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Protocol Index: Did COVID-19 flatten the growth curve?

Protocol Index

This week: What Netflix earnings might tell us about tech growth, the state of VC funding, and ZoomInfo's CFO on his top Excel tips. Want Index in your inbox each week? Subscribe here.


  • "There are incredible investment opportunities that are opening up for companies that are sitting on enough dry powder to take advantage." — SoftBank's Marcelo Claure also said WeWork will be "basically" profitable next year.
  • "We believe during 2021, Apple will be the first $2 trillion valuation." — Wedbush analysts think Apple's got a lot of near-term potential.
  • "Many [AI] companies in China provide services to government-backed mass surveillance projects. Those companies would prefer to float on the STAR market as a way to avoid disclosing such information." — An anonymous bank analyst told the Nikkei Asian Review that STAR's lighter-disclosure requirements might explain part of its popularity.
  • "We have no intention of getting into a capex war with rivals." — Japan Display said it might get into the smartphone OLED market, but it'll face tough competition from Samsung and LG.

The Big Story

Did COVID-19 flatten the growth curve?

One of COVID's biggest winners came crashing back down to Earth yesterday, as Netflix's stock plunged 12% after its earnings report disappointed investors. That could be a sign of things to come, as investors across the tech industry realize that the big digital acceleration could yet come to a screeching halt.

  • Netflix's Q2 revenue beat expectations, though it missed on profit.
  • But the stock move seems to be driven more by the company's guidance for the current quarter: It expects to add just 2.5 million subscribers, well below analysts' expectations of 5.3 million.

Thecompany explained what's changed in a letter to investors: "Growth is slowing as consumers get through the initial shock of COVID and social restrictions." It described Netflix's outstanding performance in the first half of the year (where it added almost as many subscribers as in all of 2019) as a "pull-forward" of demand. "If you haven't subscribed to Netflix during lockdown, the chances are you never will," as Sophie Lund-Yates from Hargreaves Lansdown put it.

  • Investors knew this would happen to Netflix but seem to have been shocked by the speed and severity of it.
  • It's perhaps a sign that the COVID bump is coming to an end: With global lockdowns being eased and things starting to inch toward normality, people are less interested in watching "Stranger Things" yet again.

This could have some big implications. Wedbush analysts note the "potential for materially higher churn going forward," and it's not hard to imagine that a good chunk of new subscribers will cancel once they're let outside again (especially if they lose their jobs.) But there's something more seismic going on, too. Rosenblatt's Bernie McTernan says Netflix "may have pulled forward to the less steep part of the S-curve." In other words: The COVID-driven acceleration may have been so great that the high growth expected for the coming years might now never come. Netflix may have accidentally leapfrogged its way to maturity.

This might all apply to the rest of the tech industry, as well. Other stay-at-home beneficiaries, like Zoom, might see similar churn trends to Netflix. And on the leapfrogging front, a report from Twilio this week found that 97% of enterprise executives think COVID-19 accelerated their company's digital transformation. If everyone has suddenly transformed a lot faster than was expected, that could mean growth across the industry starts to slow.

Earnings and guidance from other companies in the weeks ahead will help to show if this is an industry-wide trend, or just a Netflix problem.

  • Earnings reports this week from TSMC and Ericsson have been very positive.
  • But Netflix, which sees its revenue change more or less instantly with economic conditions, might be a harbinger for what's to come for longer-lead time industries.

Up to Speed

  • Monday: Analog Devices bought Maxim Integrated. HPE bought Silver Peak. Huawei posted revenue growth. Google announced a $10 billion India fund. UIPath raised at a $10 billion valuation. Robinhood raised at an $8.6 billion valuation. BigCommerce filed for an IPO. SoftBank was reported to be considering an Arm sale. Fisker agreed a SPAC listing, at a $2.9 billion valuation. Bill Ackman increased his SPAC's IPO size.
  • Tuesday: Google invested $4.5 billion in Jio Platforms. Walmart invested $1.2 billion in Flipkart. Datto reportedly filed for an IPO. NCino shares soared on their debut. Trax was reported to be considering a U.S. IPO.
  • Wednesday: Twitter stock fell 4% after the platform was hacked. The EU said Apple didn't owe Ireland taxes. SMIC shares soared on their debut. GoHealth shares closed below their IPO price. Thrasio raised at a $1 billion valuation. Dell said it's considering a VMware spinoff. Uber was reported to be raising $500 million for Uber Freight. CommerceHub was reported to be considering an IPO at a $2 billion valuation.
  • Thursday: Uber bought Routematch. Qumulo raised at a $1.2 billion+ valuation.

