Samsara: Enterprise Customers Driving Growth

seekingalpha11-24 21:26

Samsara Inc.'s growth is sustainable but will slow, with a projected 5-year growth rate of 33.7%, driven by ARPU from large enterprise customers.The company has a competitive advantage due to its high...

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Scharfsinn86  In this analysis, we examine Samsara Inc. (NYSE:IOT), a Fleet Management and telematics company based in the US. The company’s revenue has grown on average 66% over the last 5 years and is expected to grow by 27% over the next 5 years. Thus, we analyze whether the company’s growth is sustainable in the medium to long term. We first determine whether its ARPU or customer additions have been driving revenue and whether its driver is sustainable. Moroever, we analyze whether the company has a strong and sustainable competitive advantage in the market it operates in. Lastly, we analyze whether the company’s international expansion strategy has been successful and whether the company can continue growing overseas. In terms of business model, Samsara is a company that specializes in Fleet Management software, which is software that helps companies to track “vehicles, equipment, and drivers from a single application”. To add on, the company’s products include Vehicle Telematics, which refers to a device that is attached to a transportation vehicle and uses GPS to “track the location of its carrier”. The company also offers Video Safety, which refers to an AI dash-cam that uses AI to “detect and alert drivers to potential forward collisions” and also offers Equipment Monitoring, which helps companies in “tracking, locating, and managing physical assets” and “improve operations by allocating assets more effectively”. The company also offers Site Visibility, which helps companies to monitor “onsite and on-the-road data”, and also offers Compliance, which helps companies to manage compliance better using “intuitive tools and pre-built reports”. Overall, its products enable businesses to track and monitor the whereabouts of their vehicles. Regarding the software industry it is in, we believe the company is categorized under the sub-industry Supply Chain Management and Enterprise Resource Planning, under the Enterprise Software industry. This is as we believe its Vehicle Telematics and Video Safety products relate to Enterprise Software, under SCM because Vehicle Telematics helps companies track their vehicles, and Video Safety helps the driver to be safe while driving using AI voice assistance. Moreover, we believe that Equipment Monitoring, Site Visibility, and Compliance products are also part of Enterprise Software, under ERP, as Equipment Monitoring helps companies manage equipment and Site Visibility monitor onsite footage, while Compliance helps comply with regulatory processes. ARPU Growth From Large Customers Firstly, we analyze whether ARPU or customer growth is driving revenue growth and whether its growth is sustainable. Thus, we compile the customer growth, ARPU, and revenue growth over the last 3 years to analyze its revenue growth. The company also had an IPO recently in December 2021, thus, we did not have access to data prior to 2020.   ARPU and Customer Additions ($ mln) 2020 2021 2022 2023 Average   Customers 20,000 28,500 35,200 42,032     Growth % YoY   42.5% 23.5% 19.4% 28.5%   Customer Additions   8,500 6,700 6,832     ARPU ($) 12,509 15,030 18,538 22,302     Growth % YoY   20.2% 23.3% 20.3% 21.8%   Revenue ($ mln) 250.2 428.3 652.5 937.4     Growth % YoY   71.2% 52.3% 43.7% 55.7%   Click to enlarge Source: Company Data, Khaveen Investments Based on the table above, its average customer growth has outpaced its ARPU growth over the last 3 years, growing by 28.5% per year whereas ARPU has grown by 21.8%. Thus, its customer growth has been driving revenue growth. However, customer additions in 2022 and 2023 have been lower than in 2021, resulting in customer growth declining. Whereas ARPU growth has been steady across the last 3 years, resulting in ARPU growth being higher than customer growth in 2023. Despite the declining customer growth, the management highlighted in Q4 FY2024 that “$100,000-plus ARR customers represent our fastest-growing cohort and make up 52% of our total ARR, up from 48% one year ago”, which contradicts the decline in customer growth. Thus, we compile the customer breakdown by ARR to analyze which customer segment is driving revenue growth. Based on its annual report, ARR or Annual Recurring Revenue refers to the “annualized value of subscription contracts”, whereas revenue is recognized when “services are transferred to customers”.   