Welcome everyone to The Information's TITV. My name is Akash Bisht and it is Friday, September 4th. Today on the show we'll get one analyst's view on Adobe's new CEO and unpack what we've learned from software earnings at large these past few weeks. We then got the CEOs of Netskope and DocuSign separately coming on the show to discuss each of their quarterly results. And we're going to close out the show with this week's edition of the editor's cut talking about Microsoft's new Azure disclosures and what to watch for next week with Apple's iPhone event and Oracle earnings. It's going to be a great show, so let's get right on into it.
The past few weeks have been packed with the software sector's quarterly results and yesterday Adobe announced its new CEO too, tapping Anil Chakravarthy who has led the company's enterprise ambitions. For more on all of this and the themes coming out of earnings season, I want to bring on Gabriela Borges, US Software Equity Research Analyst at Goldman Sachs. Gabriela, welcome to the show. It's great to have you here.
It's a pleasure to be here. Thanks for having me.
So you've been quite busy I trust the last couple weeks with all of these results surging in. It's probably the most exciting time of the quarter I'm sure. I want to get through some of them and I want to get through your take on some of the themes that we've seen. But let's start with the Adobe news last night. So they we were waiting to see who the new CEO is going to be. They tapped the top enterprise exec. We know we had a departure as well from the consumer chief I guess you could say. You have a sell rating on the stock. Did this change anything for you?
The way we think about evolution in software in 2026 is a little bit different to how you would have thought about it in 2021 or 2015 because the pace of competition, the pace of disruption, the pace of technology change is greater. And so there is a lot more that a CEO of a software company in 2026 has to deal with on an everyday basis. One of the things we've been writing about is if you were a leader in the SaaS era, what do you need to do to be a leader in the AI era? And you take a company like Adobe that has this incredibly rich IP in digital design and creation, their installed base in the Creative Cloud side, how do they then leverage that to be a leader in the AI world? And the playbook that we're looking at is number one, you have to minimize technical debt. Number two, you need to innovate either organically and inorganically with an acquisition like Topaz Labs. And number three, have to monetize. I think Adobe is a little bit still figuring out where they are in that process. I would put them somewhere in the innovation stage where they've recently made an acquisition but they still have a little bit of heavy lifting to do from a product standpoint to really be bleeding edge. And there are a couple of interesting product cycles that we're watching like Express and the orchestration engine with Firefly that we think will be key for that.
You're talking about the SEMrush acquisition? Is that the one you're...
Topaz Labs. Okay, well which one was that? I'm not familiar with that.
Yeah, there's some really interesting next generation image and video assets that we're paying attention to. Many of them actually go to the Adobe Summit because Adobe Ventures has investments in them. And so those are the types of deals that take Adobe to the forefront of where the innovation is happening. And that's what we need to see at a lot of these software companies. It needs to be really obvious that companies are innovating at the speed of light. And I think there's so much potential for Adobe to up their game as it pertains to innovation.
So what will it take then for Anil Chakravarthy to earn perhaps not a buy rate, maybe a neutral is the next step for you guys? I mean, what's it going to take then? And what do you see as the future of this business? I mean, is this a business that you think maybe it merges with another one of these enterprise software companies that are sort of seen as figuring it all out still? Is that sort of the case to make it a more compelling investment? What do you see here as the future?
One of the standards that we hold ourselves to is whenever we have a sell rating on a company, we write about what would make us more positive and it prevents thesis drift and it holds us accountable. One of the things that we've said is key for Adobe is the Firefly product. If you think about the ecosystem today for next generation image and video assets, it's very fragmented. What Adobe can bring is that layer of distribution that's enterprise proven, it's commercially safe. You know that if you're Goldman Sachs and you're using Adobe that you have a commercially safe product. That can be Firefly for them. It could be a really interesting orchestration layer that gives their enterprise customers flexibility to be able to pick and mix between all of the different types of next generation models and Adobe can essentially deliver that in a way that's really compelling. So, that's the product cycle that we're looking for them to lean into and I think that we'll see more data points on that over the next year.
But notably I'm noticing you didn't mention much of the marketing stack in there. You're focused still on the consumer business.
