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I love the products but that S1 didn't exactly blow my socks off. They are hemorrhaging cash and their growth strategy is pretty WeWork-ish. Seems to boil down

I love the products but that S1 didn't exactly blow my socks off. They are hemorrhaging cash and their growth strategy is pretty WeWork-ish. Seems to boil down to "Get more customers", "HCP is probably going to make money", and finally "the rest of the world needs hashicorp too"

tptacek 5y ago
They're making hundreds of millions of dollars per year. They have software economics, not commercial real estate economics. Most software companies are "hemorrhaging cash" by the time they file an S1, because if you invent a machine that turns nickels into dimes, the obvious thing to do is spend all your money making as many of those machines as you can, not cranking a small number of them for a small, consistent stream of dimes.
- danielmarkbruce 5y ago
  You are right, and this is a decent analogy, but isn't it a lot easier to say: Look at YE 2021, they spent $140 mill on sales and marketing. Next year they could turn that down to $20 million and they would be instantly profitable and almost certainly grow a little bit too. They could also likely slash R&D and G&A by 30-40% without affecting current products. They are very valuable as is, but growing significantly (which isn't free) makes them even more valuable (most likely).
  - pertymcpert 5y ago
    Your explanation had roughly the same number of words but included multiple figures and acronyms while saying the same thing. I don't think that's easier.
    - tptacek 5y ago
      It's more explicit! You had to take my word for the nickels->dimes machine.
    - danielmarkbruce 5y ago
      You are right, "easier" is not the right word.
  - jonstewart 5y ago
    Given their proven track record with new products, it makes a lot of sense to keep spending on R&D. Mostly they’re a classic enterprise software business (with developer-led marketing) and so the wider array of products they have to sell, the better their future cash flow will be with subscriptions/maintenance. $100M and $1B in annual revenue tend to be important thresholds in the enterprise software biz, and they’re well past $100M. G&A will of course get wrung out by professional managers.
- SassyGrapefruit 5y ago
  > They have software economics, not commercial real estate economics. I don't believe this. Snowflake for instance could be profitable if they chose and they have almost no debt. Furthermore their expenses grow logarithmically with their revenue. It doesn't cost much more to have 2 customers as it does to have 1, but the revenue doubles. Their services are an add-on that supplements the revenue from the platform. Its the growth in platform adoption that moves the earnings number. >They're making hundreds of millions of dollars per year. No they are losing 10's of millions of dollars a year. Revenue is not earnings. Wework had revenue of billions of dollars a year and but the cost of that revenue meant they had no path to profitability. I see the same thing here. The bulk of their revenue come from selling services on top of their software. Services have a high COGS. For every service contract you sell you have to pay someone to service the contract. Your costs grow linearly with your revenue. This is the trap yelp fell into. Making billions by paying 95-105 cents for every dollar because opening a new market meant building all the infrastructure for that market. If hashicorp can't find a way to make the growth in adoption of their software directly influence their earnings I don't think this is a good investment.
  - tptacek 5y ago
    No. The bulk of HashiCorp's revenue comes from licensing and support. Professional services is a tiny percentage of their revenue. Preemptively: support subscriptions != consulting services. I don't know if HashiCorp is a good investment or not. I'm not investing. But their economics are not Yelp's or WeWork's.
    - SassyGrapefruit 5y ago
      What are you on about? When I say "service" I mean people doing things for you. In order to have good economics you have to make money buy selling physical or digital goods. Its because physical and digital goods are intrinsically high margin. Its hard to make a support engineer twice as productive, but it's not hard to halve production costs by leveraging economies of scale. Furthermore, Saying "support != services" is ridiculous. Do you know what you would charge Hashicorp with if they failed to render the promised support you paid for? Theft of service

tptacek 5y ago

They're making hundreds of millions of dollars per year. They have software economics, not commercial real estate economics. Most software companies are "hemorrhaging cash" by the time they file an S1, because if you invent a machine that turns nickels into dimes, the obvious thing to do is spend all your money making as many of those machines as you can, not cranking a small number of them for a small, consistent stream of dimes.

danielmarkbruce 5y ago
You are right, and this is a decent analogy, but isn't it a lot easier to say: Look at YE 2021, they spent $140 mill on sales and marketing. Next year they could turn that down to $20 million and they would be instantly profitable and almost certainly grow a little bit too. They could also likely slash R&D and G&A by 30-40% without affecting current products. They are very valuable as is, but growing significantly (which isn't free) makes them even more valuable (most likely).
- pertymcpert 5y ago
  Your explanation had roughly the same number of words but included multiple figures and acronyms while saying the same thing. I don't think that's easier.
  - tptacek 5y ago
    It's more explicit! You had to take my word for the nickels->dimes machine.
  - danielmarkbruce 5y ago
    You are right, "easier" is not the right word.
- jonstewart 5y ago
  Given their proven track record with new products, it makes a lot of sense to keep spending on R&D. Mostly they’re a classic enterprise software business (with developer-led marketing) and so the wider array of products they have to sell, the better their future cash flow will be with subscriptions/maintenance. $100M and $1B in annual revenue tend to be important thresholds in the enterprise software biz, and they’re well past $100M. G&A will of course get wrung out by professional managers.
SassyGrapefruit 5y ago
> They have software economics, not commercial real estate economics. I don't believe this. Snowflake for instance could be profitable if they chose and they have almost no debt. Furthermore their expenses grow logarithmically with their revenue. It doesn't cost much more to have 2 customers as it does to have 1, but the revenue doubles. Their services are an add-on that supplements the revenue from the platform. Its the growth in platform adoption that moves the earnings number. >They're making hundreds of millions of dollars per year. No they are losing 10's of millions of dollars a year. Revenue is not earnings. Wework had revenue of billions of dollars a year and but the cost of that revenue meant they had no path to profitability. I see the same thing here. The bulk of their revenue come from selling services on top of their software. Services have a high COGS. For every service contract you sell you have to pay someone to service the contract. Your costs grow linearly with your revenue. This is the trap yelp fell into. Making billions by paying 95-105 cents for every dollar because opening a new market meant building all the infrastructure for that market. If hashicorp can't find a way to make the growth in adoption of their software directly influence their earnings I don't think this is a good investment.
- tptacek 5y ago
  No. The bulk of HashiCorp's revenue comes from licensing and support. Professional services is a tiny percentage of their revenue. Preemptively: support subscriptions != consulting services. I don't know if HashiCorp is a good investment or not. I'm not investing. But their economics are not Yelp's or WeWork's.
  - SassyGrapefruit 5y ago
    What are you on about? When I say "service" I mean people doing things for you. In order to have good economics you have to make money buy selling physical or digital goods. Its because physical and digital goods are intrinsically high margin. Its hard to make a support engineer twice as productive, but it's not hard to halve production costs by leveraging economies of scale. Furthermore, Saying "support != services" is ridiculous. Do you know what you would charge Hashicorp with if they failed to render the promised support you paid for? Theft of service