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89 lines
12 KiB
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<div dir="ltr"><br><br><div class="gmail_quote"><div dir="ltr" class="gmail_attr">---------- Forwarded message ---------<br>From: <strong class="gmail_sendername" dir="auto">Tomasz Tunguz</strong> <span dir="auto"><<a href="mailto:blog@tomtunguz.com">blog@tomtunguz.com</a>></span><br>Date: Fri, 28 Oct 2022 at 19:15<br>Subject: Grey Skies in Cloud Earnings<br>To: <<a href="mailto:martin@doversten.se">martin@doversten.se</a>><br></div><br><br><div class="msg5509635934175298552"><u></u>
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<div style="background-color:#aaaaaa"><table role="presentation" cellpadding="0" cellspacing="0" style="border-collapse:separate;background-color:#ffffff;width:100%" bgcolor="#aaaaaa"><tbody><tr>
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<td style="vertical-align:top"><div style="margin:0 auto;padding:45px 0 30px;padding-left:20px;padding-right:20px;max-width:600px;padding-top:30px;padding-left:20px;padding-bottom:30px;padding-right:20px;margin:0 auto;max-width:600px">
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<div style="border-left:10px;border-style:solid;border-top:none;border-right:none;border-bottom:none;padding:3px 20px 1px 20px;margin:0 0 15px 0;border-color:#6495ed">
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<h1 style="font-weight:bold;font-style:normal;font-size:1em;margin:0;font-size:2em;font-weight:700;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#281842;line-height:1.5">Tomasz Tunguz</h1>
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5;text-align:left">Venture Capitalist at Redpoint</p>
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<div><div style="padding:20px 30px">
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5"><span style="color:#ababab"><em>If you were forwarded this newsletter, and you'd like to receive it in the future, </em></span><a href="https://click.convertkit-mail2.com/68ugeo9lmxa8hkwqe7dbo/dpheh0hql2pz8zam/aHR0cHM6Ly90dHVuZ3V6LmNrLnBhZ2UvYjcxZmQ5YTNkZA==" rel="noopener noreferrer" style="font-weight:bold;color:#000000" target="_blank"><span style="color:#ababab"><em>subscribe here.</em></span></a><span style="color:#ababab"><em></em></span></p>
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<h1 style="font-weight:bold;font-style:normal;font-size:1em;margin:0;font-size:2em;font-weight:700;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#281842;line-height:1.5"><a href="https://click.convertkit-mail2.com/68ugeo9lmxa8hkwqe7dbo/e0hph7hk8dr9qpu8/aHR0cHM6Ly93d3cudG9tdHVuZ3V6LmNvbS9xMzIwMjItY2xvdWQtZWFybmluZ3Mv" rel="noopener noreferrer" style="font-weight:bold;color:#000000" target="_blank">Grey Skies in Cloud Earnings</a></h1>
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5">
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</p>
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5">I’m watching <a href="https://click.convertkit-mail2.com/68ugeo9lmxa8hkwqe7dbo/7qh7h8h0rxnvw6iz/aHR0cHM6Ly90b210dW5ndXouY29tL3RoZS1pbmRleC1vZi1zb2Z0d2FyZS1idXllcnMv" style="font-weight:bold;color:#000000" target="_blank">public company earnings to identify early weaknesses in the software market</a>. This week Microsoft, Google/ Alphabet, & Amazon reported their third quarter figures.</p>
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<table style="border-collapse:separate">
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<thead>
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<tr>
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<th>Company</th>
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<th style="text-align:right">Q-4 CAGR</th>
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<th style="text-align:right">Q-4 CAGR</th>
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<th style="text-align:right">Q-3 CAGR</th>
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<th style="text-align:right">Q-2 CAGR</th>
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<th style="text-align:right">Q-1 CAGR</th>
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<th style="text-align:right">Q0 CAGR</th>
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</tr>
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</thead>
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<tbody>
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<td style="vertical-align:top">Microsoft Azure</td>
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<td style="vertical-align:top;text-align:right">50%</td>
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<td style="vertical-align:top;text-align:right">51%</td>
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<td style="vertical-align:top;text-align:right">46%</td>
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<td style="vertical-align:top;text-align:right">46%</td>
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<td style="vertical-align:top;text-align:right">40%</td>
