The Samsara IPO
is one of the latest significant Tech IPOs of 2021, in the field of AI + Machine Learning which has undergone a record 2021 year in terms of exits. Here are some quick thoughts on the Company and considerations on its business model and key unit economics.
Samsara Inc. (the “Company
”), a vertical AI company headquartered in San Francisco, enables companies with physical operations to connect to Internet of Things (“IoT
”) data through its cloud-based platform to gain insights and help improve operations. Founded in 2015, the Company was valued $11,5bn in its initial public offering
on the NY Stock Exchange on December 15, 2021.
Prior to IPO, the Company had previously completed 6 rounds of funding
, the latest being a $700m Series F venture funding from Dragoneer Investment Group, Warburg Pincus and General Atlantic on May 15, 2020. The history of Samsara’s funding highlights the challenges of scaling IoT companies during the COVID-19 period, its latest round having required layoffs affecting around 20% of its workforce, with the pandemic leading to halted growth in Industrial IoT funding in FY20. Per Pitchbook analysis, Samsara has been able to raise repeated large rounds of funding only years after founding in part due to the involvement of Andreesen Horowitz in founding the Company and leading fundraising
Per its S-1, Samsara has a mission to increase the safety, efficiency and sustainability of the global operations which power the world. The Company does this with its connected operations cloud which includes applications like video-based safety, vehicle telematics, apps and driver workflows, equipment monitoring and site visibility.
The platform is based on AI
and machine learning
, workflow & analytics, alerts, developer APIs and privacy and security. As in AI business models, the value of the platform rises as more customers deploy Samsara technologies, because with scaling data, the Company can derive more profound insights, leading to those improvements on safety, efficiency and sustainability of operations that the Company seeks to deliver. Here the Company claims that it collects more than 2 trillion data points annually from IoT devices!
There are several structural points
that demonstrate the solidity of the Company’s business model and positioning in our view:
- The Company estimates that its total addressable market is $55 billion, growing to $97 billion by 2024. The connected fleet opportunity represented by the telematics market is a major chunk of that (i.e. a $33 billion market in 2021). In regard to the current weight of video-based safety and vehicle telematics in its ARR (>80%), it seems that the challenge for the Company is to prove that its software can expand outside of fleet management before the Company is treated as a high-growth SaaS vendor by public markets;
- The Company derives c.98% of its revenues from subscriptions. Subscriptions are priced on a per asset, per application basis, which is vanilla in Industrial IoT;
- The Company’s business model is proving popular with larger customers, as Samsara indicated that 45% of its ARR comes from contracts worth more than $100,000. Only 7% of its revenue comes from customers contracts worth less than $5,000 in ARR, demonstrating that the Company plays an Enterprise playbook;
- Last, the Company benefits from strong use cases across a wide range of industries.
- Looking at the numbers:
- The Company has incurred strong growth in revenues, with LTM revenue of $379M and a growth rate of 76% which makes the Company a top performer here;
- The Company’s gross margins migrated from 57% in Q1 2019 to 72% in Q3 2021 due to additional applications layered on top of existing hardware and workforce reductions resulting from the COVID-19 pandemic. This is a high figure for an AI based Company, though we can note that gross margins have held steady for the last 4 quarters at IPO filing date;
- The Company’s GAAP operating margin is not good, and though it has strongly improved over the last year (notably through a reduction in marketing spend), stands at (36)%.