Here’s why Netflix shares are off after reporting earnings

Shares of consumer video service Netflix are down sharply after the bell today, following the company’s Q3 earnings report.

Why is Netflix suddenly worth about 5% less than before? A mixed earnings report, a disappointing new paying customer number, and slightly slack guidance appear to be the answer.

The numbers

Heading into the third quarter, Netflix told investors that they should expect it to generate revenues of $6.33 billion, operating income of $1.25 billion, and net income of around $954 million, worth about $2.09 in earnings per share.

Today, Netflix reported $6.44 billion in revenue, operating income of $1.32 billion, along with $1.74 in per-share profit off of net income of $790 million.

Netflix bested its revenue goals, but fell short on profitability.

The company also managed to best analyst revenue expectations of $6.38 billion, while missing out on analyst per-share profit expectations of $2.13.

Adding to the pain, Netflix also missed expectations on new customer adds. In its Q2 earnings, Netflix said that it “forecast[ed] 2.5m paid net adds for Q3’20 vs. 6.8m in the prior year quarter,” because its “strong first half performance likely pulled forward some demand from the second half of the year.”

Today Netflix reported just 2.2 million customer adds, missing its own targets and sharply missing analyst expectations of around 3.3 million for the period (some analyst counts had an even higher guess).

Looking ahead, Netflix says that in Q4 it expects revenues of $6.57 billion, operating income of $885 million, $615 million in net income, earnings per share of $1.35, and 6.0 million new paid customers in the period. The street had been looking for $6.58 billion in top line, and just $0.94 in per-share profit, so it’s hard to parse which part of the forecast is driving more investor sentiment.

Regardless, today’s earnings report will not move Netflix’s share price too far from its recent, all-time highs. The company may take a ding from its profit miss, but nothing material.

Equity Shot: The DoJ, Google and what the suit could mean for startups

Hello and welcome back to Equity, TechCrunch’s venture-capital-focused podcast where we unpack the numbers behind the headlines.

It’s a big day in tech because the U.S. federal government is going after Google on anti-competitive grounds. Sure, the timing appears crassly political and the case is not picking up huge plaudits thus far for its air-tightness, but that doesn’t mean we can ignore it.

So Danny and I got on the horn to chat it up for about 10 minutes to fill you in. For reference, you can read the full filing here, in case you want to get your nails in. It’s not a complicated read. Get in there.

As a pair we dug into what stood out from the suit, what we think about the historical context and also noodled at the end about what the whole situation could mean for startups; it’s not all good news, but adding lots of competitive space to the market would be a net-good for upstart tech companies in the long-run.

And consumers. Competition is good.

You can read TechCrunch’s early coverage of the suit here, and our look at the market’s reaction here. Let’s go!

Equity drops every Monday at 7:00 a.m. PDT and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Root targets $6B+ valuation in pending IPO, a boon for insurtech startups

This morning Root Insurance, a neoinsurance provider that has attracted ample private capital for its auto-insurance business, is targeting a valuation of as much as $6.34 billion in its pending IPO.

The former startup follows insurtech leader Lemonade to the public markets during a year in which IPOs have been well-received by investors focused more on growth than profitability. In the wake of Lemonade’s strong public offering and rich revenue multiples, it was not impossible to see another, similar startup test the same waters.

Root’s $6.34 billion valuation upper limit at its current price range matches expectations for its bulk. The company is targeting $22 to $25 per share in its debut.

The startup will raise over $500 million from the shares it is selling in its regular offering. Concurrent placements worth $500 million from Dragoneer and Silver Lake raise that figure to north of $1 billion and could help boost general demand for shares in the company. Snowflake’s epic IPO came with similar private placements from well-known investors in what became the transaction of the year.

Will we see Root boost its target? And what does Root’s IPO price range mean for insurtech startups? Let’s dig into the numbers.

Root’s numbers

We’ve dug into Root’s business a few times now, both before and after it formally filed its IPO documents. This morning we will merge both sets of work, snag a fresh revenue multiple from Lemonade, apply it to Root’s own numbers, observe any valuation deficit and ask ourselves what’s next for the debuting company.

