What ails global SaaS?
Adobe - the global market leader on creative and document cloud products - including products like Photoshop, Illustrator and Acrobat is down 33% this last year!
Atlassian, the business you probably use in the workplace (Jira, Confluence) is down almost 40%+ from its Feb highs.
Salesforce (the default global CRM)has now gone through a 5 year+ time correction!
These are by no means weak businesses. These are businesses known for being high margin, steady growth businesses, with a high degree of customer retention - all factors that once made them Wallstreet favorites. Yet the recent past hasn’t been kind. Let’s dive into some key reasons.
The AI stress: But the AI wave hasn’t been kind. While Adobe has tried to adopt AI via Firefly - competitors have been much more nimble -reducing friction for hobbyists and communicators to produce content faster and cheaper. (We ourselves are able to get most of our work done via Canva). Salesforce has tried something similar with Einstein, but the end market growth is in question as a lot of tasks get automated, and ARPU remains under pressure - and small and large firms alike push back.
Too big to grow?: As these behemoths have grown their core business to humongous scale, incremental organic growth has become a challenge. Both Adobe and Salesforce are now guiding for high single digit revenue growth, a number that most sell-side analysts see going lower in future years. APRU growth - one of the key levers for growth for these businesses is now under stress as the barriers to entry for cheaper competing products come down. And as we have seen in the past - the street penalizes businesses heavily in the earnings growth deceleration phase.
Net drain on margins: All SaaS businesses have had to invest heavily in AI to keep their offering more relevant to the end users. But in an environment where the willingness to pay for such features is low - the cost will likely be borne by the SaaS businesses atleast in the short to medium term. The combination of higher costs, higher granular competition, and weaker pricing power because of it - is not a pretty story.
But all is not lost. As we said - these are still phenomenal businesses. We have done a 3hr+ deep-dive on global SaaS if you’re interested in knowing more about the space. (All links below).
My ex-boss (also a global top 1%ile fund manager) has started a daily newsletter covering key themes in the Global market - you can follow the same here: https://substack.com/@themeparkinvestors
GSN Invest is covering 100+ US businesses via a series of 25+ webinars in our US Webinar series. You can learn more about the same here: https://easebuzz.in/link/0SSCM (Early bird rates are back for the next few days!)
You can also access the US SaaS webinar separately here: https://easebuzz.in/link/EBZXT