3 ms·

"they will not go out of business before their actual revenue increases" But how much will they have to increase spending to achieve those projected revenue in

"they will not go out of business before their actual revenue increases" But how much will they have to increase spending to achieve those projected revenue increases? It's a classic error to think that the current trend of revenue growth will continue but expense growth will stop.

moritzplassnig 10y ago
2 important factors: - High ARR ($140M) as of Aug'16. That ARR will result (unless the ARR metric is calculated wonky) in a recognized revenue close to $140M. GitHub spent to acquire the revenue. Costs are frontloaded (hiring Sales ppl, etc.), revenue is more backloaded (SaaS, monthly payments at least in terms of revenue recognition). GitHub lost $66M over 9 months, let's assume linear growth of that (to make it simpler), so $88M over 12 months. The growth from $98 to $140 in recognized revenue would already offset a lot of it ($98M+$88M-$140M = -$46M in losses). - Using those numbers, growth would have to be roughly another $50M, from $140M in ARR/Rec.Rev. to $190M which is realistic after they just went from $90M to $140M.
- peterbonney 10y ago
  Yes, I agree - if the existing sales staff can increase the ARR by another $50M (which is plausible given the prior increase of $50M) while holding all other costs fixed then they will reach profitability. My point is that "holding all other costs fixed" usually turns out to be a heroic assumption. More staff is needed to support the larger customer base, marginal sales become harder (i.e. more expensive), etc. Plus, as these revenue figures grow, a fixed churn rate becomes more expensive in absolutely dollars. So customer retention becomes more important, which means more sales resources, which means more money. And so on. And in the meantime competitors are cutting prices, so "fixed" revenues turn out to be not so fixed after all, even before factoring in churn. Don't get me wrong - I'm not predicting that GitHub will fail. I just think the slog will be harder than this meta-analysis of Bloomberg's analysis suggests.

moritzplassnig 10y ago

2 important factors: - High ARR ($140M) as of Aug'16. That ARR will result (unless the ARR metric is calculated wonky) in a recognized revenue close to $140M. GitHub spent to acquire the revenue. Costs are frontloaded (hiring Sales ppl, etc.), revenue is more backloaded (SaaS, monthly payments at least in terms of revenue recognition). GitHub lost $66M over 9 months, let's assume linear growth of that (to make it simpler), so $88M over 12 months. The growth from $98 to $140 in recognized revenue would already offset a lot of it ($98M+$88M-$140M = -$46M in losses). - Using those numbers, growth would have to be roughly another $50M, from $140M in ARR/Rec.Rev. to $190M which is realistic after they just went from $90M to $140M.

peterbonney 10y ago
Yes, I agree - if the existing sales staff can increase the ARR by another $50M (which is plausible given the prior increase of $50M) while holding all other costs fixed then they will reach profitability. My point is that "holding all other costs fixed" usually turns out to be a heroic assumption. More staff is needed to support the larger customer base, marginal sales become harder (i.e. more expensive), etc. Plus, as these revenue figures grow, a fixed churn rate becomes more expensive in absolutely dollars. So customer retention becomes more important, which means more sales resources, which means more money. And so on. And in the meantime competitors are cutting prices, so "fixed" revenues turn out to be not so fixed after all, even before factoring in churn. Don't get me wrong - I'm not predicting that GitHub will fail. I just think the slog will be harder than this meta-analysis of Bloomberg's analysis suggests.