IoT Data Collector: Samsara's IPO Analysis

Samsara's IPO Filing: A Preliminary Overview

Greetings! While the TechCrunch team continues to enjoy a period of rest following the Thanksgiving holiday, we are providing key data for your review. Today, we will briefly analyze Samsara’s initial public offering (IPO) documentation.

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Samsara: A Company Profile

Samsara is a company that may already be familiar to you. Established in 2015, it has secured over $900 million in funding as a private entity, according to Crunchbase data.

Notably, a substantial $700 million funding round in 2020 resulted in a company valuation of $5.4 billion.

This represents a significant investment in a relatively new organization. However, the crucial question remains: does Samsara’s performance justify this level of financial backing?

What Does Samsara Do?

Before delving into the financials, it’s important to understand Samsara’s core business. This requires revisiting a term that has received less attention recently: the Internet of Things (IoT).

Samsara operates within the IoT space, connecting physical operations with actionable business insights.

The company provides a platform designed to improve the efficiency and safety of businesses that rely on physical operations, such as transportation and logistics.

Their solutions encompass vehicle tracking, driver safety, and equipment monitoring, all powered by a connected data stream.

This data is then analyzed to provide businesses with real-time visibility and opportunities for optimization.

Ultimately, Samsara aims to streamline operations and reduce costs for its customers through the power of connected technology.

What Does Samsara Provide?

Reviewing a company’s initial public offering (IPO) documentation can be quite insightful, especially for newcomers. A fascinating exercise involves determining if the company can clearly articulate its core functions.

Frequently, after numerous revisions by legal, financial, communications, public relations, and executive teams, the way companies describe themselves during an IPO often devolves into vague corporate jargon.

Fortunately, Samsara avoids this pitfall; its business model is relatively straightforward to grasp.

Currently, a significantly larger number of physical assets are connected to the internet compared to the past. This connectivity generates diverse data streams, offering valuable applications. These connected devices can be broadly categorized as an internet of things.

The initial hype surrounding IoT may have subsided in consumer markets, but the technology has found a strong foothold within the business sector. The widespread consumer adoption predicted earlier didn’t fully materialize.

So, how does Samsara leverage this IoT landscape? The company gathers substantial data from both its own and external IoT devices. This data undergoes processing within remotely hosted software – the cloud – and is then delivered through various applications, utilizing a SaaS model.

Samsara’s description of its operations, as outlined in its S-1 filing, is remarkably concise and understandable.

The company operates on a subscription basis, but it’s not exclusively a software-as-a-service provider. Samsara also incorporates hardware – IoT devices – into its service offerings. As the company clarifies (with emphasis added):

The cost of the hardware is factored into revenue through “amortization of IoT devices.” Therefore, Samsara functions primarily as a software company, but it’s also actively involved in hardware provision.

Unfortunately, the company’s revenue reporting doesn’t allow for detailed breakdowns.

In essence, Samsara is a software vendor that acquires, analyzes, and presents real-world data sourced from both proprietary and third-party IoT hardware. It delivers this service on a recurring fee basis, encompassing both hardware and software management, and targets other businesses as its clientele.

With this understanding established, let’s proceed to examine the company’s performance!

Evaluating the Business Viability of Samsara

While the company demonstrates promising aspects, the initial investment required for its development was exceptionally high.

Samsara’s financial performance reveals several positive indicators. Examining its income statement highlights substantial growth, as evidenced by the following:

Between the fiscal years ending in early 2020 and early 2021, Samsara experienced a growth rate of 108.5%. During the nine months ending in October of the same years, the company’s growth reached 74%. Although the growth rate is decelerating, it remains robust for a company preparing for a public offering.

Furthermore, its gross margins have shown improvement across these periods, increasing from 60% to 70% in its most recent two complete fiscal years. More recently, Samsara’s gross margin increased from 69% to 72% over the three quarters concluding in October of 2020 and 2021.

These figures indicate that Samsara is a rapidly expanding company with healthy gross margins, making it a valuable entity in the current market.

However, the company currently operates at a significant loss.

In the nine months ending October 31, 2020, Samsara reported operating expenses of $294.0 million, contrasted with a gross profit of only $119.8 million. Consequently, the company’s operating loss for this period amounted to $174.2 million, a figure comparable to its total revenue for the same timeframe.

The situation improved in the following year. During the corresponding nine-month period in 2021, Samsara’s gross profit represented a larger proportion of its operating costs – $216.8 million out of $318.9 million, or approximately 68% – resulting in a reduced operating loss of $102.1 million. The company’s operating deficits decreased more substantially in percentage terms than in absolute dollar amounts, driven by revenue growth.

Therefore, Samsara can legitimately claim to be reducing its financial losses while continuing to achieve strong growth. Nevertheless, the scale of the company’s expenditure remains noteworthy; allocating $156.3 million to sales and marketing expenses against a gross profit of $119.8 million over three quarters of calendar year 2020 is a substantial investment.

This strategy appears to be yielding positive results, with revenue increasing and the growth of sales and marketing expenditure moderating. Despite this, with a negative operating cash flow of $123.2 million in the nine months ending October 2021, Samsara remains considerably distant from achieving profitability.

Assessing Samsara’s Valuation

In May 2020, Samsara’s valuation stood at $5.4 billion. The question now is whether the company can achieve or surpass this figure with its initial public offering (IPO).

Key Financial Data

• Samsara’s quarterly revenue as of October 30, 2021, reached $113.8 million.
• This translates to an implied annual run rate of $455.3 million based on the latest quarter.
• The year-over-year (YoY) growth rate reported on October 30, 2021, was an impressive 72%.

To match its previous private valuation, Samsara needs to achieve a revenue multiple of just under 12x. Is this likely? The answer is a resounding yes.

This assessment is supported by comparing Samsara to similar publicly traded SaaS companies. Datadog and Asana, both experiencing growth rates in the 70% range, currently trade at approximately 50x their annualized revenue, according to Bessemer data.

Even if Samsara were to attain just half of that multiple, its valuation would exceed $11 billion. This suggests significant potential upside.

This leads to consideration of the pricing in Samsara’s final private funding round. While it may have seemed favorable at the time, the initial valuation appears remarkably conservative.

The company’s early investors may be poised to realize substantial gains from the IPO.

Further details will emerge once the IPO price is set, but this promises to be a noteworthy and potentially lucrative event to observe.