Contrary Research Rundown #70
When cash burn just won’t quit; plus new memos on Airwallex, Stytch, and others
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Research Rundown
Businesses are intricate beasts. Often, people talk about things like growth and profitability as switches that can be turned on and off. But the reality is that every aspect of a business is inextricably connected to another part. That is nowhere more true than when it comes to cash burn.
When the market turned at the end of 2021, layoffs were a pretty quick solution for a lot of companies. In 2022, over 1K companies laid off 164K employees. That number jumped in 2023 to over 262K employees.
Take Brex, for example. In October 2022, Brex announced it was laying off 11% of its 1K+ employees. This wasn’t surprising given the market. In April 2022, the company had announced an attempt to focus more on larger customers, and in June 2022 it moved away from small businesses as customers.
Even while dealing with the loss of its CRO and CFO, Brex still seemed to be making the right moves to “turn on sustainability” as a business. The first thing the shift to sustainability hits is typically growth. In November 2023, Brex shared that its annualized revenue at the end of Q3 had hit ~$283 million; up just 1% since the prior quarter.
First comes declining growth, then comes exacerbated burn.
This past Tuesday, The Information reported that despite all the steps the company had taken over the course of 2022 and 2023, Brex was still burning $17 million of cash per month. Over $200 million per year. In addition, Brex announced this week it was laying off an additional 20% of employees.
Now, the positive spin for Brex is that the company has raised ~$1.5 billion in funding, and claim to have four years of runway. And the effectively flat growth is a combination of (1) churning customers as it moves away from SMBs to larger customers, and (2) a pull-forward from the failure of SVB leading to a spike in Brex customers. So the company can still figure things out, and could potentially hit its target of being cash flow positive in 2025 ahead of a potential IPO that year.
But the reality is, companies will continue to have to cautiously pay attention to what is happening in the public markets. According to one report, a number of private tech companies did reduce burn in 2023.
But, as discussed earlier, the exacerbation of reducing burn can often have a negative impact on revenue growth, which can keep cash burn as a percentage of revenue relatively consistent.
As of January 2024, public tech companies expect over the next twelve months to see their revenue growth drop from 21% to 14%, while their overall free cash flow margin improve from 9% to 14%. Despite the continued performance of the stock market overall, many private companies who are considering a potential public debut should be cautiously observant of what the public markets are rewarding, and what they are punishing.
Airwallex is a financial services platform focused on facilitating cross-border transactions. To learn more, read our full memo here and check out some open roles below:
Director, Product Design - San Francisco, CA
Marketing Automation Manager - U.S. Remote
Stytch is building a developer platform for companies to implement frictionless authentication methods. To learn more, read our full memo here and check out some open roles below:
Developer Success - San Francisco, Remote
Frontend Engineer - San Francisco, CA
Netlify aims to transform the way businesses and developers build websites by making it easy for them to do so without the complexity of managing or running web servers. Netlify’s platform ties in a large ecosystem of cloud services and APIs into one workflow. To learn more, read our full memo here and check out some open roles below:
Check out some standout roles from this week.
Bluesky | San Francisco Bay Area - Head of Product Marketing, Senior Software Engineer - Data Cloud Optimization, Senior Software Engineer - Distributed Systems
Regrello | U.S. Remote - Product Manager, Machine Learning Engineer, Machine Learning Scientist
Hugging Face and Google have announced a partnership to drive towards “open AI collaboration.” Hugging Face CEO, Clem Delangue, shared his enthusiasm for the partnership, saying: “For me, Google is the #1 AI company in the world and kickstarted the whole revolution with “Attention is all you need”, BERT, T5, and many more. For more on the openness of AI, check out our deep dive.
Snyk, a cybersecurity developer platform, is reportedly considering an IPO this year. To learn more about Snyk, check out our memo.
The Information reported that AI company Anthropic had ~50-55% gross margins. This week, we broke down the dynamics that make AI a complex business that can weave together a variety of business models, from software to hardware and consumer apps.
As Microsoft continues to double-down on artificial intelligence, the company has announced a reorganization internally. Microsoft established an internal team focused on “developing AI that costs less to operate.”
Databricks published a report on the “State of Data + AI.” To learn more about Databricks, you can also check out our memo, or our deep dive comparing the company to Snowflake.
Speedwell Research published an overview of Wish, and what it could mean for other ecommerce upstarts like SHEIN and Temu.
Ola Brown published a video unpacking the differences in public markets between innovative technology companies and more traditional businesses. The video was part of a response to a comparison between Stripe and traditional banking stocks.
Figma CEO, Dylan Field, shared an announcement about new features to Figma’s “Dev Mode.” As part of the announcement, Field reinforced Figma’s broad platform intentions: “Figma was never intended to be a design-only tool.”
Lulu Cheng Meservey, the Chief Communications Officer for Activision Blizzard, shared a breakdown of Anduril’s communications strategy, operating in a contraversial industry like defense. To learn more about Anduril, check out our memo.
Speaking of Anduril, the company announced it had been selected as one of five vendors for the Air Force’s first autonomous aircraft program. One of the only non-traditional defense companies to be selected.
Amazon, Weaviate, and Cohere published a piece explaining the collaborative way companies can build generative AI using each of these companies solutions. To learn more about Cohere, check out our memo.
Zapier announced new product features, including the ability to build Interfaces and Tables that work directly with Zapier integrations. Likely, this functionality is putting Zapier more in direct competition with productivity platforms like Airtable.
According to Rippling CEO, Parker Conrad, “companies that don’t use Rippling have twice as many people in HR-IT-finance than those that do.” To learn more about Rippling, check out our memo.
Vendr shared its annual “SaaS Trends Report” to highlight some of the most often bought software tools, such as 6sense, 1Password, Gong, Fivetran, and more.