Fear, Loathing and Corporate Gifting
The TechCrunch Exchange: A Weekly Startup & Market Update
This newsletter, The TechCrunch Exchange, is a weekly digest of startup and market happenings. It draws inspiration from the daily TechCrunch+ column of the same name.
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Key Themes This Week
This week’s edition focuses on three distinct themes. These include prevailing market anxieties, a critical assessment of recent corporate developments, and an exploration of the competitive landscape within the corporate gifting sector.
1. Market Concern: A Prevailing Fear
A sense of market concern is currently dominating investor sentiment. This apprehension stems from a variety of economic factors and uncertainties.
The current climate is characterized by a cautious approach to investment, as stakeholders assess potential risks and opportunities.
2. Corporate Reaction: A Critical Perspective
Recent corporate news has prompted a negative reaction. This assessment is based on a careful evaluation of the implications of these developments.
A particular instance of corporate activity has elicited a strong, unfavorable response.
3. The Corporate Gifting Arena: A Startup Battle
The corporate gifting market is witnessing a dynamic and engaging startup competition. Several companies are vying for dominance in this rapidly expanding sector.
This represents a fascinating case study in startup innovation and market disruption.
Let's delve deeper into these topics!
Concern Regarding DocuSign's Performance
DocuSign experienced a significant downturn this week, with its stock value decreasing by over 40% on Friday. This represents one of the most substantial post-earnings declines observed, excluding instances involving fraudulent activity or similar corporate misconduct.
Despite exceeding revenue projections for the latest quarter (Q3 fiscal 2022), DocuSign’s billings – an indicator of anticipated future revenue – fell considerably short of forecasts. The company’s CEO, Dan Springer, articulated his perspective in a letter to investors.
Springer believes the market reaction is excessive and plans to purchase DocuSign stock in the coming week. The question arises: are investors overemphasizing what appears to be a normalization of growth for DocuSign?
Perhaps not. Discussions with colleagues, including Ron Miller, have been ongoing to determine whether this reflects Wall Street’s impatience or a more fundamental shift. Current analysis suggests the latter is more likely.
According to Yahoo Finance, DocuSign’s market capitalization now stands at approximately $27 billion following these substantial losses. This equates to roughly 12.4 times its current revenue run rate. Is this valuation too low for a publicly traded technology company demonstrating indications of slowing revenue growth?
Many would argue it is, largely due to the historically elevated multiples seen in the SaaS sector. Previously, a valuation of 12.4x the current run rate, coupled with 28% billings growth, would have been considered acceptable, even positive. A reversion to more typical valuation levels may therefore be underway.
Fear is the prevailing sentiment if we are witnessing a contraction of multiples within the software industry. Numerous private investments have been predicated on the assumption that public company valuations would remain high. However, recent negative performance across the tech sector suggests a potential shift towards a more balanced risk assessment.
Implications of Market Shifts
The recent market volatility could have far-reaching consequences. A move away from a predominantly high-risk weighting in tech investments could impact funding for private companies.
The situation highlights the importance of carefully evaluating billings as a key indicator of future performance. Revenue figures alone can be misleading if future growth is not adequately supported by strong bookings.
Ultimately, DocuSign’s situation serves as a cautionary tale for investors and companies alike. Maintaining realistic expectations and adapting to changing market conditions are crucial for long-term success.
Disappointment at Better.com
Better.com successfully secured $775 million through its initial public offering via a SPAC, providing substantial capital for its business ventures. Subsequently, a significant workforce reduction was implemented.
The company’s CEO initially communicated to affected employees that approximately 15% of the staff would be let go. However, Better.com later asserted the actual figure was 9%.
This considerable difference is striking, particularly as the CEO was reportedly reading from prepared remarks when announcing the layoffs. Questions arise as to how such a discrepancy could occur if the decision was indeed his own.
The following serves as a clear example of ineffective mass layoff procedures:
A recording of the event has been retained for documentation purposes, anticipating potential removal of the original source.
It’s crucial to remember that employment relationships are not familial. Employees are considered resources utilized to generate revenue and profit for the organization.
Key Takeaways
- Financial Position: Better.com was well-funded following its SPAC debut.
- Layoff Discrepancy: Conflicting reports regarding the percentage of staff terminated.
- Leadership Accountability: Concerns raised about the CEO’s accuracy in communicating layoff numbers.
- Employee Value: A reminder of the transactional nature of the employer-employee relationship.
The situation highlights the importance of transparent and accurate communication during difficult organizational changes.
Furthermore, it underscores the need for careful planning and execution when conducting workforce reductions to maintain employee trust and minimize negative repercussions.
Corporate Gifting Trends
Looking back to early 2020, I initially reported on Sendoso’s $40 million Series B funding round in February, just prior to the pandemic’s widespread impact. Since that time, the company, operating within the corporate gifting sector, has successfully secured a further $100 million in Series C funding.
Concurrently, a contact within my investor network introduced me to another significant competitor in the same market: Postal.io, commonly referred to as Postal. These two companies are actively vying for dominance in the market of sending items to both existing and prospective clients – a market that, as it happens, is substantial in size.
Readers of the Exchange column may recall a previous discussion on this topic. We previously examined Postal’s development and trajectory in September, shortly before the Disrupt event.
However, I have since obtained specific growth data from both Postal and Sendoso, which I wanted to add to our ongoing analysis of this space. This area is noteworthy because, similar to the OKR software market or the rapid grocery delivery sector, it presents a compelling cluster of startups to monitor.
Sendoso and Postal face competition from companies like Alyce and Reachdesk, among others. This represents considerable startup activity within the online-to-offline marketing channel. The market’s overall size – Sendoso indicated to The Exchange that the “U.S. corporate gifting market is projected to reach $242 billion by year-end,” according to Coresight – allows for the simultaneous growth of multiple players.
Postal was forthcoming with its metrics, reporting a 70% increase in subscription revenue over the last five quarters. The company also experienced a 3,765% growth in Gross Merchandise Volume (GMV) from Q3 2020 to Q3 2021, alongside an increase in customers from 35 to 286. This growth likely contributed to their successful capital raise in September.
Sendoso was less willing to disclose detailed figures regarding its recent performance. While the company achieved 330% growth in 2019, it did not provide an updated growth rate for more recent periods. Instead, Sendoso stated it currently serves 900 customers – exceeding 20,000 seats across those organizations – and its warehousing network “in North America, Europe and Asia [has] facilitated over 3 million shipments to more than 165 countries.”
We did not receive updated data from Alyce or Reachdesk before our publication deadline. Should they release their results, we will share them with you next week.
Divergent Strategies in Corporate Gifting
Similar to the variations observed within the OKR startup market, there are distinct approaches within the corporate gifting landscape. Postal is focused on building a more digitally-driven platform, connecting businesses with product suppliers, while Sendoso maintains a more substantial physical presence, including its own item aggregation and fulfillment centers. Observing these differing business models compete in real-time is particularly insightful.
It’s important to remember that intense competition doesn’t guarantee success for all involved. In the OKR market, Koan was unable to secure further funding, and Microsoft acquired one of the startups in the field. Similarly, 1520 recently ceased operations in the instant grocery delivery space. While Sendoso and Postal are not currently facing immediate financial concerns, the eventual consolidation of this market will be a key development to watch.
—Alex
