September 18th, 2023: Flexport CEO forced out as company releases an update, Shopify CFO chat at Goldman Sachs event, Klaviyo and Instacart IPO valuation, and Amazon releases Supply Chain by Amazon
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s September 18, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Flexport CEO Dave Clark Forced Out As Company Releases an Update
Shopify CFO Chat at Goldman Sachs Event
The Klaviyo and Instacart IPO Valuation
Amazon Releases Supply Chain by Amazon
- and finally, The Investor Minute, which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
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To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
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We have a new feature at the end of our podcast called the Final Word, so I thought I would introduce that here. It will be the last segment before I sign off, so be sure to listen until the end and catch it.
BUT FIRST in our shopping cart full of news….
Flexport CEO Dave Clark Forced Out As Company Releases an Update
Last week former Amazon logistics leader Dave Clark CEO of Flexport abruptly announced his departure from Flexport after one year of being in the CEO seat. What has ensued is a one-sided Twitter flame war waged by Ryan Peterson to save his reputation in a way that is completely unnecessary and just makes the entire company seem more desperate.
Look, Dave Clark and Flexport were never a fit. A virtual logistics business meets a logistics infrastructure builder.
Flexport’s new direction, freight, is a commodity and is in no way a future Flexport is going to justify anything near its valuation.
In the middle of his ongoing flame war against Dave Clark, Ryan Peterson backtracked and praised Dave Clark’s team for the new SMB Logistics release Flexport calls Revolution. Let’s talk about that now.
My summary is this release is neither Logistics nor a Revolution.
The dim view of this release is that this is a lead-gen tool for Flexport Capital. Flexport motto: "If you can't pay your bills on your Flexport capital loans, have fun getting your goods held at the port!"
Here's what Flexport said in this release:
- There is a set of 20+ supply chain tools on a single page, which you can access at no cost.
- A membership program called Flexport+ allows access to financing. And with it you get access to a community.
Here's what it means:
- The "free tier" is only there to collect email addresses with the hope of upselling these people into taking Flexport loans. I learned long ago in my career that if you have a free tool, then either you are the product itself as in Facebook, or you are in someone else’s lead gen flow for something more valuable.
- Access at low cost means you can login at no cost. Congrats on that. The release itself is not even thinly veiled BS - it's out in the open running around. You can login to a portal for free, hooray. There's only like a million portals out there. Next.
- A community?!? We are scraping the bottom of the barrel here. Flexport raised $1 billion in capital to launch a loan program and a message board?
Here's what is likely to happen:
A Flexport+ membership program to access financing? What is my collateral for then? What other lenders work like this?
* Given that they are cutting the actual staff who ordered this built, it seems likely that innovation will slow down on this end-to-end project, even if it stays around.
* Finally, if you are like Shopify and own 20% of this, well... basically this is another way to have an investment in a capital lending provider. All upside for you. While you did put your capital in here, the other 80% came from others. Think Shopify won't be pushing those people into Plus and Shopify Capital? Could be worse, I guess.
* Every time Flexport's services are described in the release, financing is the lead. As in .... "financing, X, and Y". This tells you a lot about their priorities just by itself.
* Let's do an analogy. Returnly was to returns as Flexport is to global logistics. Neither are about what they seem. Returnly never touched a box. Flexport never touches a container.
* By the way, gangster move of Amazon stepping on the Flexport release by announcing Supply Chain by Amazon ont he same day. We’ll talk about this at the end of the show.
I'll give Ryan Peterson one thing; if this is what Dave Clark built, maybe he is making the right move after all? However, if this release was his subtle way of throwing Dave under the bus, maybe the joke’s on the company’s customers?
[References:]
Our Second Story
Shopify CFO Chat at Goldman Sachs Event
Jeff Hoffmeister, CFO of Shopify, spoke with an analyst last week at Goldman Sachs’ Communacopia & Technology Conference event, and I pulled a few interesting things out of the transcript -- though I still have no idea what a Communacopia is.
1 - In logistics, Flexport continues to be a solid partner of Shopify and the preferred solution for Shop Promise. That said, Shopify still wants to allow merchants to use Buy With Prime if this option is better for them, as long as all the data flows into the Shopify Admin.
It will be an interesting test to see if merchants think consumers will trust a "generic" Shop Promise badge more than the Prime badge, or is it more of a... people will have both?
Since both programs (Shop Promise and the new Buy With Prime app) have not yet launched formally within the new partnership, it remains to be seen what the best strategy is.
Shopify's CFO also obliquely referenced the "differences" between Ryan Peterson and Dave Clark, indicating perhaps that some interesting stuff went down there.
2 - Shopify POS continues to gain momentum, particularly due to the fact that Shopify signed a partnership with Quickbooks after Quickbooks POS was discontinued.
I don't know how it's possible I missed a piece of significant Shopify news from April. It seems that my friend Jordan Brannon from Coalition Technologies missed it, too! I guess it’s official - maybe Shopify is too big for me to cover. In any event, the Quickbooks partnership is fantastic for Shopify POS in much the same way that Shopify was helped by taking Amazon Webstore customers when Amazon shut down that product.