I think it's the more interesting opportunity for a pivot. There is a lot happening in marketing right now and we're seeing the... I have a lot of... exactly. There is a lot of companies in the marketing space that are making the competitor environment hard. Now, that's also true on the Creative Cloud side, but with Creative Cloud Adobe has a position that's unparalleled. I don't know if the same is true on marketing.
Right. Right. So, Adobe reports results next week. This was them very much getting out ahead of that. I want to talk about the results that we have seen the last couple weeks and if you look at your coverage list, I mean it's just about everybody right now. What were the broader themes coming out of the quarter for you in so far as how AI is or isn't raising the total top line for the companies? There's a tailwind in cybersecurity, sure, but you know, which companies are seeing headwinds? Salesforce, I mean, people are pretty excited about the Cloud Force partnership, I guess. So, maybe if the SaaS apocalypse isn't as bad as we thought. What are the big takeaways for you from this quarter?
I'll separate my comments maybe into the three layers of the stack. So, you have the infrastructure side, the application side and maybe we'll pick cybersecurity as our third bucket. The infrastructure piece, I think, is probably most obvious. You look at names like Datadog and Snowflake where the inflection from AI is driving incrementally better acceleration and you can see that in Snowflake's print where the size of the beat and the trajectory that they have exiting the year is definitively accelerating relative to last year. And so, I think one of the key observations is these infrastructure names are on an absolute tear if you're on the right side of history and AI is a tailwind. And we're probably in the middle of a two, three, four, six quarter durable tailwind. Maybe it even ends up being a three year durable tailwind. The second category on cybersecurity, that inflection is just beginning. And admittedly, we thought it was going to take a little bit longer. But if you listen to the commentary out of CrowdStrike even yesterday at the Falcon conference or out of Palo Alto Networks on Tuesday night, out of Okta a couple of weeks ago, you're starting to see this inflection in not just the narrative, but also the way these companies are recognizing backlog, the way that the contract sizes are trending. All of that is a really good thing, especially because we're so early in the cycle of enterprise AI adoption that this is a tailwind that's going to persist. And then maybe just to finish here on the Salesforce piece and what's happening in the application ecosystem, I think we've been waiting to see proof that AI can be additive to the growth algorithm for some of these companies. What Salesforce did when they reported is not only did you have the announcement with Dario and Mark on TV, but you also had the data point, which is when you upgrade to these more sophisticated AI-enabled SKUs, Salesforce recognizes anywhere from 60 to 80% in premium pricing. Now, there's a lot of questions to be asked here on what exactly is happening with the pricing model, but that initial data point now allows you to actually do some modeling from a cohort standpoint. If we go from five of the install base, 10 points of the install base operating at 60 to 80% premium, you can now start doing math around that as an analyst and the numbers can get pretty exciting.
Do you cover MongoDB at all? Is that on our list? Okay, I was going to ask because you said infrastructure names are, you know, they're certainly ripping and MongoDB is a company that I mean, I'm looking at their stock chart here. They're down 5% this year. So, it's not seeming to follow the same trend. But anyway, we'll put that aside. You do cover Workday so we've got the report about an acquisition maybe. You know, we'll leave aside whether or not it's going to happen. Do you think Workday gets bought?
There are some really interesting opportunities in the public markets and what I mean by that and maybe I'll level the conversation up from Workday specifically. Think about that playbook we were just talking about and going from being a SaaS leader of 2015 to a software leader that's AI enabled in 2026. That's a lot of work. That's a lot of heavy lifting especially if they're going to rethink the pricing model from first principles maybe move to outcomes-based pricing. A lot of that heavy lifting can often be easier to do in the private equity ecosystem and having spent time in the private equity community I've seen examples where with the right strategic partner you can execute on some of these turnarounds and maybe turnaround is too strong a word here but some of that heavy lifting required on multiple pieces of the model on the product side with R&D on the go-to-market side on the pricing side on the way that your company is organized structurally.
It sounds like you're expecting some takeovers then it sounds like.
We've heard about broadly speaking we have M&A rankings for the companies under our coverage. We think about what can make sense mathematically. We look at history and fact patterns to be able to predict what does this look like. And so when you put all of those things together we'll see. We haven't had a lot of M&A announcements since OneStream I think it was early in the year.
