Samsara Stock: An IoT Leader Worth a Look

The Toyota Hilux is indestructible. That theory was first tested by Britain’s acclaimed television show Top Gear, but that hardly compared to what YouTuber WhistlinDiesel did this past summer. After subjecting a Hilux pickup truck to an unfathomable amount of abuse, he took it to Moab and ran against a custom-built off-road machine in a feat you have to see to believe. Going up Hell’s Gate backwards? Yes, please. The grand finale was to deprive that poor-little-engine that-could of coolant, yet after miles of such abuse, it still started on the first try. The only thing left to do was drop it from 10,000 feet which finally did the trick.

A 1989 Hilux pulling a 30,000-lb gooseneck trailer before being shipped off to Moab - Credit: WhistlinDiesel
A 1989 Hilux pulling a 30,000-lb gooseneck trailer before being shipped off to Moab – Credit: WhistlinDiesel

That demolished Hilux will now be made into scrap iron, which will perhaps be used to build another vehicle. It’s what the Sanskrit word Samsara encapsulates – the eternal cycle of life and rebirth – and a fitting word to name a company that expects to be adding value to humanity well beyond the lifespan of its founders.

About Samsara Stock

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Samsara Emerges as Leader in Industrial IoT,” was the title of an article we published several years ago. After taking in $930 million in funding, Samsara is now seeking more capital through an initial public offering (IPO) that expects to raise $1 billion. The Samsara S-1 filing quickly descends into a mire of buzzwords, so it’s important to focus on the basics – the Samsara “connected operations cloud” targets a $54.6 billion total addressable market (TAM) comprised of the below three opportunities:

  • The connected fleet opportunity represented by the $32.9 billion global commercial telematics market
  • The connected sites opportunity is represented by the $19.9 billion commercial global surveillance market
  • The connected equipment opportunity represented by the $1.8 billion trailer and cargo container tracking market

The two largest opportunities in the above list make up at least 80% of the nearly $500 million in annual recurring revenues (ARR) that Samsara brings in. This is a pure software-as-aservice (SaaS) business that’s growing like a weed.

Bar chart showing Samsara's SaaS Business ARR growing like a weed. Credit: Samsara S-1
Credit: Samsara S-1

Recurring revenues are not the same as revenues, but those are growing at a nice consistent rate as well.

Bar chart showing Samsara's growing revenues.
Pandemic? What pandemic? – Credit: Nanalyze

This rapid revenue growth is part of Samsara’s plan to capture market share as quickly as possible while worrying about profitability later down the road.

A significant part of our business strategy is to focus on long-term growth over short-term financial results.

Credit: Samsara

Thinking with a long-term mindset is why the Japanese were able to produce the Hilux. There are more than 50,000 companies over 100 years old in Japan; 3,886 of them are over 200 years old. Samsara’s focus on the long-term is what will create a durable company that will last into the next century. Fleet connectivity, connected sites, connected equipment, these are all themes where IoT connectivity grows in importance, especially as we enter the age of vehicle autonomy.

Samsara: IoT as a Service

We prefer SaaS businesses, but not all are created equal. Samsara is a pure SaaS play that’s ticking all the boxes. Contract lengths typically span three to five years and are non-refundable and non-cancelable. No single customer accounts for more than 1.5% of their ARR with over 25,000 customers spending at least $1,000 per year. Around 13,000 core customers spend $5,000 or more per year. The number of customers spending greater than $100,000 – over 700 now – is growing consistently.

Bar chart showing Samsara's number of customers over $100k in ARR.  Credit: Samsara S-1
Credit: Samsara S-1

So is their net retention rate – the ability to extract more dollars from existing customers – which sits at 115%. Just over 90% of their revenues come from the United States, though the percentage of international revenues is slowly expanding to reduce single-country risk. The Samsara solution is industry-agnostic, and well-diversified across industry types.

Pie chart showing The Samsara solution is industry-agnostic, and well-diversified across industry types.. Credit: Samsara S-1
Credit: Samsara S-1

Earlier, we talked about how Samsara is focused on capturing a $56.4 billion opportunity as quickly as possible, and that’s reflected in the fact that over half of their employees are working in sales and marketing. It’s a smart strategy because that same opportunity is expected to expand at a compound annual growth rate (CAGR) of +21%, reaching $96.9 billion by the end of 2024. It’s a blue ocean opportunity that’s trying to be captured by a fragmented number of companies, many of whom are collecting vehicle data without even knowing what to do with it.

The concept of fleet management is hardly new. We’ve come across loads of companies offering various devices, platforms, and full-stack software solutions. As with all leading-edge platforms that involve collecting big data and analyzing it with machine learning algorithms, he who collects the biggest data set will ultimately win in the long run. Samsara processed 72,298 years’ worth of video footage in 2020 which drove over a billion AI-based detections. This type of data would come in awful handy when it comes to commercial vehicle autonomy. For example, Samsara is said to have identified more than 20 million stop signs, the vast majority of which were not identified in publicly available mapping datasets.

Should You Buy Samsara Stock?

We have no idea what stock you should buy, but we’re firmly convinced what vehicle you should buy if you’re looking for durability. One reason the Toyota Hilux is indestructible is because the Japanese typically think 100 years forward when it comes to business planning. Samsara is also thinking over the long term, prioritizing market share above all else. We’ve seen numerous firms dabbling in video safety and telematics, and Samsara’s emergence as a leader in multiple large TAMs results in an attractive IoT SaaS play that we’d love to have a piece of at the right price.

The great thing about our simple valuation ratio is we only need last quarter’s revenues to determine what we’re willing to pay for shares of any given company. Like every other high-profile IPO these days, we expect the company to be richly priced out of the gate. If Samsara’s last valuation came in at $5.4 billion, then double that probably wouldn’t be out of the picture. Would we buy shares of Samsara at a $10 billion valuation? Using our simple valuation ratio, we can determine an appropriate valuation without even knowing the stock price.

  • Market capitalization / annualized revenues
    10,000 / (113.82 * 4) = 22

Yep, we sure might, but we wouldn’t buy shares if the market cap exceeded $18.2 billion because then the simple valuation ratio would exceed our cutoff of 40. Once Samsara stock becomes publicly traded, we’ll be able to make a judgment call on whether or not this IoT stock can find a place in our own tech stock portfolio. Should we decide to make a move on Samsara stock, Nanalyze Premium annual subscribers will be the first to know.

Conclusion

Samsara stock offers retail investors a great way to play the IoT technology theme with a focus on vehicle telematics, fleet management, and video safety. Being able to analyze a company’s physical operations with machine learning algorithms means this IoT solution creates efficiencies, something that’s particularly relevant following the COVID pandemic which has all but decimated global supply chains. Temporary impacts aside, wide adoption of the Samsara platform can only be expected as global enterprises look for ways to accomplish more with fewer resources.

Should the initial public offering go through as planned, Samsara common stock will trade under the ticker symbol IOT.

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One thought on “Samsara Stock: An IoT Leader Worth a Look
  1. Do they earn a profit? Prior to the pandemic it appeared their CAC was nearly $40,000 per client which is far too rich in this competitive space. Moreover, there is no innovation here but a reinvention of the wheel: fleetmatics, zonar, and thousands of small but capable players.

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