“The idea is to go from numbers to information to understanding.”
I didn’t write ‘Throwing Rocks at the Cloud’ twelve months ago for investors, but anyone (with significant funds to invest) who took my advice would have made a fortune. I wrote it to accelerate the righting of a wrong. At the time a lot of caveman gloating over the apparent market woes of superior competitors threw boomerangs disguised as rocks at the sky. I wrote it to counter comments and articles using pseudo-analysis for misinformation and other ill-gotten gains. The market had gone haywire and some of the best SaaS (Software as a Service) companies on the planet were being pulverised for no sensible reason. And of course the least sophisticated came out of the woodwork making all sorts of declarations about their ‘enterprise class’ software. The on-premise enterprise-class brigade still painting pictures of the turn of the millennium.
“By a lie a man throws away and, as it were, annihilates his dignity as a man.”
The goal was not investment advice, but if you had acted on my guidance this day 12 months ago by investing evenly across the 6 recommended stocks, you’d have made a 108% return on your investment. You would have made 34% on the worst performing stock. 236% on the best one.
From the original article:
Those with the highest revenue growth rates suffered the largest price drops — these include New Relic, Zendesk, Hubspot, Marketo, Demandware and Tableau. This indicates a current market going through a phase where emotion trumps reason.” I also pointed out the same disconnect between other metrics like customer satisfaction, profit levels and cashflow. I explained that these 6 companies were amongst the brightest stars in our industry.
So let’s see if I was right when I said the market reaction was nonsense in the case of these 6 companies in particular.
Marketo (formerly MKTO) sold for 236% of its valuation 110 days after I published the article. Demandware (formerly DWRE) was acquired by Salesforce for $2.8B 108 days later. It’s market price effectively went from 29.34 to 74.97 i.e. a 156% gain. Zendesk (ZEN) opened today at 27.36. It was valued at 15.09 at the time of publishing. That’s an 81% gain. Hubspot (HUBS) opened at 57.65 this morning — versus 32.22 twelve months ago. That’s a gain of 79%. New Relic (NEWR) opened at 22.13 the day I published this article. Today it opened at over 36.00. A 63% gain. Tableau (DATA) opened at 54.04 this morning. It opened at 40.25 12 months ago. A far more modest, but still very healthy 34% gain.
Based on these results, the average gain over the last 12 months for the 6 specific companies highlighted in the article was 108%. As I value integrity, I will not name the cavemen who were gleefully throwing rocks at their competitors.
Thus far I have yet to make an incorrect prediction about a software company. And I’ve made a ton of big calls publicly. There’s no chance that this situation will last forever, but I suspect my strike rate will remain high. I make these predictions based on reliable data focused on relevant parameters, logic and experience. In that order. And even more importantly, I listen carefully to people who approach things similarly. I could not have written that article without people like Tomasz Tunguz and trustworthy data driven platforms like G2Crowd.
The spirit of the original article:
Certain words seem to carry an air of rationality with them. A word like ‘correction’ is a word. Nothing else. Market falls become memes in a billion bottles. We read all sorts of things into them while ignoring the sea of data all around us …. Data is a bell that is ringing the death nell of aggressive old school vendors and legacy software companies that refuse to take their head out of the sand. Non born-in-the-cloud software behemoths can talk about cloud til the cows come home. However, it’s only the ones that wed cloud-related brand equity with cloud-related reality that will survive, and perhaps even thrive … Software can process data far more efficiently than humans and can be unbiased. Subject matter experts in the future will be built with ones and zeros to curate, analyse and interpret crowd sourced data. As software eats the world, data will usurp humans as la Bocca della Verità (mouth of truth). And the sound of crashing glass will only be a fading memory.
Our ability to convert data into understanding (Understanding as a Service) will eventually make human predictions virtually irrelevant. And that’s how it should be. In the meantime, be careful who you listen to.
I’d like to dedicate this piece to the late (and very great) Hans Rosling, former Professor of Global Health at Stockholm’s Karolinska Institutet (possible the world’s most innovative medical university). A rare and highly advanced human who championed global understanding and empathy for all — especially the poor who are the forgotten members of his species. If you are new to Rosling and interested in data as a source of truth and understanding, I urge you to watch some of his Ted Talks. In an Age of Unreason it feels like we cannot afford to lose people like that. Rosling’s vision spanned the globe and his data driven visualisation of the success of healthcare projects helped move billions of dollars from Bill Gates’ pocket to productive projects in the developing world. Rosling’s dataset really did change Gates’ mindset. He was one of the first truly great humans of the 21st century.
“Hans was a great champion for the world’s poorest, and for clear thinking.”
“I have a neighbour who knows 200 types of wine. He knows everything. He knows the name of the grape, the temperature and everything. I only know two types of wine — red and white. (Laughter) But my neighbour only knows two types of countries — industrialised and developing. And I know 200, I know about the small data.”
“What’s so funny ‘bout peace love and understanding?”