New IPO: Samsara - Leading Supply Chain IoT
Samsara has not IPO'd yet but it looks extremely interesting and worth a spot on your watch list
New IPO’s can present an excellent risk/reward with the proper risk management in place.
What I like to do is provide Subscribers first movers research, a write up, on a new IPO that could potentially provide outstanding returns. In this case, Samsara can be one of those companies that can provide an opportunity to produce excellent returns. Their growth has been tremendous since inception and their leadership has a proven track record (originally founding Meraki) when it comes to leading/growing a business. Meraki was originally an RF engineering company that eventually sold to Cisco for $1.2B dollars.
During 2020 Samsara experienced 108% YoY growth and in 2021 they have experienced nearly 74% YoY growth. Couple these growth numbers with a quickly declining operating loss, I knew I had to share this with all of you.
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Samsara - Ticker: IOT
The long term thesis for Samsara has to do with the general industry dynamic. Currently, our supply chain’s are strained and this could be due to macro economic conditions or, lack of innovation. Samsara finds itself solving both supply chain inefficiencies by providing IoT devices and software management.
Over the very long term, there will likely be further innovations within our supply chain like robotics, artificial intelligence, and autonomous driving. If Samsara can capture this long term opportunity by implementing their IoT solutions, collecting data and understanding industry trends they can continue to lead and capture future digital transformation initiatives in an otherwise legacy industry. Their core business model helps supply chain companies capture data to find efficiencies/enhancements within their existing operations.
Founded in 2016, Samsara originally set out to become a telematics solution for vehicles. Over time they rapidly innovated to play a larger role within the supply chain businesses that they work with. Their business model is a software first company but they sell IoT hardware devices to their customers. This enables their customers to:
Create a better customer experience (think package tracking for one use case)
Enhance efficiency’s within existing supply chain
Ensures compliance with Osha Standards and other safety protocols for supply chain workers
Safety visibility and improvement for workers
Better security, and
Sustainability - this is the most interesting as it prepares fleets for transition to EV’s, meeting emission standards set by the government
When thinking about how they do this, they essentially integrate hardware devices that can log and record data into existing legacy hardware. Once a customer installs their devices onto the asset, they’re able to collect the data and transmit it back into the cloud. Once in the cloud, Samsara’s platform provides readable analytics with structured data. The products/solutions that they currently provide:
Video Based Safety: AI Dash Cam, Driver Safety & Coaching
Vehicle Telematics: GPS Fleet Tracking, Fuel & Maintenance, Electric Vehicle Status & Updates
Apps & Driver Work Flows: Documents, messaging, DVIR (driver vehicle inspection report), driver hotspot, compliance & ELD
Equipment Monitoring: Equipment tracking, advanced equipment monitoring, trailer tracking, climate monitoring, custom dash boards, advanced alerting, equipment reporting, custom KPI’s
Site Visibility & Security
Data & Integrations: App market place, developer API, experts marketplace, OEM integrations, reports & alerts
To summarize, they are providing devices to record data for many steps in the supply chain to enhance the business operations. This data directly impacts their customers top and bottom line if used correctly (which is what the platform is for).
The Market Opportunity & Competition
At first, I thought the business model was fairly simple and thought there must be players participating in this industry but upon further research, it’s relatively under-penetrated. A few of the top competitors would include Verizon Connect, Keep Truckin, and Geotab. The solutions that many of their competitors provide are relatively fragmented, meaning they may provide one particular piece of Samsara’s total product offering but do not provide the all-in-one solution. If I may be missing a competitor, let us know:
What’s most interesting is who the customers are that Samsara is trying to help, how large they are, and where they are in the digital transformation process. You have to think about the state of the United States railroads, ships, trucking and ports today. It is currently not a very technologically advanced market. Surprisingly these supply chain businesses contribute to a whopping >40% of the total United States GDP! More important, Samsara’s customers are just beginning to digitally transform their operations.
The narrative for 2021 has been predominately about supply chain inefficiencies, macro head winds, government stimulus and ‘pent up demand’. Samsara directly benefits from this because many of these businesses are beginning to realize that they need to transform to stay ahead and meet consumer demand.
Total addressable market estimated to be $55B currently with a 21% CAGR for the next 3 years
The market opportunity is massive and growing quick. They do have a first movers competitive advantage. This advantage is important in a market like this because they’re collecting data and helping their clients move their businesses forward. As their clients ‘digitally transform’, new, more advanced opportunities will arrive for Samsara to help their clients. This will keep them on the leading edge assuming good execution.
Potential Future Opportunities & Risks
Leading a platform in IoT, Data and Supply Chain analytics presents itself with a unique long term moat and strong competitive advantage. There are a lot of secular tailwinds when it comes to EV, renewables and autonomous driving. I could see Samsara playing a major role in this industry.
The reason why I put future opportunity and risk together is that they go hand in hand. After reviewing the risk section of their S-1, the biggest risk that stuck out the most to me was how they’ve innovated and grown so far.
What Samsara has done very well is identify a gap in the market, create an IoT device compatible with that the problem businesses are trying to address, and update their platform. They mentioned in their S-1 that they may see a maturity in this part of the market where they can continue to address new problems. This could slow growth an inhibit the business from reaching profitability.
Another risk factor that could emerge is new competition within their market from one of the large tech giants. An example I can think of is Roku; who began to see a struggling share price when Google and Amazon announced new hardware to compete with Roku devices. In addition to new players, existing players out maneuvering Samsara for dominant market share will definitely present a risk to the share price as well. The barrier to entry is not very clear, yet.
With review of their financials we see strong top-line revenue growth, decreasing sales and marketing expense, and decreasing operating losses. It is important to note that they they are currently unprofitable but are showing improved operating and gross margins with scale.
Top and bottom line metrics year to date, as of October 31st. 2021:
Revenue grew 73.9% YoY to $302.6m
Gross profit grew 81% YoY to $216.8m, showing expanded gross margin %
Gross profit margin grew to 71.65%, up from 2020 gross profit margin of 69.83%
Operating margin of -33.7%, improved from -83.8%
Free cash flow year to date is -$169.4m
In many cases, from a financial perspective, I keep a strong eye on sales and marketing expense as a percentage of revenue. The reason why this is important is that many company’s can invest into growth and “buy” their growth. It’s encouraging to see Samsara show an improvement to 55% of revenue, down from $80.9% of revenue. Because they grew successfully 73.9% YTD and invested less into S&M, this tells us that they’re on a sustainable path to growth.
They recently just filed their S-1 and I had to share my preliminary findings. I expect this thesis to continue to grow as more information, outside of their S-1, is presented. My biggest question that I have right now is; where does the CEO see the company going long term? I need to know their long term goals and vision to see if they’re looking to be apart of connected supply chain and commerce.
Samsara is definitely worth consideration and to keep on your watch list. I will be sure to share any more updates that come along.
Thank you for reading, stay tuned and stay classy traders