Billion Dollar Unicorns: SurveyMonkey Should Do A Platform Strategy

According to a recent report, the global online survey software market is estimated to have grown 12% annually over the period 2014 to 2018 to $2.8 billion in 2018. The industry is estimated to grow to $5.7 billion by the year 2020. Billion Dollar Unicorn SurveyMonkey (Nasdaq: SVMK) recently reported its fourth quarter results that failed to impress the market.

SurveyMonkey’s Financials

SurveyMonkey saw revenues grow 19% to $67.9 million, ahead of the market’s forecast of $65.9 million. But while revenues were impressive, the significant losses that the company reported in the year were shocking. It ended the quarter with a net loss of $25 million compared with a net income of $8 million reported a year ago. On an adjusted basis, losses of $0.03 per share were in line with the market’s estimates. SurveyMonkey attributed the heavy losses to the steep IPO costs that it incurred as it went public last year.

Among key metrics, paying users for the service grew 7% over the year and 4% over the quarter to 646,727. Growth in paying users was attributed to the sales of SurveyMonkey Enterprise and adoption of its self-serve Teams plans. Self-serve business accounted for 87% of total revenues and enterprise sales revenue brought in the remaining 13% of revenues. During the quarter, SurveyMonkey grew its enterprise sales customers by 29% over the year and 11% over the quarter to 3,566. Nearly 77% of its paying users are now on annual plans, compared with 76% from a year ago. Average revenue per user grew 13% over the year and 2% over the quarter to $425.

SurveyMonkey ended the year with revenues growing 16% to $254.3 million. Losses grew from $24 million a year ago to $155 million for the year.

Besides the losses, the market was also disappointed with the announcement of retirement of its CFO and COO Timothy Maly. Maly had been with SurveyMonkey for over ten years.

For the current quarter, SurveyMonkey expects to report revenues of $67.5-$68.5 million with an operating margin of 0%-1%. It expects to end the current year with revenues of $290-$295 million. The market was looking for revenues of $68.2 million for the quarter and $293.6 million for the year.

SurveyMonkey’s Enterprise Focus

SurveyMonkey has been focused on enterprise sales as a key area for growth. It is targeting the top 10% of the 345,000 organizations where it already has a large footprint through team users. Currently, its enterprise customers represent a modest 1% penetration of these 345,000 customers. It is looking to expand this penetration in the coming years. Last quarter, it saw its first $10 million enterprise sales bookings. The new customers added during the year include names like Workday, GoDaddy, and Weight Watchers. To accelerate growth in the segment, it added sales leaders from companies like Google Cloud, Facebook, and YouTube and added a Head of EMEA sales to focus on the European markets.

To make the service more attractive to organizations, SurveyMonkey also added several new capabilities during the quarter. It started a rollout of account verification that lets teams collaborate on survey projects and notifies users when accounts are being shared. The collaboration tool has helped SurveyMonkey users work together on what questions to ask, who to survey, how to collect the data, and how to analyze and share insights.

Besides adding security, account verification helps organizations migrate from shared log-ins to one account per user. Other user-focused features launched during the quarter include text analysis and improved dashboarding, newer layouts, graphics and design capabilities for surveys. It is also now shipping an integration with Microsoft Power BI to deliver stronger analytics capabilities.

Besides organic growth, over the past few years, SurveyMonkey has expanded its market capabilities with the addition of six other smaller players. The more recent acquisitions include that of TechValidate Software and Renzu in 2015. TechValidate Software was an Emeryville-based startup founded in 2007 to deliver a web-based marketing content automation software platform that allowed B2B organizations to auto-generate marketing content. The acquisition was expected to help SurveyMonkey expand its content creation strategy. Prior to the acquisition, TechValidate was privately held. It was bootstrapped and was estimated to be operating at revenues of $6 million annually. The terms of the acquisition were not disclosed.

The same year, SurveyMonkey had also acquired Renzu, a small startup founded by Zynga alumni, which helped with data analytics. Renzu was bootstrapped and was estimated to be delivering revenues of $2 million annually. SurveyMonkey leveraged Renzu’s capabilities to improve its competitive mobile app insight features. Terms of the acquisition are not known.

Till September last year, SurveyMonkey was venture funded, having raised $1.1 billion from investors including its late CEO Dave Goldberg, Tiger Global Management, Google Capital, JPMorgan Chase, Bank of America, SunTrust Robinson Humphreys, Bain Capital, T Rowe Price, Social Capital, and Spectrum Equity Investors. SurveyMonkey was bootstrapped for the first few years and was run as a very tight ship. For its funding rounds, SurveyMonkey had achieved a valuation of $2 billion.

In September last year, it raised $180 million by selling shares at $12 apiece at a valuation of $1.3 billion. The stock has had a very lackluster movement so far. It is currently trading at $12.35 with a market capitalization of $1.6 billion. The stock had climbed to $20 soon after listing and during the turbulent market conditions last year, it had fallen to $10.05 in November.

Last year, SurveyMonkey’s bigger rival Qualtrics was acquired by SAP for an estimated $8 billion. Qualtrics was a significantly bigger player than SurveyMonkey, having recorded revenues of $184 million for the first six months of 2018. Qualtrics had raised $400 million prior to the acquisition and was just about to list when it was bought.

SurveyMonkey is the kind of company that should do a platform strategy and open up its platform for developers to build new applications and entrepreneurs to build new businesses on top of its platform. Survey data has many different use cases and each use case has different types of workflows. Specific products can, and should, be built to give the company a much deeper and broader relevance in the enterprise. A platform play would also offer then a strong M&A strategy.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns.

This segment is a part in the series : Billion Dollar Unicorns