Weekly Update August 18-22
Rubrik blurb, NU refreshed thesis
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Rubrik
One company that is very interesting is a relatively recent IPO named Rubrik. It’s founder led, has very strong ARR growth and is now cash flow positive in a huge market. Rubrik is a cybersecurity company mostly focused on protecting customer data. Rather than network security like Zscaler or endpoint like Crowdstrike, Rubrik is focused on data. That used to take form in mostly on-premise data backups but now 80% of subscription revenue comes from the cloud. The cloud changed a lot in this data loss prevention sub-sector. Rather than trying to make sure you don’t lose your data in your own private data center, you are trying to protect your data across all applications, anywhere and everywhere. Rubrik’s cloud ARR grew 67% last year and the overall topline looks like it’s accelerating based on the shift to the cloud and less on-premise revenue. The company is still not GAAP profitable but importantly, it is cash flow positive. The balance sheet is strong as well and the full-year revenue guidance for next year was over 30%. And the stock is around 12x forward EV/sales which is a good value if you compare it to the top SaaS companies. For example, Crowdstrike guided for 21% and they are trading for almost 21x revenue. It’s not that simple because Crowdstrike also has 30% free cash flow margins compared to Rubrik’s breakeven margins. However, it seems likely that Rubrik could significantly increase margins considering the mid-70%’s gross margin profile. The co-founders, Bipul Sinha and Arvind Nithrakashya, each own almost 6% of outstanding shares so they definitely have skin-in-the-game, though I typically like to see a little more. However, there is a third co-founder that left in 2019 to start another company and he also owns a similar amount. It’s fairly rare to see a founder leave but keep all of his shares so that shows he didn’t necessarily leave because he thought Rubrik was not a good company.
The one thing that bothers me is that Rubrik is not a leader in the space. In my opinion, it is a clear #3 in terms of future market share. IBM and Dell are clearly losing share and Commvault is more of a stodgy incumbent as well, though they are improving. The top player is Veeam/Cohesity, a combination of private companies.
Not being the top dog in the industry carries some headwinds. At the same time, Rubrik’s growth has been very impressive and the numbers don’t lie. It could be a case of a rising tide lifting all boats though. Veeam/Cohesity are doing roughly $2 billion in ARR and growing maybe 15% at this point. On the other hand, Rubrik is doing over $1 billion in subscription ARR and growing about 40%. So half the revenue but more than twice the growth. It will be fascinating to see how Veeam and Cohesity react competitively to the momentum of Rubrik. I typically like to invest in companies that are more singular. When I have to dig too deep into competition, that already shows me that the space is too competitive. My worst investments have been in ultra competitive spaces so I am hesitant to initiate a position, though I do think the numbers are very interesting.