This retention analysis tells the story of a massive revolution happening today in the world of B2B software – product-led companies are winning. Each customer lifetime value accelerates the longer they pay.Adoption is a moat only when it’s growing.Revenue matters a lot more if it is recurring and growing.It is so compelling that it might become the new standard in good financial analysis for a SaaS business. However, the most compelling analysis that should make you long Dropbox stock is this cohorted retention analysis. The most important chart in the Dropbox S1 For instance, Dropbox has doubled revenues over 2015-2017 while decreasing their COGS. There are plenty of other impressive things reported in the Dropbox S1 filing. Interpreting this chart gives you some answer to the question, how sticky is a Dropbox customer? Now, we are still left with a lot of open questions on their specific metrics, like how many users are in each cohort? and how is price per user trending? but this is a great starting point. There is no decay in the ARR they acquire. Dropbox has negative churn (at least in their January cohorts).The MRR for their Jan 2017 cohort started 20% higher to begin with and doubled within a year.The MRR for the Jan 2016 cohort reached 2x in just 22 months.The total monthly recurring revenue (MRR) of all Dropbox customers from Jan 2015 grew 2x in 28 months.If you are not familiar with cohort analysis, here’s how you interpret this chart: Buried deep on page 63 of 219, is a chart of their revenue growth broken down by cohorts of the year the users were acquired. The Dropbox S1 filing gives me some hope, though. But they no longer illuminate the core drivers of what makes modern technology businesses grow faster than expectations. These metrics are a good starting benchmark for business potential and might have been enough for the business models of yesterday. However, most S1 filings just present the standard wall street analyst metrics like year-over-year growth, gross margin and cost of revenue. As a VC investor, ex-engineer and product leader, I am trained to look for the secret sauce in every business – the leading indicators of future outcomes that forecast what success could look like. I am always a little disappointed by S1 filings.
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