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<td style="vertical-align:top;text-align:right">35%</td>
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</tr>
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<tr>
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<td style="vertical-align:top">Google Cloud Platform</td>
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<td style="vertical-align:top;text-align:right">46%</td>
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<td style="vertical-align:top;text-align:right">54%</td>
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<td style="vertical-align:top;text-align:right">45%</td>
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<td style="vertical-align:top;text-align:right">51%</td>
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<td style="vertical-align:top;text-align:right">35%</td>
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<td style="vertical-align:top;text-align:right">38%</td>
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</tr>
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<tr>
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<td style="vertical-align:top">Amazon Web Services</td>
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<td style="vertical-align:top;text-align:right">37%</td>
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<td style="vertical-align:top;text-align:right">39%</td>
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<td style="vertical-align:top;text-align:right">40%</td>
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<td style="vertical-align:top;text-align:right">40%</td>
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<td style="vertical-align:top;text-align:right">33%</td>
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<td style="vertical-align:top;text-align:right">27%</td>
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</tr>
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</tbody>
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</table>
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5">The meaningful decline in growth rates started four quarters ago is hard to ignore.</p>
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5"><img src="https://res.cloudinary.com/dzawgnnlr/image/upload/w_700,c_scale/co68b8xfjofqhgyw2ome.png" alt="image" style="border:0 none;display:block;height:auto;line-height:100%;outline:none;text-decoration:none;max-width:100%">
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Let’s put these figures into context. Infrastructure revenue growth averaged 33% this quarter, which is astounding considering we’re talking about businesses that sum to more than $50b of revenue per quarter.</p>
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5">Customers spent $12b more this quarter - an astounding figure. At a 7x multiple of revenue, that is another $84b of market cap creation, in theory.</p>
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5">But, the change in slope is meaningful, too. A year ago, these business units grew at 44% annually. The current recession is evident in the charts: growth rates have declined by 25% in six months’ time.</p>
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5">The kink downwards in the red line at Q-2 shows a sudden deceleration in AWS’ growth rate. GCP is more volatile, likely driven by the volatility of bigger deals closing on a smaller revenue base. Meanwhile, Azure has declined in a more steady cadence.</p>
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5">The data suggests a broader slowdown in software spending as these companies are <a href="https://click.convertkit-mail2.com/68ugeo9lmxa8hkwqe7dbo/7qh7h8h0rxnvw6iz/aHR0cHM6Ly90b210dW5ndXouY29tL3RoZS1pbmRleC1vZi1zb2Z0d2FyZS1idXllcnMv" style="font-weight:bold;color:#000000" target="_blank">indices of software buyers’ behavior</a>.</p>
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5">Public software multiples - <a href="https://click.convertkit-mail2.com/68ugeo9lmxa8hkwqe7dbo/z2hghnhoqml9prap/aHR0cHM6Ly90b210dW5ndXouY29tL3JhdGVzLWFuZC1tdWx0aXBsZXMtMjAyMi8=" style="font-weight:bold;color:#000000" target="_blank">4.9x as of last week</a>, not far from the decade low of 3.3x - should depress further given these results & forward guidance. Microsoft stock is down 10%; Amazon fell about 20%; Google about 12%.</p>
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5">Lopping another 15% off multiples implies the median software company should trade at 4.2x forward revenues, a far cry from the 15x we observed not twelve months ago.</p>
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<p style="margin:1em 0;font-size:18px;line-height:1.5em;font-family:Arial,-apple-system,BlinkMacSystemFont,'Segoe UI',Roboto,Oxygen-Sans,Ubuntu,Cantarell,'Helvetica Neue',sans-serif;color:#4e4e4e;font-size:16px;line-height:1.5"></p>
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