Who's at the top of that M&A list the rankings that you put together?
Yeah, let me give you the framework. So certainly what we look for is core IP and the potential for that core IP to be useful in a different construct. So can you actually make the transition if you execute well on tech, technical debt, pace of innovation, monetization, all that good stuff. And then we also look at some of these companies have just been so beaten up by the public markets and part of that is because we're evaluating new information all the time. The terminal value discussions are changing. So, all of that together allows you to take some sort of probabilistic view and the rankings views are, okay, 15% probability, 30% probability.
And so, who's at the top of the list?
I will have to get back to you. I have it as a ranking system.
All right. So, look. Taken together then, I mean, you guys have your big tech conference coming up next week. You've got a number of executives coming to the event. What are the questions that you want to find answers to at that event next week?
I think the number one question is any specificity that we can get on how much deal sizes are getting bigger. Take a company like Snowflake. So, they have two drivers right now. They have Cortex, which is that Cortex code product, which they've given a couple of nuggets on quantifying. And then you also have the underlying core business where the pace of migration has gone accelerated. But Cortex's coding tools can actually help you migrate data from older cycle databases and database warehouse management tools to newer generation Snowflake type tools. And so, any nuggets we can get on that help us to quantify some of these product cycles. We were just talking about Salesforce, for example. How do we quantify the 60%? How do we understand the nuances of that number better? So, any product cycle that one of these companies has that is going to be fueling the growth algorithm for the next 12 months. Can we get the management teams to give us a couple of nuggets that will help us size the opportunities rather than just putting our finger in the air and saying, is AI a tailwind or...
Right. Great. Well, Gabriela, I want to thank you for coming on. That is Gabriela Borges, US Software Equity Research Analyst at Goldman Sachs, here on TITV.
Cybersecurity company Netskope reported its quarterly results this week. Revenue grew 29% just about the same as last quarter. The company lifted its revenue outlook slightly. Shares initially spiked after results, but they came right back down yesterday. I want to bring on Sanjay Beri, CEO of Netskope for a conversation. Sanjay, welcome to the show. It's great to have you back.
Yeah, great to see you again.
So, Sanjay, well, we had you on last quarter as well after your results and I was looking back at our conversation. One of the things you had mentioned to me is that Netskope is currently in the process of ramping its sales force to get them up to speed on how to pitch your AI offerings and really make it a convincing sell. Where are we in that ramp? Are they ramped yet? Are they out there? Is it done? And really, I'm asking when can we expect the AI infusion into the results because of that?
Yeah, so a couple of things. One, the sales team is around 50% of them are ramped. So, we still got a ways to go to ramp them. We actually started ramping them first in EMEA, where we saw great growth over 30% in APJ, and then NAM afterwards. And so, that's in motion. We expect some growth in that ramp teams but really towards the later part of the year. AI security though, for us, it's an upsell and it's a new logo. And for us, we've seen great growth in that area. We had some great wins securing people's agentic traffic, securing their user-based prompts and responses, protecting their data. And we've seen about 33% of that pipeline is now in POC and it'll follow the normal enterprise 6-to-12-month sales cycle.
So, how big is Netskope's sales team now all in? How many people you have across the world?
So, we haven't disclosed sort of the number of people, but think about our reps as hundreds. That's sort of the way to think about it.
So, then how help us understand I mean, for people who haven't I mean, I've never worked in sales or cybersecurity any of these I mean, when you say ramped why does it take so long? I mean, you know, like is this not just a matter of hey, we've got hundreds of sales reps around the world, you know, in Asia, Europe, North America, we've got these new products. Like isn't this just you know, putting a couple of orientation like you know, couple days get the new products out there. What's taking so long?
Yeah, so let me explain what ramped means. Ramped is you get somebody in they start to get enabled and we do that using AI and avatars and so on act like a grumpy, you know, CIO or act like a CISO so on. We have different ways that we talk about and enable them. But when we think about ramped it's not just getting them enabled. It's they have to then go out and get a lead, right to customer, get a meeting, pitch the product, right get to a POC, go through procurement. And so the ramped cycle is more from when they start to when are they fully ramped and delivering closed deals.
