"I’ll quickly touch on the third point first. For both traditional and software companies, the last point is almost 10x harder than what it looks like in a spreadsheet. Unwinding investments are hard for organizations when we’re talking about people, and it takes longer than investors would like it to. "

Valid, but with the caveat that if the company continues to grow at a decent clip, a hiring freeze (rather than a layoff) can be quite effective.

Expand full comment
Apr 14, 2023Liked by Arda Capital

Thank you for the insightful write-up!

Indeed, it can be argued that both Workday (WDAY) and Okta continue to stack S-curves, which may be causing depressed margins. Workday has been heavily investing in its FINS+ portfolio, likely involving more R&D-intensive efforts compared to traditional SaaS categories but resulting in a stickier product with less susceptibility to tech disruption. Similarly, Okta experienced a hit to its operating expenses with the Auth0 acquisition. Auth0, being a smaller, sub-scale company compared to Okta, negatively impacted Okta's margins. It's evident that Okta mishandled the integration, particularly in sales, adding to inefficiencies.

Regarding the technical analysis, I wonder why operating yield hasn't been considered? Operating yield, defined as Net New ARR / Opex, can provide insights into an organization's efficiency in acquiring net new ARR, assuming net new ARR becomes annuity after the first year. This approach is akin to sales payback but also incorporates R&D and G&A factors.

Expand full comment

Agree that both WDAY and OKTA are stacking S-Curves. OKTA spent a lot to acquire Auth0 so they effectively bought a lot of scale, which should lead to more leverage than they've shown.

re: Net New ARR / Opex, are you asking why that's not included in my analysis?

Expand full comment