Will we see Root’s IPO price rise? Here’s how to think about the question:

Late-stage deals made Q3 2020 a standout VC quarter for US-based startups

Remember back in March when the VC game was done for the year, checkbooks were snapping shut and startup layoffs led the headlines? So much for all that. Q3’s venture capital numbers are in and they are anything but weak.

In retrospect, the Q2 VC slowdown looks more like a short-lived recharge ahead of a big push in Q3 than anything existential. We can see this today through the lens of data concerning what happened after June concluded and we moved into Q3.

According to data from PitchBook (data source) and CBInsights (data source), there was a lot to like about the third quarter if you were a U.S.-based startup.


The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.


I want to dig into the data and pull out most important data points for you. We’ll get you informed and out the door in around 900 words.

If you want a more global look at the venture capital world in Q3, don’t worry. We’re doing that tomorrow right here at The Exchange. Ready? This should be both fun and informative. Let’s go!

A massive third quarter

To get a clear look at the U.S. venture capital market, we’ll start from the top down. So, the biggest numbers first, followed by increasingly narrow slices of data so we can drill down into smaller startups.

First, the top-line numbers:

  • How much money was raised by U.S.-based startups in Q3 2020? $36.5 billion, according to CBInsights, $37.8 billion according to PitchBook. Those numbers are effectively the same for purposes. CBInsights calls the number a seven-quarter high, up 22% from the Q3 2019 number and 30% from the Q2 2020 result. PitchBook agrees that Q3 2020 was strong, but has its count just under Q2 2020’s own.
  • How many deals was that money spread between? CBInsights counts 1,461 VC deals in Q3 2020 for U.S.-based startups. Per its numbers, that figure is up 1% from Q2 2020 and down 11% from Q3 2019. PitchBook, in contrast, counts 2,990 total deals, inclusive of rounds that it expects to be added as information about the quarter fills in. That tally “held steady” compared to Q3 2019, per the company.

What to make of all this information? Simple: Q3 2020 U.S.-based startup venture capital dollar volume was very strong, with deal counts coming in slightly weaker.

This means that we saw fewer, larger deals in the quarter on average, right? Let’s see:

VCs reload ahead of the election as unicorns power ahead

This is The TechCrunch Exchange, a newsletter that goes out on Saturdays, based on the column of the same name. You can sign up for the email here.

It was an active week in the technology world broadly, with big news from Facebook and Twitter and Apple. But past the headline-grabbing noise, there was a steady drumbeat of bullish news for unicorns, or private companies worth $1 billion or more.

A bullish week for unicorns

The Exchange spent a good chunk of the week looking into different stories from unicorns, or companies that will soon fit the bill, and it’s surprising to see how much positive financial news there was on tap even past what we got to write about.

Databricks, for example, disclosed a grip of financial data to TechCrunch ahead of regular publication, including the fact that it grew its annual run rate (not ARR) to $350 million by the end of Q3 2020, up from $200 million in Q2 2019. It’s essentially IPO ready, but is not hurrying to the public markets.

Sticking to our theme, Calm wants more money for a huge new valuation, perhaps as high as $2.2 billion which is not a surprise. That’s more good unicorn news. As was the report that “India’s Razorpay [became a] unicorn after its new $100 million funding round” that came out this week.

Razorpay is only one of a number of Indian startups that have become unicorns during COVID-19. (And here’s another digest out this week concerning a half-dozen startups that became unicorns “amidst the pandemic.”)

There was enough good unicorn news lately that we’ve lost track of it all. Things like Seismic raising $92 million, pushing its valuation up to $1.6 billion from a few weeks ago. How did that get lost in the mix?

All this matters because while the IPO market has captured much attention in the last quarter or so, the unicorn world has not sat still. Indeed, it feels that unicorn VC activity is the highest we’ve seen since 2019.

