Every forecast I've ever built started the same way: exporting a CSV from NetSuite and praying nothing changed since this morning. The joys of static data.
I'm sure you know the pain - ERP actuals over here, CRM pipeline over there, and a hiring plan in a Google Sheet someone on the People team owns.
By the time you've stitched it all together, the numbers are stale and you've spent your week as a data plumber instead of a finance leader.
Cool, cool, cool.
This is why I think it's worth knowing that Abacum just became a Built for NetSuite SuiteApp. This is a pretty big deal as it is the first FP&A platform live in the NetSuite App right now.
Abacum sits on top of NetSuite and gives you connected planning, forecasting, reporting, and scenario modeling against live data. Strava, PostHog, and JG Wentworth already run their planning on it.
If you recognize yourself in the first sentence of this email, it's probably worth a look.
NDR is Slowly Being Euthanized
Last August, the SEC sent Workday a letter. They read through their 10K and noticed something off. Workday talked about its net retention rates in the MD&A (Management Discussion and Analysis), but never actually shared the rates. So the fine folks over at the SEC thought it might be something good to fix. Discsloure being, kinda like the whole point of an SEC filing.
Workday’s CFO wrote back. Here’s the actual response, verbatim:
"…upon further consideration and in light of our planned quantification of factors contributing to changes in subscription services revenues, we no longer intend to include disclosure related to net revenue retention rates in our SEC filings."
If your eyes glazed over by said corporate speak, here’s the layman’s translation:
The SEC asked Workday to tell investors what their net retention rate is
Workday says naw, thanks
They’ll keep disclosing gross retention, which is roughly 98% and has been roughly 98% forever, and call it a day
Workday does more than $8 billion in revenue and is the default HCM software for everyone from Walmart to the Department of Defense. They’re big time. And they told the SEC to kick rocks on the most cited metric in software other than revenue growth.
And yet, Workday isn’t an outlier here. This pattern is pervasive across the software index.
The Metric of the 2020 IPO Wars
For about three years, NDR was THE metric. It was GOATED.
Tom Brady holding NDR
If you met with any growth shop or crossover fund between 2019 and 2022, the second question after “how fast are you growing” is “what’s your net dollar retention rate?”
As a reminder, Net Dollar Retention rate is a measure of how much your existing customers expand in a given period, net of any churn or down sell. It basically throws all of your existing customer dynamics into a pot, mixes them up, and spits back out how much your business will grow or decline by, absent any net new business activity.
As companies rode the seat based expansion into COVID hiring companies, 120%, or 20% annual growth just from the customers you had, became very normal. In many ways, we didn’t appreciate what we had until it was gone.
Snowflake clocked 177% in their S-1. Twilio printed 139% in early 2020. GitLab IPO'd at 152%. Datadog spent fourteen straight quarters claiming "above 130%" in their 10-Q like that clip where Marshawn Lynch repeats himself over and over and over and over and over again.
There’s a lot less risk to underwrite when you can reliably claim that more than half of next year’s growth comes from the customers you already have.
But then that growth slowed and the multiples began to compress. And a funny thing started happening to the disclosures… they got quiet.
Four Ways to Make a Metric Disappear
I went through SEC filings for 82 public software companies, going back to early 2020 (remember, this email thing is my full time job, and not to brag, but I have a Claude Max plan).
I can confidently report that NDR has come down, but you probz already knew that. The more interesting story is how many companies have decided to stop telling you what theirs is. And the pattern can be sorted into four flavors.
Flavor one is just announcing that you're done. Fastly did this in their Q1 2024 10-Q. Their exact words:
"Dollar-Based Net Expansion Rate and Quarterly Net Retention Rate were used infrequently by investors and are no longer used by management to manage and monitor the performance of our business. As such, we will no longer report those metrics because we do not believe they are material to an understanding of our business."
A bit of background on Fastly. Their net expansion rate peaked at 147% in Q3 of 2020, right before the June 2021 outage that took down the BBC, Reddit, and Amazon for an hour and made everyone briefly aware of what a CDN was (just googled it myself). The metric was 115% in the quarter right before this disclosure came out. So according to Fastly, the number was material at 147%, and material at 130%, and material at 121%, but at 115% it ceased to be material. Make of that what you will.
