EQUIAM’s proprietary selection model is a systematic and data-driven model that ranks thousands of growth and late-stage private companies using 90+ proprietary investment signals derived from over 60 million data points. Each month, we generate a comprehensive ranking of our private company universe and thus can construct a real-time sector ranking based on the underlying constituents.
After performing our October analysis of private sector performance, we would like to highlight a sector of high interest, Big Data, and a weaker performing sector, Robotics & Drones.
The Big Data sector constituents scored well due to:
- High Capital Usage Efficiency, market share capture, and ultimately, value creation
- Strong balance sheets and good hiring growth
- Attractive valuation metrics (e.g. EV/Rev) and growth-adjusted valuation metrics (e.g., EV/Rev/Growth)
On the other hand, the Robotics and Drones constituents displayed poor scores in each of the three above signal buckets, which contributed to the sector, in general, ranking as lower.
In the chart, we highlight Big Data sector constituents that scored highest on the metrics laid out above, positively contributing to the sector's overall rank. The opposite holds true for the Robotics and Drones companies shown.
The world is awash in data. But data without structure is meaningless. Governments, companies, organizations have access to high velocity, high-volume data from a wide range of sources. As a result, Big Data analytics is a sine qua non for being competitive in today’s market.
Industry analyst Doug Laney articulated the definition of Big Data as the three V’s:
Volume: Organizations collect data from a variety of sources, including transactions, IoT devices, industrial equipment, social media and more. In the past, storing all that data would have been too costly but platforms today have reduced the cost by many multiples
Velocity: Data streams into businesses at an unprecedented speed and must be handled in a timely manner. RFID tags, sensors and smart meters are driving the need to deal with these torrents of data in near-real time.
Variety: Data comes in all types of formats – from structured, numeric data in traditional databases to unstructured text documents, emails, videos, audios, stock ticker data and financial transactions.
An important caveat is that the importance is not in the amount of data but how you use it. As they say, it's not about the size of the boat, it's about the motion of the ocean. Big Data platforms and software help companies put structure around the data and gain valuable insights. Companies may find answers that streamline resources, add operational efficiencies, optimize product development, drive new market opportunities, and overall enable smarter (less gut) decision making. Big Data platforms are being used by companies in every industry including:
- Healthcare: Analyze patient data for patterns, track outbreaks, preventative care, cost-cutting efficiency
- Energy: Vast amounts of geological data analyzed for potential drilling locations, monitoring pipelines, tracking the electricity grid
- Financial Services: Risk management and real-time market data analysis
- Logistics: Supply chain optimization
Given the prevalence of Big Data platforms across all industries it is no surprise that the sector is expected to grow from over $150 billion in 2021 to $275 billion in 2026. Big Data remains one of the sectors continuing to attract capital and commanding high valuations. Even with a correction in the public markets, EV / Revenue multiples for many of the public high-growth Big Data companies remains in the double-digits, with Snowflake valued at 15.0x+ forward revenue. Private company EV / Revenue multiples range from 10.0x - 50.0x+ depending on level of maturity and growth trajectory with EV / Revenue / Growth at 5.0x - 25.0x, suggesting triple-digit revenue growth for many Big Data private companies. From an EV/Rev/Growth perspective and the market opportunity for growth and adoption, we believe there are ample opportunities within the private Big Data sector.
Robotics & Drones:
There is little doubt that the robotics and drones industry will continue to grow and be a larger part of the U.S. economy. With anemic productivity gains and labor shortage issues over the last two decades, autonomous robots and automation are key to U.S. businesses remaining competitive. And the drone sector has proven its mettle in both defense space (Ukraine) and future mode of delivery / last mile logistics.
However, investor exuberance got ahead of fundamentals during the past 5 years and there has been a pullback in both public and private markets. In the public sector, companies are down 50% from their highs of last year and revenue multiples are sub-2.5x. In the private markets, funding is off 50% from the 2021 high water mark.
With the Fed raising rates and intent on producing a recession to quell inflation. The long-term trend towards automation remains intact but in the near-term, some companies are hesitant in the near-term to devote large amounts of capex necessary to purchase robotics equipment. Robotics companies are also capital intensive and have long sales cycles (may take years from order to full delivery). This all may lead to a near-term cash crunch for some companies and flat or downrounds may be on the horizon. That is not to say there are not companies outperforming and continuing to grow. The near-term headwinds may lead to some market consolidation and clear market winners.
Our data shows much higher multiples in the private sector with almost all companies in our universe valued at 10x+ revenue (with some above 20x), based on most recent price marks. As pointed out earlier, market exuberance in the sector may have led to companies being valued over their skis and a pullback is likely on the horizon.
Disclaimer: This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by EQUIAM LLC (an offering to invest in an EQUIAM LLC fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety). Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.