And, as we’ll see in just a moment, the grist for the unicorn mill is getting refilled as we speak. So, expect more of the same until something material breaks our current investing and exit pattern.

Market Notes

What do unicorns eat? Cash. And many, many VCs raised cash in the last seven days.

A partial list follows. It could be that investors are looking to lock in new funds before the election and whatever chaos may ensue. So, in no particular order, here’s who is newly flush:

All that capital needs to go to work, which means lots more rounds for many, many startups. The Exchange also caught up with a somewhat new firm this week: Race Capital. Helmed by Alfred Chuang, formerly or BEA who is an angel investor now in charge of his own fund, the firm has $50 million to invest.

Sticking to private investments into startups for the moment, quite a lot happened this week that we need to know more about. Like API-powered Argyle raising $20 million from Bain Capital Ventures for what FinLedger calls “unlocking and democratizing access to employment records.” TechCrunch is currently tracking the progress of API-led startups.

On the fintech side of things, M1 Finance raised $45 million for its consumer fintech platform in a Series C, while another roboadvisor, Wealthsimple, raised $87 million, becoming a unicorn at the same time. And while we’re in the fintech bucket, Stripe dropped $200 million this week for Nigerian startup Paystack. We need to pay more attention to the African startup scene. On the smaller end of fintech, Alpaca raised $10 million more to help other companies become Robinhood.

A few other notes before we change tack. Kahoot raised $215 million due to a boom in remote education, another trend that is inescapable in 2020 as part of the larger edtech boom (our own Natasha Mascarenhas has more).

Turning from the private market to the public, we have to touch on SPACs for just a moment. The Exchange got on the phone this week with Toby Russell from Shift, which is now a public company, trading after it merged with a SPAC, namely Insurance Acquisition Corp. Early trading is only going so well, but the CEO outlined for us precisely why he pursued a SPAC, which was actually interesting:

  • Shift could have gone public via an IPO, Russell said, but prioritized a SPAC-led debut because his firm wanted to optimize for a capital raise to keep the company growing.
  • How so? The private investment in public equity (PIPE) that the SPAC option came with ensured that Shift would have hundreds of millions in cash.
  • Shift also wanted to minimize what the CEO described as market risk. A SPAC deal could happen regardless of what the broader markets were up to. And as the company made the choice to debut via a SPAC in April, some caution, we reckon, may have made some sense.

So now Shift is public and newly capitalized. Let’s see what happens to its shares as it gets into the groove of reporting quarterly. (Obviously, if it flounders, it’s a bad mark for SPACs, but, conversely, successful trading could lead to a bit more momentum to SPAC-mageddon.)

A few more things and we’re done. Unicorn exits had a good week. First, Datto’s IPO continues to move forward. It set an initial price this week, which could value it above $4 billion. Also this week, Roblox announced that it has filed to go public, albeit privately. It’s worth billions as well. And finally, DoubleVerify is looking to go public for as much as $5 billion early next year.

Not all liquidity comes via the public markets, as we saw this week’s Twilio purchase of Segment, a deal that The Exchange dug into to find out if it was well-priced or not.

Various and Sundry

We’re running long naturally, so here are just a few quick things to add to your weekend mental tea-and-coffee reading!

Next week we are digging more deeply into Q3 venture capital data, a foretaste of which you can find here, regarding female founders, a topic that we returned to Friday in more depth.

Alex

Datto sets initial IPO price range, indicating a valuation of around $4B

It was just a few weeks ago that Datto, what TechCrunch called a “backup and disaster recovery firm,” filed to go public. This week the firm set an initial range for its debut.

The Vista Equity Partners -backed company was picked up by the private equity firm back in 2017. Vista is back in the news lately for several reasons, some stemming from executive shenanigans — read: tax evasion and huge penalties — but at least what’s coming from Datto’s camp is good tidings.

How so? Vista bought Datto for around $1.5 billion, and is set to make billions on its exit, based on the company’s expected IPO pricing.

