The time of crisis

In good times and when the sea is calm, everyone can sail the ship. Not everybody can when the sea is rough.

The last few weeks has been nothing, but extremely challenging. Uncertainty and fear take hold of our society. Stock markets suffer beating after beating, dragging along with it our 401k or saving with no signs of the plunge abating. Lives are disrupted or, worse, lost.

In times like this, we need leadership, starting with looking the truth in the face. Germany’s Chancellor honestly told everyone that 70% of the German population would be affected. Whether the citizens approve of the German’s government’s reaction to the crisis is another matter. Nonetheless, at least the head of the state didn’t lie or mislead its citizens. Another example is Dr Fauci. He admitted that the US’s healthcare setup was inadequate to handle the mass testing at the moment. That’s the honesty we need. No spinning. No lies. No misleading information. No claiming that we have nothing to worry about when the crisis is upon our door.

If you watched the series Chernobyl on HBO (if you haven’t, I highly recommend it since we are staying at home anyway), the nuclear disaster could have been prevented. However, lies and denial led to one of the worst catastrophes in humans’ history.

From the enterprise perspective, some CEOs and companies took little time in setting an example and helping out. Aaron Levie and Box are an example:

Or Zoom and its CEO:

Or from a Chinese that wants to help out fellow human-beings, despite the difference in nationalities

On the other hand, there are companies whose behavior in crises like this is highly questionable and deserves scrutiny. Take Whole Foods as an example:

On Wednesday, Whole Foods CEO John Mackey sent out an email to grocery store employees with a list of benefits and options for those who fall sick during the coronavirus pandemic. Among his six suggestions was an option for employees to “donate” their paid time off (PTO) to coworkers facing medical emergencies.

“Team Members who have a medical emergency or death in their immediate family can receive donated PTO hours,” Mackey wrote in an email reviewed by Motherboard, “not only from Team Members in their own location, but also from Team Members across the country.”

In that same email, Whole Foods also said that it will offer unlimited, unpaid time off during the month of March and two weeks of paid time off for workers who test positive for Covid-19, the disease caused by the coronavirus—a policy announced this week for all Amazon employees and contractors that has also been adopted by tech companies like Uber, Lyft, and Instacart.

Source: Vice

I believe that eventually we’ll come out of this and get back to where we were a few months ago. At the end of the day, this is not the first disaster humanity has faced in the last hundreds or thousands of years and we’re still here, more advanced than ever. The issue is whether we’ll be more prepared for the next disaster. Since 9/11, we haven’t had a similar incident like that, but we have had SARS, Ebola and Swine Flu and look how prepared we have been for Coronavirus.

This is a golden time for true leaders to show their worth as well as for us to know who are not.

Comparing Enterprise SaaS Companies’ Metrics

Interested in how enterprise SaaS companies whose some or all of their revenue come from subscriptions, I set out to collect data from the companies that I know offer subscriptions to enterprise customers. Please be aware that this is my personal research stemming from intellectual curiosity only. They are not meant to be anything more than that.

  • Data is collected from the latest year in the companies’ latest annual reports to ensure that seasonality factor is removed
  • The metrics include subscription gross margin (subscription gross profit/subscription revenue), overall gross margin, Sales & Marketing expense as % of revenue, R&D as % of revenue, SG&A as % of revenue and net dollar expansion rate (or retention rate)
  • If there is a difference between subscription gross margin and overall gross margin, it’s because those companies also generate revenue from other sources such as hardware or professional services
  • Much as I tried to keep the figures accurate, do use them at your discretion

Subscription Gross Margin

Median: 82%/ Mean: 80%

Gross Margin

Median: 72%/ Mean: 71%

Sales & Marketing Expense as % of Revenue

Median: 44%/ Mean: 42%

R&D as % of Revenue

Median: 22% / Mean: 22%

SG&A as % of Revenue

Median: 15% / Mean: 15%

Operating Income (Loss) as % of Revenue

Median: -14%/ Mean: -10%

Dollar Expansion Rate

Median: 115% / Mean: 115%

Weekly readings 20th April, 2019

Half of Instacart’s drivers earn less than minimum wage, labor group claims. This is indeed an issue, but I am not sure if there is any wriggle room for Instacart to increase the minimum wage. From what I understand, it’s already a low margin business. Any pay raise for drivers will cut into the margin even further.

