I’m currently prepping for HF interview and research a software stock. Coming from PE, I’m used to all the ARR waterfall info available with granularity so I’m pretty competent in understanding and building software models I would say.
The issue I’m facing now is for some public software companies, they release the bare minimum KPIs - I’m trying to determine a build for a software company that doesn’t even have retention metrics available and really only has ARR, deferred revenue and RPO.
It’s nearly impossible for me to have a differentiated view in terms of ‘more in depth modeling; in these cases, how do you even gain conviction if it’s an income statement play? I’m guessing this is another reason why public investment is so hard.
I can do top down modeling - take rate % of growing TAM, etc but I’m sure those numbers are already priced in given the vert end market is insurance carriers.
TL;dr: stuck on how to model public software revenue with minimal KPIs
Hi, I recently transitioned from IB to a more public market focused role and I built a lot of models back in IB.
I think the difference in HF vs. PE/IB is the one you pointed out: there's no internal data for you to get into all the details.
The thing I did when doing HF interviews was to get close, educated guesses: start from industry standards/medians and then I adjust the numbers based on my take of this company. The numbers for my assumptions were likely way off, but they wanted to hear my view and how I think about this stock. Modeling was a check-the-box thing. As long as they see you know how to model, it probably doesn't really matter.
Information is supposed the same for every investors. So the lack of disclosure should not impact your competitivness.
Where will the differentiation come from is the analytical part of the research. (What do you do with the information at hand).
Jensen Huang probably speaks to hundreds of investors/analysts a month and is probably personal friends with a lot of them. Musk spends his weekends with Trump and his other tech buddies like Sacks and Peter Thiel. Scott Bessent is basically on Soros' payroll. Ken griffin brought bernanke on as "economic advisor". Andurand is widely known to be close to OPEC officials (some suggest he was the mouthpiece of OPEC in crude mkts)
Investing is primarily an information game, dont be so naive
Do you think you run a $2bn book by having an information edge on your positions?
Start with calculated billings. Net new ARR is recurring portion of bookings / contract terms (use ave length in footnotes). Make sure to carve out service revenue from bookings (use historical services as % of sales).
Thanks. Know there’s a Barclays pubco software guide out there. Any chance you have it handy?
Mind sending title?
Also interested in title!
What idiosyncratic drivers are there for software? For like enterprise SaaS I can’t think of any drives beyond macro setup sis good/bad for large companies or SMBs, in addition to pricing and cross selling
Look at Morgan Stanley's model for the company - in this case I think you're talking about Guidewire, so you'll have to pick another.
the reality is you gotta model based on what they give you in the releases
thats the job....you can look at ARR per employee, alt data, pricing and disclosures on # customers within certain buckets / tiers but ultimately you have to do a lot w a little
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