Industrial IoT Leader Hits the Public Market

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Last week we covered the hyped IPOs of Nubank (NU) and HashiCorp (HCP). Today, another popular tech startup, Samsara, will hit the New York Stock Exchange under the ticker IOT. Today, we take a look at the company’s pre-IPO filings.

To see our write-ups on Nubank and HashiCorp from last week. Click here:


Company Overview

  • Samsara (IOT) pioneered its end-to-end solution of the Connected Operations Cloud, which allows businesses that depend of physical operations to harness Internet of Things (IoT) data to develop actionable business insights and improve their operations.
  • Samsara works with company’s in industries with high-value physical assets (like transportation, construction, utilities and energy, manufacturing, etc.) to bring access to real-time data with IoT connectivity and other digital tools.
    • The company partners with original equipment manufacturers (OEMs) to capture data via application programming interfaces (APIs). Data can also be captured from customer enterprise applications or local software system.
  • The data platform collects over 2 trillion data points annually, including video footage, people and motion detection, GPS location, energy consumption, asset utilization, compliance logs, accelerometer and gyroscope data, and engine diagnotics.
    • Samsara’s goal is to enable operations to achieve higher utilization of physical assets, reduce the need for manual oversight and judgment, improve safety outcomes, lower insurance costs, fuel and electricity savings, emissions reductions, less unplanned downtime, drive efficiencies from routing and scheduling, minimize compliance costs, and initiate automation of manual processes.
  • The company’s cutomers include small businesses, state and local governments, and large, global enterprises.
    • As of October 31, 2021, Samsara had over 13,000 core customers (customers with subscriptions representing over $5,000 in annual recurring revenue).

Market Opportunity + Growth

Market Opportunity

  • Samsara estimates its total addressable market to be approximately $54.6 billion by the end of this year and for the TAM to increase to $96.9 billion by the end of 2024 (21% CAGR).
  • The opportunity consists of current applicaitons including connected fleet, connected equipment, and connected sites.
    • Connected fleets
      • Video-based safety
      • Vehicle telematics
      • Apps and driver workflows
    • Applications
      • Equipment monitoring
      • Site visibility
  • For FY20, FY21, and the fiscal quarter ended Oct 31 the calculated LTV/CAC exceeded 8x.

Growth Strategy

  • Acquiring new customers
  • Expand within existing customer base
  • New innovations and product releases
  • Expand partnerships and integrations
  • International expansion

Financials

Note: Below, we’ll cover the last nine months ended October 31, 2021.

  • Revenue | $302.6 million, +73.9% YoY
    • In each of the last two fiscal years, ~98% of revenue came from subscriptions
  • Gross Profit | $216.8 million (71.7% margin, up from 68.9% one year ago)
  • Operating Expenses
    • Research and development | $78.7 million (26% of total revenue)
    • Sales and marketing | $166.6 million, +6.5% YoY (55% of total revenue)
      • In the previous period, this made up 90% of revenue
    • Total Operating Expenses | $318.9 million
  • Loss from Operations | $(102.1) million, narrowing from a $(174.2) million loss in the previous period
  • Net Loss | $(102.3) million
  • Annual Recurring Revenue (ARR) | $492.8 million, +68.2% YoY
  • Customers > $100K ARR | 715, +83.3% YoY

Risk Factors

  • Samsara was started in 2015 and has never turned a profit
  • The company is dependent on a limited number of joint design manufacturers and suppliers of manufacturing services and critical components within the supply chain for its IoT devices.
  • Potential security breaches via the data platform or IoT devices

Valuation + Analysis

  • Samsara was set its IPO pricing at $23.00 per share, the upper bound of its estimated offering.
  • If we assume the underwriters exercise their options to purchase additional shares, IoT is valued at a market cap of just north of $11.6 billion.
  • With the public offering, Samsara will have ~$1 billion in pro forma cash after fees. Most of the proceeds will to increasing the firm’s financial flexibility, but a portion will be used to settle ~$124 million in RSUs.
  • The company does not currently have debt which means the back of the envelope enterprise value for the company is ~$10.6 billion.
  • If we anticipate FY22 (ending Jan 31) growth keeps up for this year ~74%, then total revenue will be ~$435 million for the fiscal year.
  • If we assume growth for FY23 somewhere between 50-70%, Samsara is trading between 14.0x – 16.5x forward revenue and in the low- to mid-20s forward gross profit.
  • Samsara is still unprofitable and likely will be through FY23.

KR: Samsara has an interesting value proposition and there is a clear opportunity to inject technology into the industries the company serves. Without much knowledge on the space, I wonder how quickly the adoption of industrial IoT will continue to grow in industries that have typically lagged on that front.

JO: This is another very high valuation for a fast-growing company. Their financials are encouraging that they can inflect to profitability, as S&M and R&D are flat despite Gross Profit doubling. But in this dangerous environment for growth stocks, an investor in the company will need to take a 5-10 year view on the company and count IoT as one of their favorite trends.

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