The partnership gives Shopify access to a different stream of customers than the traditional Shopify merchants. Shout out to Cindy Chan on the Partnerships team at Shopify if she’s listening to this for putting together this partnership.
3 - Regarding the Enterprise market, Shopify is approaching it from three angles.
a. Shopify Plus – Some enterprises really don't need what traditional enterprise software is all about. Their businesses don’t demand that. Plus is for them.
b. Hydrogen and Oxygen – Essentially, this is pulling the front-end off of Shopify Plus, using Shopify's hosting and React-based front-end technology.
and finally, Commerce Components by Shopify, what they call CCS – Shopify’s CFO didn't go into this too much, but right now I find that CCS is primarily about two things. One is Shop Pay Accelerated Checkout. This acts like a way to identify if a merchant is in the Shop Pay network to cut out steps in a checkout, even if it’s not a Shopify checkout. Think about it like Shopify’s version of Paypal. The other part is what they call Shop Checkout, which is the full-fledged customizable Checkout which then flows into the Shopify backoffice or your own systems.
I would expect that Hydrogen and Oxygen are in the mix here for CCS as well, so there can be overlaps between all the approaches.
[References:]
Our Third Story
The Klaviyo and Instacart IPO Valuation
Within the last week, both Klaviyo and Instacart released how many shares they will be issuing in their IPO, and the expected pricing range and valuation.
Let’s start with Klaviyo. SaaS companies have another reason to get to profitability as if they needed one -- looking more like Klaviyo.
Klaviyo's revenue ( if you take out their pricing changes) is in the 40% range; its annual recurring revenue or ARR is $585 million, and the company has turned the corner on profitability in the last year. The big question everyone had was - what would the valuation multiple be?
Well, we just learned. The company is looking to get a $6.8 billion valuation, which would put it near 13x ARR.
Whew!
SaaS founders can be excused for taking a huge sigh of relief. In the past, 10x ARR was a solid multiple for a company that is growing but not experiencing hyper-growth. Slower growth got 2-5x ARR generally, at least in the public markets.
During the pandemic, SaaS multiples skyrocketed as investors poured money in. During this time, it wasn't uncommon to see 20x+ multiples.
The past 6-9 months have been a bloodbath in software as a service. I've seen growing profitable companies only get 2-3x ARR. Hopefully we can close the book on that. Right? Bueller?
For investors, 13x ARR is a solid number, particularly as there hasn't been a large number of profitable eCommerce SaaS software companies historically. The fact that Klaviyo is setting a public benchmark and hopefully continues to be profitable will have a few benefits and lessons for the industry:
* First, it will set a trend that resonates with VCs. VCs now have a public comparable to beat. (Private company valuations usually exceed public company ones.)
* Second, it will set a trend that resonates with founders -- and encourage good behavior. But they should have long-term operating metric targets and an understanding of how to get there (not just hopes and dreams).
* As a note of caution, though.... Founders should not overreact to this message. Klaviyo was founded in 2012 and I bet it might still NOT be profitable had we not experienced the more difficult economic times. And no way the company reaches this benchmark if Klaviyo had tried to be profitable from Day 1. SaaS just doesn't tend to work that way because of the sales, marketing, and technology investments required.
In any event, we can celebrate a momentary return to sanity. Regardless of what you think, Klaviyo is the new SaaS North Star for the eCommerce independent software vendors (ISVs).
Let’s talk about Instacart for a moment. It looks to me like Instacart is setting a relatively conservative range for its IPO, despite its previous ridiculous valuation of $39 billion. But what I want to do in this segment is compare Instacart to Doordash.
Let's assume that Doordash is on a $9 billion revenue run-rate, and currently has a market cap of $32 billion. That would give it a 3.5x revenue multiple, which would value it as a growth stock.
If you assume that Instacart in 2023 is on a $3.5 billion revenue run-rate, then at the same revenue multiple, it would be valued at around $12 billion valuation. Since 12 is more than the 9 billion they are targeting, I am seeing this as conservative by the bankers taking this public, which is all of them.
I'm assuming the caution reflects the overall cautious situation in the market, and Wall Street not wanting to get ahead of itself in one of only tech IPOs in the last two years.
This all looks fine unless you see that Doordash has about 50% gross margin (and decreasing), and Instacart has around 70% gross margins (and increasing). Doordash also does not have the advertising machine of Instacart. This is a huge difference between the companies.
Which leaves the question for Instacart, why such a low valuation? I think the answer is you do this when Wall Street wants a "guaranteed win". The valuation can always find its true market value later on, as it grows
[References:]
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And Our Last Story
Amazon Releases Supply Chain By Amazon
Last week, Amazon announced its Supply Chain by Amazon offering literally on the same day that Flexport announced its offering.
Supply Chain by Amazon (SCA) is a mix of old and new. The scope of the release is end to end, from manufacturing to customers. Let's be clear: this is more about the ultimate goto-market manifestation of Amazon's global logistics ambitions. In other words, AWS meets Logistics.
