It’s been a long time since “analogue” companies started to transfer their business processes into a virtual world to increase efficiency and reduce expenses. Such activities can be considered a part of the global business digitalization, which became extremely crucial after the COVID-19 pandemic started.

Because of this, services and solutions offered by cloud platform developers that help to create the Internet of Things have become very popular. This industry has been rapidly growing for the past 5 years.

Samsara Inc., the developer of the Internet of Things solutions and equipment, is going to have an IPO at the NYSE on 15 December 2021. Its shares will start trading the next day (the “IOT” ticker symbol).

Today we’ll talk about the company’s business and discuss whether its shares may be interesting for investors.

Business of Samsara Inc.

The company was founded in 2015 by two former MIT graduates Sanjit Biswas and John Bicket. By that time, they had already sold their startup called Meraki to Cisco. Biswas is currently the CEO at Samsara Inc.

Samsara Inc. employs about 1,500 people, and half of them are in the sales department. The company is headquartered in San Francisco, California; its major investors are Tiger Global Management, Raison Asset Management, Dragoneer Investment Group, and Andreessen Horowitz.

Stages of Samsara Inc. development.
Stages of Samsara Inc. development

Samsara Inc. is the global leader in the industrial Internet of Things. The company supplies a wide range of sensors that help its clients to track, for example, fuel consumption, speed rate, wearing of the equipment, or vehicular traffic routes.

Summing up the company’s product package.
Summing up the company’s product package

Based on this data, Samsara generates analytical reports, which are used by its clients to make management decisions. The company’s platform has an open-source code and can be quickly integrated into third parties’ software. As of now, the platform has been built into 125 applications.

Key financial indicators of Samsara Inc.
Key financial indicators of Samsara Inc.

The company’s products are subscription-based (monthly, quarterly, yearly). As of the IPO date, Samsara had over 13,000 clients. Among them are such large industry partners as Ford, John Deere, Volvo, and Caterpillar – all of them mount the company’s sensors on their vehicles.

Samsara’s products help its clients to significantly boost all business processes and reduce operational expenses. According to Forbes Cloud 100, the company has made the Top-20 list of cloud platform developers – Samsara was evaluated by its market share, corporate culture, business metrics, and capitalization.

Now let’s talk about the prospects and volume of the company’s target market.

The market and competitors of Samsara Inc.

According to Mordor Intelligence, the global transport management market in 2021 was $7.34 billion. By 2026, it is expected to reach $22.08 billion. As a result, an average annual growth rate may be 15.34%.

The key reason for the target market expansion will be the need for the reduction of operational expenses for car services. The last businesses that are expected to optimise their expenditures will be small car fleets.

The company’s key competitors are:

  • ZTR
  • Avigilon
  • Motorola Solutions
  • Verizon Connect
  • Geotab
  • Lytx
  • SmartDrive
  • Orbcomm
  • Trimble

Financial performance

The company is filing for the IPO without generating the net profit, that’s why we’ll focus on analysing its revenue.

According to the provided report, Samsara’s sales in 2020 were $249.91, a 108.48% growth relative to 2019. In the first 3 quarters of 2021, the company’s revenue was $302.59, a 73.93% increase if compared with the same period of 2020. In the last 12 calendar month, the indicator showed $356.69 million.

Samsara Inc. revenue chart
Samsara Inc. revenue chart

The net loss in 2020 was $210.21 million, a 6.66% decrease if compared with 2019. Over the first 9 months of 2021, the net loss was $102.26 million, a 41.38% decrease relative to the same period of 2020. We can see that the net loss is quickly decreasing.

Samsara Inc. financial statement
Samsara Inc. financial statement

Cash and cash equivalents on the company’s balance sheet are $267.50 million, while its total liabilities are $149.01 million. As a result, the company has a free cash flow of $118.49. As we can see, Samsara is expanding its business and reducing losses. Overall, the company is financially stable.

Strong and weak sides of Samsara Inc.

It’s time to highlight the risks and advantages of investing in Samsara shares. I believe the company’s positive sides are:

  • Sound management.
  • The target market volume is expected to be over $22 billion by 2026.
  • The revenue growth is above 50% per year.
  • The company reduces losses by 40% on average every year.
  • A wide network of partners.

Among investments risk, I would name:

  • The company is loss-making and doesn’t pay dividends.
  • Samsara is extremely dependent on direct sales.
  • Strong competition with big transnational companies.

IPO details and estimation of Samsara Inc. capitalization

The underwriters of the IPO are RBC Capital Markets, LLC, Wells Fargo Securities, LLC, Evercore Group L.L.C., William Blair & Company, L.L.C., Cowen and Company, LLC, Nomura Securities International, Inc., WR Securities, LLC, Loop Capital Markets LLC, R. Seelaus & Co., LLC, Samuel A. Ramirez & Company, Inc, Siebert Williams Shank & Co., LLC, Allen & Company LL., Allen & Company LLC, J.P. Morgan Securities LLC, Goldman Sachs & Co. LLC и Morgan Stanley & Co. LLC.

During the IPO, Samsara Inc. is planning to sell 35 million common shares at the price of $20-23 per share. If shares are sold at the highest price in this range, the IPO volume will be $752.5 million and the company’s capitalization may be $11.5 billion.

To assess loss-making companies, we use a multiplier, the Price-to-Sales ratio (P/S ratio). A P/S value for the technological sector with such a rapidly-growing target market may be up to 40 during the lock-up period.

The company is filing for an IPO with P/S equal to 28.42. The upside for Samsara shares may be up to 75.42% (28.42/40*100%). If underwriters do not revise the IPO conditions, this investment may be considered venture one.

Material is prepared by

A trader since 2004, Eugene started actively investing on the US stock market in 2012. He now regularly publishes a variety of analytical articles about stocks on the RoboMarkets website and blog.