Flavor two is refusing the SEC when they ask. That's what Workday did. It's the boldest of the four because there's a paper trail. You can pull up the correspondence and read it, which is something super fun to do on nice spring days. Workday's defense is that they're going to disclose more granular drivers of subscription revenue change instead of NRR, which would be fine (except that they haven't).
Flavor three is moving to a premonition. CrowdStrike is a perfect example of this. From their IPO in 2019 through April 2023, every single 10-Q contained the phrase "above 120%." That’s clean and repeatable. But starting in July 2023, the language suddenly changed to "consistent with our expectations." Then "in line with our expectations."
A reader of those filings has no way of knowing whether CrowdStrike's NDR today is 119% or 105% or anywhere in between. They're told only that it is in line with what management expected, which is a thing you could say about literally any number from any company. And also, I don’t know how to read minds.
Flavor four is changing the cadence. This one is the most elegant. So you don't actually stop disclosing… You just stop doing it every quarter. Doximity reports net revenue retention once a year, on March 31. Their FY22 number was 157%. Their FY23 number was 117%.
For those keeping score at home, that's a forty-point drop in twelve months, which you found out in a singl eannual filing, with no prior warning.
I wanted a gif of someone driving a car off a cliff and I instantly thought of the scene from Rat Race when they should have bought a squirrel from that creepy lady, which is a reference that maybe four out of 75,000 people will get.
nCino did the same party trick. They went from 148% in FY23 to 117% in FY24. They plumetted by 31%. Now, if you reported quarterly, the slope would have been visible on a chart by Q2. Annual cadence is cover as you drive the car off the cliff.
The disclosure is the disclosure
The actual NDR number is one piece of information. The choice to stop sharing the NDR number is a separate piece of information. And the second one usually tells you more than the first.
When a company that disclosed NDR every quarter for six years suddenly switches to "in line with our expectations," I can bet you dollars to net dollar retention donuts it went down. Nobody ever proposes changing the cadence of a metric in a quarter where the metric is going up.
“This is just too fucking good. We gotta stop telling people”
The honor roll
It’s worth giving credit to those who’ve held it down for the NDR underground. They kept disclosing, good or bad, quarter after quarter. Not all heroes wear capes.
Cloudflare has published a hard quarterly NDR every single period since 2020.
Through a low of 110% in Q3 of last year and back up to 119% this quarter.
Snowflake has done the same thing, from 177% all the way down to 124% today, no skipped quarters, and no methodology resets.
Note: they measure over a trailing 24 months, but have always done that
Others: GitLab, BlackLine, Dynatrace, PagerDuty, Five9, Twilio, DocuSign, JFrog, Klaviyo, Braze, Monday, SentinelOne.
Asana actually got MORE precise with their NDR disclosure as the number came down, which is the opposite of instinct.
Who Never Showed up to the NDR Party
Salesforce has never disclosed net dollar retention in any form.
They report an "attrition rate," which is gross churn.
ServiceNow reports a "renewal rate" of 98 or 99%, which is also gross.
Adobe, Oracle, Cisco, Palo Alto, Fortinet, Autodesk, Intuit, and now Workday officially joined the no NDR group.
To be fair, some of these companies have legitimate reasons for sitting it out, like too many product lines for one clean number, or a business model where NDR isn't the right frame in the first place (think marketplaces… AirBnB wouldn’t be expected to report NDR… or hardware-heavy stacks like Coreweave).
Which Path Will You Choose?
We’ve been talking about public company patterns so far, but this is especially relevant for private companies as well. You prepare in the shadows for the performances you’ll have in the light. Or whatever the saying is.
First, ask yourself:
Have you been quietly fuzzin’ up the language on any of your customer cohort metrics over the last eighteen months?
Have you proposed moving a quarterly disclosure to an annual one?
Have you suggested refining the methodology in a way that conveniently resets the baseline?
If yes, ask yourself who that decision was actually for.
Second, remember that the median probably isn’t actually the median.
When you benchmark your NDR against public comps in your next deck, remember that the public comp set is actively self-selecting.
The companies whose NDR is going up are still disclosing.
The companies whose NDR is going down increasingly are not.
The median you're comparing yourself to has survivorship bias baked in.