SCA addresses the “Holy Trinity” of logistics, which are all critically important priorities for all brands:
1 - Keep products in stock
2 - Ship faster and more reliably
3 - Significantly lower costs
Kudos to Amazon for crystallizing this. Especially at this moment, the message is pitch-perfect in sync with what I am hearing from my own clients.
Here are the capabilities that Amazon mentioned:
* First mile pickup from manufacturing (AGL)
* Cross-border shipping and customs clearance (AGL)
* Warehouse bulk inventory (AWD)
* Manage automatic replenishment to Amazon + Retail (AWD into FBA or MCF or Retail)
* A new Preferred Carrier Partner program for domestic goods bound for AWD, with 25% discounts.
* Multichannel Distribution moves products in bulk from AWD to fill and replenish inventory to any sales channel (MCD). Pilot now, launch later.
I've called out the acronyms that I have seen Amazon use for these services in the past.
Other benefits mentioned:
* Discounts of 25% for all transportation bound for AWD, either via AGL or PCP
* AWD removes peak pricing in Q4, pricing model changes to commit to longer term storage for even lower rates. Sounds like AWS pricing to me. Not an accident. This was completely inevitable!
Some thoughts:
First, the discounts for freight/parcels bound for Amazon facilities is a nice touch and reinforces the value of the network.
Second, it's hard not to be impressed with the scale of the capabilities especially the fact that this is less about "hey we are going to build something new from scratch" and more about "we already have all this, but we have finally figured out how we are going to go to market consistently with this."
Of course there is a potential bear case here. Let’s outline it for a moment.
1 - Brands would be silly to trust Amazon to run their primary logistics rails for non-Amazon channels.
2 - Amazon doesn't "get" the needs of brands since Amazon has always been about low-cost brown boxes. You can't customize the offering enough to be the primary logistics rails for brands. Is "One Size Fits All" a true fit for growing brands that need to customize their packaging and service levels to stand out from the crowd?
3 - Amazon's overhead is such that it is not able to pass along significant enough discounts to merchants.
4 - Many of the real operators for Amazon have left the building. Meaning Amazon can't innovate like it used to in a market where merchants have options.
But finally, let’s talk about the elephant in the room — trust.
When people ask me will brands trust Amazon, my answer is yes – with time. Look at it this way, so many people trust AWS. It's not a stretch to think that many growing SMB and mid-market brands could trust Amazon because replicating this level of scale and reliability may be nearly impossible otherwise.
This is especially true if Amazon continues to lower costs and improve the service like it has historically done with AWS. You know the guy who did this? Oh yeah, Andy Jassy. So he knows the model. And the infrastructure is already in place. So yeah, this will probably work if Amazon can nail the goto-market model.
[References:]
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Hey, Watsonians, did you know that artificial intelligence could potentially enable discovery of products and services? If you were in our online community, you would! To stay on top of what’s going on in eCommerce and join the conversation, visit community.rmwcommerce.com today.
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It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First
Thorne HealthTech was acquired by L Catterton.
PE firm L Catterton acquired the company for about $10 per share or a total value of $680 million. Thorne HealthTech will delist in Q4 2023 depending on the transaction closing. The company likely will receive investment and be optimized by its new owners in 2024.
Second
Enterprise insights platform ConverSight raised a $9 million Series A.
The company uses generative AI to automate and enhance enterprise analytics, enabling actionable insights through conversational interaction.
Link: https://conversight.ai/blog/conversight-series-a-funding/
Third
Cross-border wholesale marketplace Markato raised a $5 million seed round.
The Hong Kong-based Markato focuses on assisting independent brands entering Asia. Sourcing quality products is complex. This platform connects premium non-Asian independents with trusted local retailers and buyers.
Link: https://techcrunch.com/2023/08/28/markato/
Fourth
e.l.f. Beauty acquired masstige skincare brand Naturium for $355 million for cash and stock.
The acquisition highlights a current trend in the cosmetics sector as incumbents are making bets by acquiring fast-growing startups to grow market share. If you’re wondering what the word masstige is, so am I. I’m not even cool enough up “masstige” in urban dictionary for fear of what I’ll find.
Fifth
Amazon acquired Fig, a startup building developer tools for the command line, for an undisclosed amount.
Amazon through its subsidiary Amazon Web Service emphasizes the importance of generative artificial intelligence, and empowering developers accelerates the adoption of the technology for the AWS offering.
Link: https://finance.yahoo.com/news/amazon-acquires-fig-startup-building-121220393.html
This week we have a special treat because I’m introducing a new segment of the program, today’s final thought for the week.
And in Today’s final word for the week of September 18th: DRAMA
Who knew the eCommerce world would be the same as a telenovella. Which executive is a bigger jerk to their employees? Which founder was asleep at the switch? Who pre-fired employees in the nicest way possible? Honestly, can’t we just shut up about how excellent we all are and get back to work building software and services? Leave the commentary to idiots like me.
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That’s all for this week! Till next time Watsonians.....
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Hi, I’m Rick Watson, CEO and Founder of RMW Commerce Consulting and host of the Watson Weekly podcast - your essential eCommerce Digest.
Our production partner for the series is CitizenRacecar. The show is produced by Jose Baez; Production Manager, Gabriela Montequin.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
