The New York Stock Exchange welcomes snowflakes on December 21, 2021, the first day of winter. To mark the occasion, Snowflake Bear rang the opening bell with Chris Taylor, NYSE Vice President of Listings and Services.
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In 2020, as a data analysis software supplier snowflake One of the key statistics it touted to investors when it hit the public markets was net income retention.
Snowflake’s NRR at that time was 158%, meaning its existing customer base increased total spending by 58% from a year ago. The measure, which reflects customer demand for more products and services, is loved by Wall Street because it means it can boost revenue without much additional cost.
However, in the quarter ended in January, Snowflake’s NRR fell to 131%, which is still high by industry standards but shows that new spending is slowing. This is a trend emerging across the cloud software industry as previously fast-growing businesses compete with more conservative approaches from the corporations, governments and other entities they serve (whether the buyer is finance, marketing or IT).
“Median net retention rates in the software space have been declining steadily over the past few quarters,” Jamin Ball, a partner at technology-focused investment firm Altimeter Capital, wrote in a report. Post on social media site on Friday. “There’s increased churn pressure (as companies look to reduce point solutions in favor of platforms) and it’s more difficult to upsell, resulting in lower net retention,” Ball added.
Median net retention rate across the industry fell to 111% in the fourth quarter, with numbers declining slightly in each period, Ball’s data showed. According to a four-year chart he published, NRR peaked at 121% in the first quarter of 2022, when tech stocks hit all-time highs and began a steep decline.
Even as interest rates stabilize, the economy shows signs of strength and the Nasdaq erases all losses from 2022 to hit new highs, the tightening continues.
twillioNRR for selling cloud-based communication software is 102% February, revenue increased by only 5% annually. Rewinding back to the fourth quarter of 2020, the company’s NRR was 139%.
Twilio generates nearly all of its revenue from its division that contains technology for sending text messages and emails.
“We’re seeing lower churn in the business, but more contraction relative to historical levels before 2023,” Twilio finance chief Aidan Viggiano said on the company’s February earnings call. Bigger, more modest expansion.”
Snowflake Chief Financial Officer Mike Scarpelli told investors last month that NRR would at some point converge with its revenue growth rate, which slowed to 36% in the most recent fiscal year from 69% in fiscal 2023 and 106% the year before. %.
The subject didn’t get much discussion during Snowflake’s earnings call, as analysts focused on Sridhar Ramaswamy’s replacement as CEO Frank Slotman Slootman’s message. Frank Slootman is a veteran Silicon Valley executive who led Snowflake’s 2020 initial public offering, the largest ever for a U.S. software company.
Representatives for Twilio and Snowflake declined to comment.
Similar stories skyrocketingwitnessing its enterprise net retention rate dropped to 101% That’s up from more than 130% three years ago.
Zoom has chosen to add AI capabilities to its premium video calling plans at no additional cost.This is different from the approach taken by competitors Google and Microsoftwhich often forces companies to pay for new AI capabilities.
“Because customers are also trying to reduce costs, we will not charge customers for these features,” Zoom Chief Executive Eric Yuan said on the company’s earnings call last month.
Zoom did not respond to CNBC’s request for comment.
even Amazon Chief Executive Andy Jassy said “cost optimization” was having an impact on the business. Amazon Web Services doesn’t report NRR, but the unit reported annual revenue growth of 13% in the fourth quarter, down from 20% in the same period last year. Jassy said he believes the market is starting to show signs of reaccelerating.
“I think most of the cost optimization has already happened,” Jassy said. “It’s not that there won’t be more viruses, it’s not that we won’t see more viruses anymore. But it’s just weakened very significantly.”
“Customers are renewing larger commitments over longer terms,” an AWS spokesperson told CNBC in a statement.
“Additional price reduction pressure”
Zoom messageThe company, which sells access to data that can be used to help drive sales, reported a sharp decline in NRR from 116% two years ago to 87% by the end of 2023. This means existing customers are spending less year over year.
ZoomInfo Chief Financial Officer Cameron Hyzer told analysts on an earnings call last month that mid-sized companies, especially technology companies, were the most popular customers in the fourth quarter. At the end of the fourth quarter, ZoomInfo had 1,820 customers with annual contracts worth at least $100,000 as of December 31, down from 1,869 customers as of September 30.
“We expect additional selling pressure in the first quarter as we are still experiencing the peak of negative impacts from last year and dealing with the long tail of multi-year contracts that have recently been trading in a very different operating environment,” Heiser said. “Management expects retention rates to return to higher levels this year,” he said.
digital oceanCompanies that compete with AWS, Microsoft, and Google in providing cloud computing and storage services also saw NRRs fall below 100% last year. After reaching 112% in Q4 2022, the ratio dropped to 107% in early 2023 and then to 96% in Q3 and Q3. Season 4.
Paddy Srinivasan, who was named DigitalOcean CEO in January, told CNBC in February that developers were shutting down compute instances they were not currently using.
Like AWS, Srinivasan said DigitalOcean is “starting to stabilize.”
Representatives for ZoomInfo and DigitalOcean did not respond to CNBC’s requests for comment.
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