Per the data firm’s latest S-1 filing, Datto is targeting a $24 to $27 per share price range. Here’s the math:

  • Total shares outstanding after IPO, sans underwriters’ allotment: 157,548,740 shares
  • Total shares outstanding after IPO, with underwriters’ allotment: 160,848,740
  • Max valuation at current prices, sans underwriters’ allotment: $4.25 billion
  • Max valuation at current prices, with underwriters’ allotment: $4.34 billion

Those two final numbers are dramatically bigger than the $1.5 billion that Vista is said to have paid for Datto.

How has Datto managed to generate so much value in the last few years? In financial terms, the company grew to a run rate of around $500 million, based on its Q1 and Q2 2020 revenue results. That gives the company a revenue multiple of less than 10x at its current IPO price maximum.

And that price makes sense. Datto is not growing very quickly, just 16% from H1 2019 to H1 2020, for example. The company did recently become profitable, however, which helps its valuation case. But more importantly, between 2017 and 2020 we have seen revenue multiples for software companies expand. That, plus Datto’s growth since 2017, have repriced it far above its sale price.

For Vista, it’s good news. Provided that they don’t get into tax issues over this particular set of returns. More on Datto as it prices and debuts.

How COVID-19 and the resulting recession are impacting female founders

Last week The Exchange dug into recent data concerning the amount of venture capital raised by female founders. As a refresher, the numbers were not good.

In Q3 2020, PitchBook data reported that US-based female founders raised $434 million across 136 rounds. That dollar amount was off from $841 million in Q2 2020, for context. The numbers were a dramatic turnaround from where 2019 left the industry.


The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.


The sharp decline in available capital is slowing the pace at which women are founding new companies in the COVID-19 era. There are other factors at play, new data from the Female Founders Alliance (FFA) indicates, but the funding drought is not helping.

Overall, the pace at which women are indicating that they intend to found a company, according to a group of women that the FFA is tracking longitudinally, is slipping.

FFA, a community of women founders and a startup accelerator working to achieve greater gender diversity in technology, built a sample of 150 women from tech hubs “with high likelihood of having entrepreneurial aspirations,” according to its dataset. It asked them about their entrepreneurial goals both before COVID-19 arrived, and again this September.

The changes in responses from before the pandemic and today are striking. Let’s examine the data in light of what we learned last week concerning capital available for female founders and see what we can find out.

Depressing declines

When was the last time you worked out your soul?

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.

The whole crew was back today, with Natasha and Danny and I gathered to parse over what was really a blast of news. Lots of startups are raising. Lots of VCs are raising. And some unicorns are shooting to go public. It’s a lot to get through, but we’re here to catch you up.

Here’s what we got into:

And with that, we’re off until Monday morning. Chat soon, and stay safe.

Equity drops every Monday at 7:00 a.m. PDT and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Alpaca raises $10M Series A for its API-powered equities trading service

This morning Alpaca, a startup that helps other companies add commission-free equities trading to their own products, announced a $10 million Series A. The new capital event was led by Portag3, and included prior investors Social Leverage, Spark Capital, Fathom Capital and Abstract Ventures.

The company previously raised a $6 million pre-Seed and $6 million Seed round that TechCrunch covered last November.

Alpaca is a company that has cropped up in our coverage of the startup and private capital markets recently, adding its perspective to our discussion of API-powered startups and their recent success.

By our math, the new round pushes Alpaca to around $22 million in total funding.

It’s done a lot with the pre-existing funds, including driving its transaction volume sharply higher over the last year. As we’ve seen with commission-free broker Robinhood, transaction volume can be robustly lucrative. In a prior interview with Alpaca CEO Yoshi Yokokawa, the startup confirmed that it generates revenues from routing order flow through specific market makers.

So, as Alpaca’s trading volume grows, so too does its revenue. This matters as we have notes on Alpaca’s trading volume in 2020, and how some of those figures compare to its 2019 results. The data helps explain why, and how the startup attracted new capital.