Customer Breakdown by ARR ($ mln) 2021 2022 2023 Average   $100K+ ARR Customers 806 1,237 1,848     Growth % YoY   53.5% 49.4% 51.4%   $100K+ Total ARR 251 382 573     Growth % YoY   52.0% 50.2% 51.1%   $10K–$100K ARR Customers 8,094 11,263 14,652     Growth % YoY   39.2% 30.1% 34.6%   $10K–$100K Total ARR 229 326 430     Growth % YoY   42.5% 31.9% 37.2%   $5K - $10K ARR Customers 5,600 6,800 7,900     Growth % YoY   21.4% 16.2% 18.8%   $5K - $10K Total ARR 39 48 55     Growth % YoY   22.1% 15.5% 18.8%   <$5K ARR Customers 14,000 15,900 17,632     Growth % YoY   13.6% 10.9% 12.2%   <$5K Total ARR 39 40 44     Growth % YoY   1.8% 10.9% 6.3%   Total ARR 558 795 1,102     Growth % YoY 63.6% 42.5% 38.6% 48.2%   Total Revenue 428.3 652.5 937.4     Growth % YoY 71.2% 52.3% 43.7% 55.7%   Click to enlarge Source: Company Data, Khaveen Investments Based on the table above, the company’s ARR has been driven by $100K+ ARR customers, as the $100K+ ARR customers growth has been significantly higher than all other customer segments. Notably, slower customer additions in 2023 can likely be attributed to slower customer growth in the $10K–$100K, $5K - $10K, and <$5K ARR customers as these customers (2023, 96% of customer) has seen their growth decline by 2% to 10% compared to the previous year. Furthermore, we believe the slowdown in customer additions is likely due to the type of customers being targeted by Samsara. In Q4 FY2024, Management highlighted that they “continue to focus on serving large enterprise customers to drive durable and efficient growth at scale”, which are $100K+ ARR customers. Management also noted that the company is a “strategic partner to many of the world's leading and most complex physical operations organizations”. Despite the decline in customer additions, we believe that their focus on large enterprises has allowed the company to increase its ARPU through product upselling. In the Q1 FY2025 earnings call, the company highlighted that 94% of their $100K+ ARR customers are using “multiple Samsara products” compared to 83% of $10K+ ARR customers. Samsara Based on the chart above, large enterprise continues to have a significantly higher adoption of multiple products, as 58% of large customers adopted 3+ products compared to 34% for $10K+ customers, which we believe the increased product adoption by large enterprises has continued to ensure steady ARPU growth over the last 3 years.   Revenue Forecast ($ mln) 2023 2024F 2025F 2026F 2027F 2028F   Customers 42,032 49,376 56,720 64,064 71,408 78,752   Growth % YoY 19.4% 17% 15% 13% 11% 10%   Customer Additions 6,832 7,344 7,344 7,344 7,344 7,344   ARPU 22,302 27,169 32,505 38,250 44,335 50,683   Growth % YoY 20.3% 22% 20% 18% 16% 14%   Revenue ($ mln) 937.4 1,341.5 1,843.7 2,450.5 3,165.9 3,991.4   Growth % YoY 43.7% 43.1% 37.4% 32.9% 29.2% 26.1%   Click to enlarge Source: Company Data, Khaveen Investments Based on the table above, we first forecast customer additions to be an average of the last 3 years. For customer growth, we forecasted growth by adding customer additions. For ARPU, we averaged ARPU growth over the last 3 years and tapered ARPU to decline by 10% per year. Moreover, we determined that customer growth has been driving revenue growth over the last 3 years but its customer growth has been slowing down significantly, with ARPU growth surpassing customer growth in 2023. Thus, we expect customer growth to be slightly slower over the next 5 years, as we believe that the company will continue its strategy of growing large enterprise customers rather than customers with <$100K ARR. Despite the expected decline in customers, we expect ARPU to be a strong growth driver for future revenue, as we believe the company continues its upselling strategy to sell more than 3+ products to large enterprise customers. This is as the company highlighted that they see “multi-product adoption at scale” and noted that “for the long term, we are focused on expanding our multi-product platform”, which we believe bodes well with our outlook of strong product adoption. Overall, we