“ICYMI (in case you missed it) What’s New in SMB SaaS” is a periodic series on LSA Insider that curates and offers brief commentary on recent events related to the emerging SMB SaaS ecosystem that you may have overlooked.
WeWork IPO on the Rocks
WeWork’s IPO woes do not appear to be abating. Tech Crunch reported this week that the co-working company’s sugar daddy SoftBank is urging WeWork to put the IPO on hold. This development wasn’t a big surprise to the LSA analyst team.
We covered this on a recent Above the Cloud podcast, where our analyst team voiced some skepticism over whether the IPO would ever get off the ground. You can catch that conversation here.
New Player in Payroll Raises Seed Round
Pento, a Danish startup in the SaaS payroll space, has raised $2.9 million in seed funding from PointNine Capital, Seedcamp and a number of angel investors. The company was founded by Jonas Bøgh Larsen (CEO) and Emil Hagbarth (CTO) in 2016. The company currently operates in Denmark, with plans to launch in the UK “soon”, according to its FAQs.
So what does Pento bring to the table that Gusto and about a thousand other SaaS payroll players don’t already offer? Most of Pento’s messaging pits it against spreadsheets and manual processes vs other payroll processors. The company has so far acquired just 800 of Denmark’s 221,000 small businesses. While Pento lists the likes of Payfit and Xero Payroll among its competitors, manual business processes will likely remain its biggest source of competition for some time to come.
As an aside, we should keep an eye on Demark as a source of technology innovati0n. In 2017, the nation of 5.7 million people reached No. 6 on this list of countries deemed most hospitable to entrepreneurship.
Indian Accounting App OkCredit Raises $67 Million
Meanwhile, in India, a nation of 1.4 billion people, OkCredit, purveyor of a popular mobile accounting app for micro and small businesses, has raised $67 million in a Series B round to continue developing its platform. The latest round, led by Lightspeed and Tiger Global, brings OkCredit’s fundraising total to $83 million, according to TechCrunch.
The OkCredit app allows Indian businesses to track purchases and sales in real-time and receive free text updates on business activity. The company claims a current customer base of 5 million SMBs across 2,000 Indian cities. According to a 2017 KPMG study, there are 51 million SMBs in India, other reports place the number over 60 million. This means OkCredit has already penetrated between 8% and 10% of India’s massive SMB market. That’s an impressive start for the company, which launched the app less than two years ago.
One that that seemed to appeal most to investors in the viral nature of the app’s success.
“OkCredit represents a rare breed of companies that are discovering digital and viral growth in a market where traditionally feet-on-street was the only acquisition strategy,” Lightspeed partner Harsha Kumar said, according to the Times of India.
Why did Square’s stock tank in August?
Square had a tough August, with its share price falling by more than 20% following the release of its Q2 earnings. What’s interesting is that the company’s Q2 results were pretty solid, delivering a 46% rise in adjusted revenue and a 62% increase in adjusted earnings per share to $0.21, according to the Motley Fool. Square recent woes stand in contrast to how rival Shopify has been performing (today’s results notwithstanding).
The most immediate issue seems to be that Square’s Q3 guidance is a bit soft, with revenue and EPS guidance slightly below analyst expectations.
Is there more to it? Are there deeper doubts about Square? It seems there are.
An article in The Street today argued that Square’s rate of growth is slowing, which may signal some investors to begin looking elsewhere. Also, the article suggested that as investors look ahead to a possible economic slowdown, there will be a retreat from “momentum stocks” in favor of value stocks.
Barron’s piled on a bit yesterday, arguing that PayPal is a safer bet than Square.
PayPal Holding ’s recent fall is a good opportunity to buy the shares of a “payments juggernaut” that continues to deliver impressive growth in total payments volume and torrid user growth, Canacord Genuity’s Josef Vafi said in a note initiating coverage on the payments company.
Its competitor Square , meanwhile, has created “some of the most competitive payments products available for both the merchant and the consumer,” he wrote, but said the increased competition it faces warrants a Neutral rating.
Over at CNBC, “Mad Money” host Jim Cramer was a little more upbeat.
“Square’s fundamentals are sound, so it’s a broken stock, not a broken company, which means you can absolutely buy this one into weakness,” Cramer said. “Worst case? It goes down some more and the stock gets even cheaper.”
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