Here’s the startup’s historical trading volume in dollars, generated via customer’ use of its API:

  • January: $388.1 million
  • February: $591.4 million
  • March: $999.0 million
  • April: $853.6 million
  • June: $1.59 billion
  • July: $1.58 billion
  • August: $959.3 million
  • September, 2020: ~$2 billion

Per the company, that $2 billion result in September is up 10x its year-ago performance, implying that revenue at Alpaca has soared in recent quarters. Fast revenue growth, and possible 10x revenue expansion, is investor catnip. The company’s Series A, therefore, is not a surprise event.

What’s next

Off the heels of this growth, Alpaca wants to go after more enterprise customers and double-down on building features into its API so that it can pursue a vision of providing financial services to everyone on the planet, according to Yokokawa. That hope, by the way, is why the company is building infrastructure tech and not consumer-facing tooling. Alpaca wants to sit behind the scenes, the world ’round, powering other players so that it can have maximum reach. (If it powers lots of different companies’ trading tooling, the startup might be able to reach more total end-users than trying to accrete the world’s trading population to a single, first-party service.)

To accomplish its aspirational goal, the startup needs more folks to build more things. Similar to many startups, Alpaca has gone fully remote and is taking its fresh cash to hire around the world. I asked the CEO if he was adding mostly, say, in-market salespeople as Alpaca looks to expand its customer base globally. He responded that most of its distributed hires have been developers, though some have been marketers as well.

After reducing staff to around 10 when COVID-19 arrived, Alpaca is now 35 people strong. Those folks will help Alpaca grow across two vectors, namely geographic expansion and growth into the enterprise, powered by API development. The company’s work on broker-dealer features is part of its international growth plan.

The API-space is hot. The fintech world is on fire. And inside of fintech itself, we’ve seen a savings and investing boom. Alpaca straddles all of three of those worlds. Let’s see how far it can get with $10 million more.

 

News that Calm seeks more funding at a higher valuation is not transcendental thinking

Earlier this week, Bloomberg reported that meditation app Calm is looking into raising $150 million more at a valuation of around $2.2 billion, more than double its last private price. This should not surprise.

Calm has raised capital at high prices before, including its 2018 Series A which valued the startup at more than a quarter billion dollars. Its 2019 Series B made Calm a unicorn. And the space that Calm plays in has been hot for years, so to see the company attract new capital at a higher price feels downright pedestrian.


The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.


Sure, $2.2 billion for an app company might sound silly if your head is still suck in 2009. In 2020, the app stores of the world are not just economic engines that aging monopolies are desperate to preserve past their sell-by date, they are geopolitical footballs.

Back to Calm: Let’s rewind the clock a minute and review data from 2018, 2019 and 2020 about the meditation app, its broader category’s venture capital results through Q3 2020 and how the startup and its rivals have marched forward in terms of consumer and venture interest.

Calm down for more Headspace

At the time of its Series B, TechCrunch reported that Calm had “topped 40 million downloads worldwide, with more than one million paying subscribers” and that it had “quadrupled its revenue in 2018 — the company is now profitable — and is on track to do $150 million in annual revenue.” The company announced its Series B in February 2019, making the 2018 result pertinent at the time.

Since then, data has continued to be kind to the meditation sector, where Calm and its rival Headspace — which has its own history of rapid growth — have often led the pack.

Turning to 2019 from Calm’s 2018 data, the top 10 grossing meditation apps saw revenues of $195 million, up some 52% from 2018 results. Still, in 2018 these apps grossed $128 million, hardly a small sum — even with intermediaries Apple and Google taking a huge tax for their hard, and utterly defensible work.

The downloads and resulting revenue were not missed by VCs this year.

As TechCrunch reported in August, while wellness startups didn’t excel as a group in the first half of 2020 in VC terms, inside of the category, mental health-focused apps did rather well. According to CB Insights data at the time, “in Q1 and Q2 2020 [mental health] startups saw 106 rounds worth $1.08 billion. In the year-ago period, the figures were 87 rounds worth $750 million,” we wrote.

That’s a healthy step up in venture interest in a single year.