Therefore, the real distribution is worse than what you'll see in the charts that get passed around (by admittedly, people like myself)
The median is not the median is not the median.
Next week we'll hit the quantitative side of all this. What's actually happened to the numbers that we have sight of, how the dispersion has widened, who the 130%+ club has left in it (spoiler: nobody), and what a ten-point swing in NDR is worth in valuation math. Hold on to your butts.
Weekly Valuation and Efficiency Metrics
Revenue Multiples
Revenue multiples are a shortcut to compare valuations across the technology landscape, where companies may not yet be profitable. The most standard timeframe for revenue multiple comparison is on a “Next Twelve Months” (NTM Revenue) basis.
NTM is a generous cut, as it gives a company “credit” for a full “rolling” future year. It also puts all companies on equal footing, regardless of their fiscal year end and quarterly seasonality.
However, not all technology sectors or monetization strategies receive the same “credit” on their forward revenue, which operators should be aware of when they create comp sets for their own companies. That is why I break them out as separate “indexes”.
Reasons may include:
Recurring mix of revenue
Stickiness of revenue
Average contract size
Cost of revenue delivery
Criticality of solution
Total Addressable Market potential
From a macro perspective, multiples trend higher in low interest environments, and vice versa.
Multiples shown are calculated by taking the Enterprise Value / NTM revenue.
Enterprise Value is calculated as: Market Capitalization + Total Debt - Cash
Market Cap fluctuates with share price day to day, while Total Debt and Cash are taken from the most recent quarterly financial statements available. That’s why we share this report each week - to keep up with changes in the stock market, and to update for quarterly earnings reports when they drop.
Historically, a 10x NTM Revenue multiple has been viewed as a “premium” valuation reserved for the best of the best companies.
Efficiency
Companies that can do more with less tend to earn higher valuations.
Three of the most common and consistently publicly available metrics to measure efficiency include:
CAC Payback Period: How many months does it take to recoup the cost of acquiring a customer?
CAC Payback Period is measured as Sales and Marketing costs divided by Revenue Additions, and adjusted by Gross Margin.
Here’s how I do it:
Sales and Marketing costs are measured on a TTM basis, but lagged by one quarter (so you skip a quarter, then sum the trailing four quarters of costs). This timeframe smooths for seasonality and recognizes the lead time required to generate pipeline.
Revenue is measured as the year-on-year change in the most recent quarter’s sales (so for Q2 of 2024 you’d subtract out Q2 of 2023’s revenue to get the increase), and then multiplied by four to arrive at an annualized revenue increase (e.g., ARR Additions).
Gross margin is taken as a % from the most recent quarter (e.g., 82%) to represent the current cost to serve a customer
Revenue per Employee: On a per head basis, how much in sales does the company generate each year? The rule of thumb is public companies should be doing north of $450k per employee at scale. This is simple division. And I believe it cuts through all the noise - there’s nowhere to hide.
Revenue per Employee is calculated as: (TTM Revenue / Total Current Employees)
Rule of 40: How does a company balance topline growth with bottom line efficiency? It’s the sum of the company’s revenue growth rate and EBITDA Margin. Netting the two should get you above 40 to pass the test.
Rule of 40 is calculated as: TTM Revenue Growth % + TTM Adjusted EBITDA Margin %
A few other notes on efficiency metrics:
Net Dollar Retention is another great measure of efficiency, but many companies have stopped quoting it as an exact number, choosing instead to disclose if it’s above or below a threshold once a year. It’s also uncommon for some types of companies, like marketplaces, to report it at all.
Most public companies don’t report net new ARR, and not all revenue is “recurring”, so I’m doing my best to approximate using changes in reported GAAP revenue. I admit this is a “stricter” view, as it is measuring change in net revenue.
OPEX
Decreasing your OPEX relative to revenue demonstrates Operating Leverage, and leaves more dollars to drop to the bottom line, as companies strive to achieve +25% profitability at scale.
The most common buckets companies put their operating costs into are:
Cost of Goods Sold: Customer Support employees, infrastructure to host your business in the cloud, API tolls, and banking fees if you are a FinTech.
Sales & Marketing: Sales and Marketing employees, advertising spend, demand gen spend, events, conferences, tools.