believe the revenue growth to be robust, driven by strong ARPU growth from large enterprises’ continued adoption of multiple products. Decent Competitive Advantage Moroever, we analyze whether the company has a strong and sustainable competitive advantage in the software industry it operates in. As highlighted in our first point, we believe the company is categorized under sub-industry, Supply Chain Software and ERP under industry, Enterprise Software. Thus, we determine that the company has a market share (Supply Chain and ERP) of 1.3% and an enterprise market share of 0.3%. Samsara Based on the chart above, its market share is small in North America’s Vehicle Telematics and Video-Based Safety, highlighting that the company does not have a large share and is a relatively small player even in the sub-software markets. Moreover, to determine if the company has a strong competitive advantage, we analyze its number of features, AI features, software pricing, reviews, ratings, and popularity score against top competitors. To add on, we compile the top 10 companies by revenue based on the company’s annual report and GrowJo to analyze its competitive advantage. G2, Company Data, Khaveen Investments * McLeod Software and Avigilon are based on an average of other companies’ software pricing due to a lack of pricing data. Based on the table above, Samsara ranks first overall, mainly due to the company’s high number of AI features and high popularity score. This is because the company has been continuously releasing AI features. In June, the company released AI Event Detection, which “uses the Samsara Dash Cam to help prevent safety events by detecting and automatically notifying you of unsafe driving behaviors” and recently in September announced a Gen AI Feature in their help center search bar to “quickly find answers” for product documentation. To add on, while the company ranked first, its number of features is significantly lower than competitors such as Verizon Connect (65) and Motive (66). Moreover, its popularity score also pales in comparison against Verizon Connect (3,568) and Motive (3,551), as its popularity is almost half of these companies. To better analyze its advantage, we compile its product software breakdown by category to analyze whether its product breadth is better than its competitors. We added 2 additional competitors such as ZTR and SmartDrive from its annual report to better analyze its platform.   Comparison (Business Model) Video-Based Safety Vehicle Telematics Equipment Monitoring Site Visibility Spend Management Compliance Count   Samsara Yes Yes Yes Yes No Yes 5   Omnitracs Yes Yes Yes Yes No Yes 5   Verizon Connect Yes Yes Yes Yes Yes Yes 6   Geotab Yes Yes Yes No No Yes 4   Motive Yes Yes Yes No Yes Yes 5   McLeod Software No Yes Yes No No Yes 3   Azuga Yes Yes Yes No Yes Yes 5   Lytx Yes Yes Yes No No Yes 4   SmartDrive Yes Yes No No No Yes 3   Orbcomm Yes Yes Yes No No Yes 4   ZTR No Yes Yes No No No 2   Avigilon No No No Yes No No 1   Average             3.9   Click to enlarge Source: Company Data, Khaveen Investments Based on the table above, the company has 5 out of 6 key products: Video-Based Safety, Vehicle Telematics, Equipment Monitoring, Site Visibility, and Compliance. However, the company lacks Spend Management software but despite this, the company does have Site Visibility, which 8 of its competitors do not have, while having second-highest product offerings at 5. Thus, we determine that it does have a wide breadth of products. Overall, we believe that Samsara has a competitive advantage in terms of the highest number of AI features, above-average product features, popularity score, and better pricing. Moreover, we believe that the company can maintain its AI features competitive advantage, as the company has been rapidly innovating AI features and is planning to increase AI features. As highlighted above, the company has released 2 new AI features recently. Management also highlighted in Q2 FY2025, that they have “invested in the infrastructure to rapidly deliver AI features” and also noted “when it comes to AI, and we're continuing to invest there”, which we believe bodes well with its future AI feature competitive strength. Additionally, the company has been innovating its non-AI features, as in Q2 FY2025, the company introduced 3 new non-AI features such as Connected