America’s Biggest Supermarket Company Struggles with Online Grocery Upheaval. A story on how Kroger has been transforming itself to stay competitive and avoid the ultimate outcome

Zoom, Zoom, Zoom! The Exclusive Inside Story Of The New Billionaire Behind Tech’s Hottest IPO. A profile of the CEO of Zoom, an imminent tech IPO this year. Eric Yuan was denied a US visa 8 times before getting one on the 9th try. Let that sink in.

Here’s How TurboTax Just Tricked You Into Paying to File Your Taxes. I used Turbo Tax this year to file my taxes and ended up paying $100 or so for the service. Though the service is advertised as free, there are numerous hidden fees that will end up on the final page of your application if you are not careful. Plus, several weeks ago, companies like Turbo Tax successfully lobbied Congress to stop IRS from building an online portal, which is a terrible decision.

In African Villages, These Phones Become Ultrasound Scanners. An example of how practical technology can positively influence and save life.

If you can. How millennials can get rich slowly. A short yet great read on personal finance.

Zoom filed to go public

Here are a few notable points I got from reading the S-1 by Zoom today:

  • Revenue grew more than 5 times from fiscal year ending 31 Jan 2017 (FY2017) to fiscal year ending 31 Jan 2019 (FY2019). Top line grew by more than 118% from FY2018 to FY2019. Gross profit was 81% in FY2019. Cost of Revenue as % of Rev continued to decline from 20.5% in FY2017 to 18.5% in FY2019
  • Operating income was positive for the first time in FY19 and made up 1.9% of revenue
  • As of January 31, 2019, remaining performance obligations was $311.7 million, with billed consideration of $125.8 million and unbilled consideration of $185.9 million. Zoom expected to recognize 67% of the remaining performance obligations (equivalent to roughly $209 million) in 2020. The average term for multi-year contracts is 2.4 years.
  • Customers that contribute more than $100,000 in annual revenue make up 30% of Zoom’s revenue in FY19 (about $99 million). There are 344 customers in this bucket as of January 31, 2019, compared to 143 a year before. On average, a customer in this bucket brought $288,000 in annual revenue to Zoom
  • Regarding customers with more than 10 employees, this segment made up 78% of Zoom’s revenue in FY19 or $257 million. With approximately 50,800 customers in this segment, each contributed on average $507 to Zoom. Customers with more than $100,000 in annual revenue contribution are a subset of customers with more than 10 employees
  • For the fiscal year ended January 31, 2019, greater than 50% of the Fortune 500 had at least one paid Zoom host, compared to only 4% that contributed more than $100,000 of revenue.
  • New customers accounted for 44% of the increase in revenue in FY19
  • 74% of FY19 revenue came from annual and multi-year subscriptions
  • Zoom operates in the Hosted / Cloud Voice and Unified Communications, Collaborative Applications and IP Telephony Lines markets. Estimated Total Addressable Market is $43.1 billion (by IDC)
  • 18% of FY19 revenue came from EMEA and APAC

A few notable customers:

  • Chan Zuckerberg Initiative: 100 Zoom Rooms
  • F5 Networks: 190 Zoom Rooms
  • National Australia Bank: 33,000+ users
  • Uber: 2,000 Zoom Rooms, 14 million Zoom minutes/month in 2018 (20,000 employees) and CAST >= 95
  • VMWare: 19,000 Zoom users and 41 million meeting minutes in January 2019 alone, by a million attendees, CSAT: 96%
  • Prior to 2014, BAYADA Home Health Care averaged 100 meetings a week. In 2018, the figure rose to 2,000 Zoom meetings a week

I have used the product extensively during my 2.5 years in the US, either in an academic or professional capacity. It’s great and easy to use. Zoom’s high CAST and impressive revenue growth indicate that my assessment of the tool is shared by a lot of users. That is a great sign for a growth business. In addition to the numbers, it’s crucial to have a great product that users love and trust.

Regarding the numbers, impressive revenue growth! Plus, only 18% of Zoom’s revenue came outside of the US and there is a lot of TAM to gain more ($330 million in revenue in a $43bn market). I won’t be surprised if Zoom continues its hot streak of revenue growth in the next 2-3 years and generate a lot of profit now that the company is already profitable. Further than that, I have no clue. The market Zoom is in is competitive with whales such as Cisco and Microsoft, in addition to many other competitors. I wish they had disclosed their total number of customers as it would have shed more light on the business.