Worth noting that Microsoft Backup and Restore and the associated API is not available and has no date for general availability with public preview expected to begin in Q4 CY23. Doesn't mean it can't impact Dropsuite sooner but the impact (if there is one) could be felt more so in Q1 2024 or later.

I doubt that Dropsuite will be interested in developing a product using the Microsoft Backup API (I don't believe this was asked in the webinar) given that it facilitates backup within Azure and Dropsuite provides a holistic solution that backs up in AWS. There are other 3rd party cloud backup providers (Rubrik and Veeam) lining up to offer products which utilize the Microsoft Backup API which will offer a very differentiated product to Dropsuite's backup solution (pros and cons) and a more competitive price than Microsoft's. I think it would be wise for Dropsuite to integrate capabilities that leverage the Microsoft backup API in parallel with the existing AWS backed solution. It might seem counter-intuitive but it dissolves any competitive advantage other backup providers gain by using the API. For example it may accelerate time to market for backup of new microsoft products and facilitates higher data restore speed. Not sure how significant of a project it would be for Dropsuite to implement capability using the Microsoft API into their backup solution, that could be an example of the scale advantage bigger players have.

It seems Microsoft are responding to the requirement for backup being pushed by insurance companies, the same tailwind that has been propelling our growth has incentivised the thousand pound gorilla to join the party. Seems they dont want customers to be reliant on other cloud providers to backup Microsoft data, and feel a responsibility to provide that capability within the Microsoft ecosystem, which directly opposes Dropsuite's supposed value proposition.

After a lot of consideration last night and this morning I am sad to say I am no longer a Dropsuite shareholder.. I could see this Microsoft product creating a headwind for Dropsuite which negatively impacts their growth and churn. I see that as unlikely, maybe a 25% probability, although it's impossible to know without being a fly on the wall at the offices of their many MSP partners. I said just yesterday morning on HC on a thread about competitive advantages that one of the risks is that partners find convenience in consolidating the number of companies' products they offer (that has always been a risk for Dropsuite and the reason they sought to diversify their partner base), and Microsoft is a major (no doubt the biggest) company their partners sell products of, so consolidation will be attractive. There is also the added benefit of the AI product, which I am sure will be easy for MSPs to market to their customers, if they make a fatter margin selling the Microsoft product, they will be motivated to switch to it for that reason as well.

Considering we are still at a price that was an ATH 2 months ago, and more importantly we are at a valuation which implies a long runway of revenue and profit growth to justify it, even more so since Charif increased staff spending to accelerate growth over the last 12 months, I've taken the opportunity to exit at 29c (IRL) and sit on the sidelines to watch this one play out for a few quarters. I'm counting myself lucky that I made the crazy decision to exit during the AFR hype 2 weeks ago and only re-entered yesterday, as it made the decision to exit psychologically much easier. I can't trade this holding on strawman, because it's become such a big holding for me that I couldn't rebuy it according to the rules of strawman. I'm also not proud of the fact that I have on a few occasions traded my Dropsuite holding, but having held it for 3 years I've become very tuned to the way it trades and I am an unemployed student in Melbourne so it is a decision of either slowly selling some of my holdings to live off or making the odd trade to generate some cash and maintain my holding sizes (or mix of both in reality). And trading Dropsuite has proved quite lucrative. I sold at 33c recently (making it a 3 bagger) then repurchased half yesterday at 28.5c and the other half at 26c buying back a bit more than I held before, and considering it was ~35% of my portfolio (or ~half that if you include my managed fund investment) that was a big deal! Then I sold this morning at 29c making another tidy little profit. This is almost entirely luck though, obviously I had no idea about the Microsoft product coming out and was expecting the quarterly result to be stronger, but the thesis has a rather large hole in it now with this Microsoft risk eventuating.

As I said, I have held Dropsuite for almost 3 years and considered it my favorite investment, one of those rare investments you find on your own, no analyst covers it, you can't find any comments from Claude or Motley Fool, livewire or anything, but you like it, study it, develop conviction over time, build a significant position and then it actually goes well! It's just started to get a lot more coverage, they discussed it multiple times on the Baby Giants podcast (I requested it a long time ago), it's getting a decent following here, it featured in AFR, AusBiz, livewire... things were really just heating up! I am selling for great profits but I am still so sad :(

Huge writeup on dropsuite by Andy Crebar on his blog. Very valuable blog if you hadnt already discovered it. He has an index of cloud software businesses on the ASX and writes educational pieces on how to analyse them and deep dives on specific companies.

https://www.andycrebar.com/p/dropsuite-deep-dive

Dropsuite sells highly customisable cloud software via partners to backup and restore data from cloud software applications such as O365

mmff posted the review of the Q4 results announcement, here are my takeaways from the investor presentation and webinar from this morning

• Market opportunity - "US $22B Global Cloud Backup Market by 2025 with 24% CAGR, 1 Billion Business Email Users in 2019" - Dropsuite's market opportunity is around 10% of this, current user base 431k
• More than 260M Microsoft O365 Users growing at 20% p.a.
• within dropsuite's contracted partners, approx 80% of revenue growth is coming from existing partners Vs 20% from new partners
• penetration within contracted partner's customers is around 10% i.e. they could win no new partners and continue to have great growth
• when asked about their biggest competitor - biggest might have 1-2mil end users, definitely single figures (dropsuite 431k) and dropsuite are consistently winning partners over their biggest competitors,
• dropsuite's biggest opportunity is not from winning customers from competitors, it is the "white space" - customers who are not backing up their cloud data. "84% of companies don’t backup their SaaS application data (US)"
• no technical barrier to winning white space customers, opportunity can be captured by marketing to, training and impressing partners to encourage them to sell backup solutions to their customers
• partner numbers reported on are contracted partners, however there has been higher growth in uncontracted distributors of dropsuite software where growth is more like 50/50 between new and existing
• M&A - not a focus, no acquisitions currently under consideration, no consideration going into being acquired, they see a big organic growth opportunity ahead of them thanks to a structurally growing market
• tailwind - data privacy regulation expected to become more onerous in 2021 especially in USA, dropsuite's highest growth market

#Q3 (ending 30/9/20) Overview

1) Cashburn down 80% QoQ to $0.13m with $2.89m cash left

2) ACV (monthly * 12) up 74% on PcP or 14% QoQ

3) September revenue churn 3% vs pcp i.e. 97% retention

4) Receipts up 61% on PcP or 16% QoQ to $1.69m

5) Growing user base 42% pcp 10% qoq and ARPU 22%, 4%

I think dropsuite is flying under the radar as a result of

a) low $59m market cap

b) low $56k average daily liquidity

c) decreased FY19 revenue Vs FY18 (CAGR over 5 yrs ~ 60%)

I think it has huge potential

FY20 set to show around 50% revenue growth over FY19,

Higher growth stemming from pivoting focus into backup of cloud email and associated software backup where they have a differentiated product offering.

6 straight quarters of significantly growing ARR since pivoting.

Cloud SaaS offering with 3% churn, CEO owns >5%, COO owns >3%, large growing market opportunity with Microsoft 365 adoption low and growing rapidly, market leading product quality in a very hot space - cloud SaaS, cybersecurity & regulation compliance.

Partner strategy combined with 100% cloud based nature make it very scalable.

Extremely global customer and partner base all through US, UK, EU, Asia, Aus, South America, South Africa

Yet nobody is talking about it, priced at 8 x Q3 ARR, cashflow break even likely within next 2 quarters, likely benefiting from covid i.e. increasing cloud software adoption