Workflows, Connected Workflows, and Smart Trailer, which we believe highlights its innovation strategy. Furthermore, they also “expect to continue making significant expenditures”, in terms of developing “new features, integrations, capabilities”, which we believe will strengthen its future features strength. We also expect pricing to be relatively similar in the future, as we believe the company is focusing on “delivering great value” and “strong renewal rates”, rather than increasing pricing. We also believe its popularity to maintain around the same ranking, as customers continue to enjoy new product features and “great value” products. Overall, we expect the company to sustain its competitive advantage, as it continues to develop new AI and non-AI features and maintain its future pricing for higher renewal rates. International Growth Opportunities Finally, we analyze whether the company’s international growth is faster than its domestic growth and whether its international growth strategy is sustainable. Thus, we compile the company’s revenue breakdown by region to analyze its key international growth drivers.   Revenue by Region ($ mln) 2019 2020 2021 2022 2023 H1 2024 Average   United States 113.7 230.7 384.2 581.8 821.9 503.5     Growth % YoY   103% 67% 51% 41% 35% 66%   Others (Canada, Mexico, Taiwan, England, France, Germany, Poland, Belgium, Netherlands, Luxembourg) 6.2 19.4 44.1 70.8 115.5 77.5     Growth % YoY   213% 127% 61% 63% 53% 116%   Total 119.9  250.2  428.3  652.5  937.4  580.9      Growth % YoY   109% 71% 52% 44% 37% 63%   Click to enlarge Source: Company Data, Khaveen Investments Based on the table above, its United States geographic segment growth has been growing at a robust pace with an average of 66% over the last 5 years. Additionally, its Others segment which includes “Canada, Mexico, Taiwan, England, France, Germany, Poland” as well as Belgium, the Netherlands, and Luxembourg, has been growing at a faster pace at 116% over the last 4 years compared to its domestic growth. Moreover, H1 2024 international growth has been strong at 53%, driven by Mexico and Europe. This is as management highlighted in Q1 FY2025 that “both regions added a record number of $100,000-plus ARR customers and accelerated year-over-year ARR growth sequentially and compared to Q4 last year at a larger scale”. Moreover, we believe its strong international growth is because of the rapid manufacturing and logistics market growth overseas, as management noted in Q1 FY2024 that international markets such as “Western Europe, for example, is a larger market opportunity than the U.S., just in terms of the number of physical operations assets”. Thus, we compile the logistics and manufacturing market to try and verify whether management’s statement is accurate. We believe the company’s Vehicle Telematics, Video Safety, and Compliance products are related to Logistics, as these products help to track vehicles and maintain driver compliance whereas its Equipment Monitoring and Site Visibility products are related to Manufacturing, as these products help monitor their Forklifts, Excavators, and workforce sites. Statista, Grand View Research, Khaveen Investments   Logistics and Manufacturing Market Size ($ bln) 2018 2019 2020 2021 2022 2023 Average   Total Non-US Operating Regions (Canada, Mexico, Europe) 4,101 4,068 3,952 4,242 4,349 4,447     Growth % YoY   -0.8% -2.9% 7.3% 2.5% 2.3% 1.7%   Total Operating Regions (US, Canada, Mexico, Europe) 6,551 6,513 6,302 6,667 6,779 6,907     Growth % YoY   -0.6% -3.2% 5.8% 1.7% 1.9% 1.1%   Click to enlarge Source: Statista, Grand View Research, Khaveen Investments Based on the table above, the United States and its non-US Operating Regions have been growing at relatively the same pace. Thus, we determine that management’s statement is accurate, highlighting that their European markets are indeed larger, and we also believe that international growth is higher due to the larger market size overseas compared to the US.   