Diving Deeper

'The clock is ticking'

Back in March, Sequoia told its portfolio companies to prepare for fundraising to become much harder. Four months on, and things don't look quite as bad as we expected — though they're by no means great.

  • The Q2 PitchBook-NVCA Venture Monitor was released this week, and it showed that deal value was only 4.5% down from a year earlier.
  • Deal count, though, was down almost 30% year-on-year.

That can be explained by diverging performance of late-stage and early-stage investing. Activity held up at the late stage, with PitchBook analyst Kyle Stanford telling me that was down to a combination of companies like Instacart raising to take advantage of the situation, and VCs ensuring their portfolio companies had enough cash to weather the downturn.

  • Icon Ventures' Joe Horowitz told me that looking after the portfolio was Icon's No. 1 priority last quarter.

At the early stage, things were much softer. Stanford attributed that to a big change in deal sourcing: Without networking events it's a lot harder for VCs to find deals, and they might be less comfortable investing with early-stage founders that they haven't met in-person.

  • The PitchBook report also speculates that valuations — which have held steady — might be to blame, saying that "investors' fear of overpaying during this period of uncertainty has certainly contributed to deal activity's slower pace in Q2."

The biggest change last quarter was in exit activity. A CB Insights-Money Tree report found that overall exits were down 28% year-on-year last quarter, driven by a big collapse in M&A. The number of IPOs, amid a booming public market, actually increased YoY.

The big question now is what will happen through 2020. From people I've spoken to, some common themes have stood out.

  • Stanford said he expects things to normalize, as investors get "more comfortable" with sourcing deals remotely.
  • DocSend's Andrea Silvers echoed that. She's monitored founder and investor activity on the platform, which is used to share pitch decks, and says the data suggests that "VCs are shopping." She predicted that "the Fall is going to be mental," with founders that held off raising last quarter testing the markets. "There's going to be a bit of feeding frenzy," she said.

Emergence Capital's Kevin Spain agreed with that to an extent, saying that "this summer is turning out to be a very busy one," in part because no one's going on vacation. But he thinks founders are raising because they know a crash is coming.

  • Equities are destined for a correction, Spain thinks, given the macro environment. That will eventually lead to a private market correction, though he thinks there'll be a bit of a lag, as there was in the early 2000s recession.
  • "I think you are seeing more companies than ever deciding … to try to tap the markets, not knowing exactly when the music might stop," Spain said. "It feels to be like the clock is ticking."

Money Talks

Cameron Hyzer, ZoomInfo CFO

What's one thing people didn't pay enough attention to this week?

I feel that success stories of small- and medium-sized businesses during this period don't get enough attention. There are a lot of businesses out there, including customers of ours, that have demonstrated that a nimble small business can be successful, even in light of economic uncertainty.

What's your favorite Excel trick?

I've been using the regression functions a lot. While Excel isn't always the best tool for data analytics, it is a good way to do quick and dirty analysis of medium-sized data sets to identify trends and drivers. Although, while not a trick, I also tend to use Excel most for graphing capabilities because a picture (or chart) is often worth 1,000 words (when done properly), and Excel is great for formatting graphics.

Has COVID-19 been net good or bad for the tech industry?

While many businesses are seeing benefits from companies and individuals rethinking how they use technology, I think that any global shock to the economic environment is probably a negative on balance. The thing that I feel is particularly tough is that innovation is probably going to be stifled in the short term because it will be harder for a smart entrepreneur to raise money and get new ideas to market for some period of time.

What's been your worst financial decision?

I bought a house in St. John in July 2017 — two months before Hurricane Irma leveled the island. Luckily having insurance made up for most of my bad timing.

What's your No. 1 tip for adapting your company to post-COVID?

Make sure that you understand the metrics around how your business is changing. The ability to be nimble and adapt to the changing environment is much more important in volatile times. Always remember that customers are still out there — you may just need to change how you are looking for and engaging with them.

What piece of financial advice should a founder ignore?

Contrary to what you might read or hear, the best way to generate value is actually to build a strong business that can grow sustainably over the long term. In other words, don't compromise the long-term value for a short-term deal or transaction.

Coming Up

  • It's going to be a busy earnings week. Snap and Texas Instruments report Tuesday; Tesla and Microsoft on Wednesday; Intel, Twitter, AT&T and Citrix on Thursday; with Verizon closing out the week on Friday.
  • Jamf, which helps businesses manage Apple devices, is expected to list next week.

Thoughts/feedback/tips? Email me — — or And subscribe to get Index in your inbox every week. Thanks for reading — have a great weekend, and see you next week.

Correction: This article was updated July 17 to correct the spelling of Andrea Silvers' name.

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