo debut here.

Wishing you all a pleasant weekend!

Alex