Research & Development: Product and Engineering employees, development expenses, tools.
General & Administrative: Finance, HR, and IT employees… and everything else. Or as I like to call myself “Strategic Backoffice Overhead.”
All of these are taken on a Gaap basis and therefore INCLUDE stock based comp, a non cash expense.
Companies Included
1. Security & Identity (17 companies)
Endpoint, network, IAM, security operations. The CISO budget.
CrowdStrike, Palo Alto Networks, Fortinet, Cloudflare, Zscaler, Okta, SentinelOne, SailPoint, CyberArk, Check Point, Qualys, Tenable, Rapid7, Varonis, Rubrik, Mitek, OneSpan
2. Data & AI Infrastructure (12 companies)
Modern data stack, AI/ML platforms, vector and analytics infra, GPU compute. Software-native by design. The legacy hardware names (HPE, NetApp, Lumen, Rackspace, Cisco) that used to live in the old “Cloud Platforms” bucket are gone.
Snowflake, Arista Networks, Equinix, CoreWeave, MongoDB, DigitalOcean, Elastic, Akamai, Fastly, Teradata, C3.ai, Cerebras
3. Dev Tools & Observability (10 companies)
Anything bought out of the engineering budget. The observability names used to live separately. Combined them with dev tools because they’re sold to the same buyer through the same procurement motion.
Datadog, Atlassian, Figma, Dynatrace, Nutanix, GitLab, UiPath, JFrog, AvePoint, PagerDuty
4. Horizontal SaaS & Back Office (18 companies)
Software sold across industries to ops, HR, finance, and collaboration teams. Not vertical-specific.
Oracle, ServiceNow, Workday, ADP, Paychex, Paycom, Paylocity, Zoom, DocuSign, Navan, monday.com, Asana, Workiva, BlackLine, RingCentral, 8x8, Box, Dropbox
5. GTM (MarTech & SalesTech) (18 companies)
Anything bought out of the revenue org. Marketing automation, sales engagement, CRM, ad tech, customer experience.
Salesforce, Adobe, HubSpot, The Trade Desk, Twilio, Klaviyo, Braze, ZoomInfo, Freshworks, Amplitude, Semrush, Five9, Zeta Global, Wix, Sprout Social, ON24, Yext, Criteo
6. Vertical SaaS (16 companies)
Software built for a specific industry without take-rate or transaction economics. This bucket used to include Toast, Olo, and Shopify. They don’t belong here. They make money on transaction volume, not seat licenses or SaaS usage. They’re in #7 now.
Palantir, Autodesk, Veeva, Aspen Technology, Samsara, ServiceTitan, Guidewire, Tyler Technologies, Doximity, Procore, AppFolio, CCC Intelligent Solutions, Blackbaud, nCino, CareCloud, CS Disco
7. Take-Rate Platforms (19 companies)
Marketplaces and commerce platforms that earn money on transaction volume. This is a new bucket. It’s the single biggest reason your old Vertical SaaS median was hard to use, especially if you’re a hospitality or commerce CFO trying to find your comp set.
Uber, Airbnb, Shopify, MercadoLibre, DoorDash, eBay, Zillow, CarGurus, Instacart, Etsy, Toast, Lyft, Opendoor, StubHub, Olo, Upwork, Udemy, Ethos, Fiverr
8. Payments & Money Movement (11 companies)
The rails. Payment processors, payment infrastructure, B2B payments, treasury. Volume game, utility margins. Used to be jumbled in with consumer fintech in a 28-company FinTech bucket. Now they’re on their own.
Intuit, Fiserv, Adyen, PayPal, Block, Shift4, BILL, Clearwater Analytics, Flywire, Marqeta, Lightspeed
9. Consumer Fintech, Lending & Crypto (16 companies)
The front-end. Consumer-facing financial apps, BNPL, lending platforms, crypto exchanges. CAC-driven, marketing-heavy, totally different unit economics from #8.
Coinbase, Robinhood, SoFi, Chime, Affirm, Upstart, Circle, Bullish, Figure, Klarna, Sezzle, Gemini, Blend, Remitly, MoneyLion, LendingClub
Please check out our data partner, Koyfin. It’s dope.
Wishing you trade at a high revenue and EBITDA multiple,
CJ
