Datadog’s IPO Extends a SaaS Hot Streak
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While consumer tech IPOs are having one of the worst years in memory, enterprise software-as-a-service (SaaS) stocks appear to be soaring upon their launch. The latest entrant—New York based application monitoring platform Datadog—went public on Thursday and jumped 39% to a $10 billion valuation by the end of day one. At 41x trailing sales, DDOG is the third most expensive SaaS stock in the US, trailing only Zoom (ZM) and Crowdstrike (CRWD).
Why are investors awarding SaaS companies eyewatering multiples while pushing consumer names like Uber and Lyft below their IPO prices? The answer, in our view, is growth-efficiency. Uber grew revenue a meager 14% in the second quarter and burned more than $1.6 billion in cash during the first half of 2019. Since going public, Uber looks neither like a growth company nor a profitable company, rightly unsettling investors. In comparison, Datadog grew revenue 80% in the first half and cashflow was nearly breakeven. Recouping every one of its marketing dollars in less than a year, Datadog appears to be the most efficient SaaS company to launch since Zoom.
As shown below, Datadog’s performance metrics are best-in-class among its peers. Yet, with SaaS valuations near all-time highs, investors may be chasing growth and free cash flow a bit too aggressively.
Facebook Launched Portal TV
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On Wednesday Facebook launched Portal TV, a device that will allow users to chat and video-stream from their televisions. Portal TV is not Facebook’s first device for the home.
Last November, Facebook released Portal, a smart-display aiming to compete with Google Home, HomePod, and the Amazon Echo. Given the privacy concerns associated with these devices and Facebook’s clash with privacy advocates, Portal met with a high degree of skepticism and little success. Hoping to assuage privacy concerns, Facebook has added plenty of features to the new Portal TV.
With Portal TV, Facebook is entering a crowded connected TV market including Roku, Chromecast (Google), Fire TV (Amazon), and Apple TV. Facebook will have to prove that it can offer the same streaming quality as its competitors and a video-chat capability that is differentiated and exceptional. Like the original Portal device, Portal TV’s main selling point is a high definition motion-tracking camera allowing users to video-chat on Facebook Messenger or WhatsApp.
An important question is which SVOD (Subscription Video on Demand) will be available on Portal TV. As of now, just a few services including Amazon Prime Video, Showtime, and CBS All Access have signed on. If Facebook is unable to convince other big-name SVODs like Netflix, Disney+, and Apple TV+ to join, Portal TV could be dead on arrival.
Amazon Launches PayCode Payment in the US
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According to the Federal Reserve Bank of San Francisco while online shopping continues to grow in the US, ~77% of payments still are made in person, 39% of which are in cash.
On Wednesday, Amazon launched PayCode in the US, adding its availability to that in 19 other countries including Barbados, Chile, Columbia, and Kenya. Amazon Paycode allows cash-based users to make purchases online. After making purchases on-line, users present in person codes that Amazon sends them to Western Union, which then scans them and accepts cash. Once Western Union wires the funds, Amazon ships the orders.
Amazon Cash, a similar payment method in place for ~18 months in the US, allows customers to add cash to their Amazon balances by visiting participating retailers, among them 7Eleven, CVS, and Walgreens. (Interestingly, Amazon Cash is notavailable at Whole Foods, which Amazon owns, perhaps because its business is not cash heavy.) Customers then can make purchases online with the funds in their Amazon Cash accounts.
Amazon continues to recognize that the financial services industry does not serve many individuals adequately. As illustrated in the FDIC’s 2017 report, 18.7% of the US adult population is underbanked. While the age of digital payments is upon us, Amazon is making data-informed decisions to ensure that anyone can access its platform, regardless of payment method.
Wells Fargo Is Launching Digital Cash
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Wells Fargo Bank has announced plans to pilot an internal settlement service, Wells Fargo Digital Cash (WFDC).Expected to launch in 2020, WFDC will be an internal accounting system capable of facilitating cross-border book transfers. Pegged 1:1 to the U.S. dollar, this digital asset will run on a distributed ledger and will reduce the settlement times and costs associated with moving value across borders. As stated in the press release, “Final settlement will occur without the need for third parties, reducing transfer time and costs. Corporate clients will not have to change their payment processes, cash management responsibilities or relationship management practices to benefit.”
Earlier this year in the same space, JPMorgan announced the launch of JPMCoin (JPMC), a digital coin representing U.S. dollars in JPMorgan Chase accounts. WFDC will operate much like JPMC.
As we noted in ARK Disrupt 161, JPMCoin, and by extension Wells Fargo Digital Cash, are not cryptocurrencies. Interestingly, while JPMorgan explicitly labeled JPMC a cryptocurrency, Wells Fargo has avoided using the term altogether.