What happens when public SaaS companies don’t meet heightened investor expectations?

Late last week we discussed how, this deep into the earnings cycle, it appeared that public SaaS and cloud companies had largely made it through the Q2 gauntlet unscathed. Sure, through last week there was a report or two that wasn't stellar, but by and large the results had been good and SaaS valuations were happily near all-time highs.

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That's still the case today, albeit with some caveats. Yesterday, a few public SaaS and cloud companies were dinged sharply by investors after reporting their earnings and I want to talk about why.

My hunch: many SaaS companies that investors expected to accelerate during this period of more-rapid-than-anticipated digital transformation are not, or at least not enough to match market hopes. And that means that their results were not quite what investors expected. And, thus, down went their share prices.

The analogy for startups is pretty clear here, just slower. Public valuations are updated far more often than private valuations, so the stuff we're seeing today in SaaS stocks won't show up in SaaS startup valuations for a bit. But I wonder if the same expectation/reality gap that we can discern in a number of recent SaaS results could hit startups as well, with boards that were expecting more than will be delivered in time.

Overall, SaaS and cloud valuations are still strong. Zoom crushed the period. Salesforce did well, too. And with valuations high, revenue multiples remain historically stretched. So, I don't think that today's news changes the general market dynamic towards public SaaS companies, and thus SaaS startups. But yesterday's results are a bit of a warning sign all the same.

Let's explore.

Friend of the column Jamin Ball compiled a list of the SaaS companies reporting yesterday, including MongoDB, Guidewire, SmartSheet, CrowdStrike, PagerDuty and Zuora. Those are the companies whose results we are exploring today.

To keep this post from becoming interminably long, we'll be brief and direct. So, in bullet points and with terse language:

• MongoDB: Shares up 2.2% in pre-market trading. MongoDB beat on revenue ($138.3 million vs. $126.8 million expected), and per-share profit. It also guided higher for current-quarter revenue than expectations ($137 million to $139 million vs. $130.6 million). So, MongoDB managed to crush earnings, smashed expectations, and was rewarded with a tiny 2.2% gain this morning. That result is not a counter-example to our thesis. It's early confirmation.