Logistics and Manufacturing Market Size ($ bln) Average Growth % YoY (2019 - 2023) Forecasted CAGR   United States 0.1% 2.3%   Canada 1.4% 5.4%   Mexico 1.3% 4.4%   Europe 1.8% 2.2%   Total Non-US Operating Regions (Canada, Mexico, Europe) 1.7% 2.7%   Total Operating Regions (US, Canada, Mexico, Europe) 1.1% 2.5%   Click to enlarge Source: Statista, Grand View Research, Khaveen InvestmentsOverall, we determine that the US has been the main key driver of revenue growth from 2019 to 2023, outpacing international growth in terms of total revenue contribution. Furthermore, we expect US growth to be sustained, due to the strong forecasted CAGR for the US’s Logistics market (6.2%), driven by the technological advancements of AI and IoT being used in logistics operations. Moreover, we expect international growth to contribute more meaningly towards revenue growth compared to the US in the future, due to larger market opportunities overseas. This is as management highlighted that “Europe is a really big market opportunity for us” and that “there's more commercial vehicles and physical operations assets in Europe than in North America”, which we believe highlights more international growth opportunities for the company to grow. This is as the combined European Manufacturing and Logistics market represents a larger market size than the US. Moreover, management highlighted they have “been investing in international” and they are “continuing to expand and gain customers in our new frontiers, including Mexico, Canada, and Western Europe”, which we believe bodes well for their international growth expansion. All in all, we expect the company to sustain its international growth expansion due to the larger market opportunity overseas and as the company focuses on its international expansion strategy. Thus, we expect international revenues to contribute more towards growth compared to before. Risk: Motive’s Product Feature Developments We believe one of the risks that could impact the company is product features development. For example, Motive (ranked 3rd in competitive score) released 6 new products for its Spring Showcase 2024, which includes Fraud Detection and Engine Immobilizer. Moreover, Motive’s management highlighted that Motive will have “continued investment in AI and computer vision” with new product features (AI Omnivision) being released in Q1 2025. Thus, we believe as Motive continues to innovate and increase its product features, it could negatively impact the company’s sustainable competitive advantage. Verdict Overall, we believe that the company’s growth is sustainable in the medium to long term, albeit at a slower rate than before, as we project its 5-year growth to be 33.7% compared to its previous 5-year of 63%. We believe that the company will continue its strategy to acquire large enterprise customers, specifically in operationally intensive industries rather than SMBs. Thus, we expect customer additions to increase at a slower pace, as the pool of large enterprises is smaller than SMBs. However, we expect ARPU growth to be a strong driver of growth, as the company focuses on its upselling strategy of 3+ products adoption to large enterprise customers. We expect the company to maintain its AI features competitive advantage, as the company has been rapidly innovating AI, releasing 2 new AI features recently, and as management highlighted “when it comes to AI, and we're continuing to invest there”. We also expect the company to maintain strong product feature developments, as the company noted 3 new non-AI features and continues developing new features while maintaining attractive pricing to deliver “value” for customers. Additionally, we expect the company to sustain its international growth expansion due to the larger market opportunity overseas and as the company continues its international expansion strategy. Thus, we expect international revenues to contribute more towards growth compared to before.   Valuation 2024F 2025F 2026F 2027F 2028F   Revenue ($ mln) 1,341 1,844 2,450 3,166 3,991   P/S 23.74x 18.01x 14.12x 11.40x 9.42x   Equity Value ($ mln) 31,847 33,199 34,609 36,079 37,611   Shares Outstanding ('mln') 556.4 556.4 556.4 556.4 556.4   Price Target ($) 57.24 59.67 62.21 64.85 67.60   Current Price ($) 54.91 57.24 59.67 62.21 64.85   Upside 4.25% 4.25% 4.25% 4.25% 4.25%   Click to enlarge Source: Company Data, Khaveen Investments  Based on a P/S valuation, as we projected its 5-year growth to be 33.7%, we based its 2029 P/S on the 5-year average P/S of top Application Software companies by revenue. Thus, based on a price target of $59.67 in 2025, we derived an upside of 7.27% and hence, rate the company as a Hold.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485679982"}