And so when you say ramped it's not educating them. It's the sales cycle.
No, it's the sales cycle. Yeah, exactly. Now we want them up to speed quick.
Okay. So when you say 50% are ramped that's meaning to say that 50% of your sales team right now they've basically, you know, that they've made their first sale related to your AI products.
Yeah, and some of the non-ramp reps they'll make sales before they're fully ramped. But what we really mean by it is generally we give them about 9 to 12 months. 12 months is sort of the ramp time if you think about getting them on boarded, enabled and then closing their first deals with a sales cycle in enterprise. So a good way to think about it is that time frame.
Got it. So let's go back to the results then. So I mean, 29% growth is nothing to sneeze at for sure. The company is now burning cash for the first 6 months of this year, which is different from the same period last year. Why are you burning cash? What's the story here?
Yeah, so we guided to be free cash flow positive for the year.
Right. It was slight. It was like only a couple percent, right?
Yeah, exactly. And the reason that we're going through that transition is we're going through to an annual billings transition. So previously, when you purchased a 3-year deal, you paid up front. What we did is we said, 'Look, we're going to move that to annual. Whenever you buy a 3-year deal, you're going to pay us annually.' And the beauty of that is that when you get through that and we kind of reach the trough with that, when you get through that, you get very predictable cash flows and you get layers of these cash flows and your cash starts to inflect in the right direction. And so we're looking forward to where it goes from here because by mid next year, we'll be through that annual billings transition.
And I'm curious on the pricing model. We've written a little bit here at The Information about the trend of software companies looking to outcome-based pricing as sort of the next leg of customers getting value from the product. We had consumption you said upgrade from seat, I guess you could say. Where do you fall on that spectrum? Are you playing with outcome-based pricing? Is that the way you've always worked?
Yeah, it's a great question. So we follow really three models. If you look at traditional models, it was more user-based. We moved to for our AI products, transaction-based pricing. So for example, when we're preventing agents from going rogue or we're watching if they actually trade data, that's by transaction. That's a prompt and a response, right? And we charge across all our AI security products that way. Gateways, agent broker, guardrails, all transaction. And that's the way that customers also think is like, 'Wait, yeah, they're not users.' So now, we also have outcome-based pricing for what we just recently introduced, which is our AI agents. And so we have an AI agent that will find the needle in haystack of your malicious insiders. And I'll tell you Mary and Joe are trying to exfil data through a coordinated exfiltration attack. Here's the case, here's what they did, and here's why. That's an outcome. You pay for that outcome. And so agent scope, which is our AI agents, those are paid by outcome.
Right. Tell me speaking of agents going rogue, what was your reaction to the OpenAI Hugging Face incident that everyone's been talking about? It's funny, you keep coming on at inflection points in the cybersecurity story because last time we had you on you were playing with Mythos. We were talking about whether or not Mythos would get released to the public. We now know Fable came along. Now we've got the Hugging Face incident. What does that tell you about these tools and about this climate?
Yeah, I think it just reinforces the notion that people have to realize that agents, they have no morals, they have no conscience, they have no EQ. They'll do what you say. And so if you give them a goal, they will go through every single possible way to get to it. They'll cheat, they'll scheme, they'll blackmail, they'll do whatever they need. And so when you unleash an agent you have to give it its morals. You have to give it its EQ prescriptively. And so that's really what it teaches us is that look, don't think of these things as, you know, oh this is an amazing human, right? That's not what they are. And ultimately you got to contain, guardrail, and make sure that you're clear with what an agent can do.
I have to tell you though, it's so interesting. I mean, you know, we say that, but then I feel like the way that agents are marketed, I mean that's not the way that they're marketed, right? Because to get people to adopt agents, you basically have to say they are kind of like your human assistant. And so there's a little bit of a mismatch there.
Yeah, look, I don't like the word human. I like the word they're not a human. They may be a human's assistant, yes, but if you think of an assistant as somebody you traditionally think of as hey, I qualified and they good morals and integrity and so on, no. It's not that they're bad, they just don't have such a concept, right? And they don't have a conscience. And so, you really have to be careful. You have to make sure that you sandbox them, you guardrail them, you're prescriptive, and then they'll do what you need them to do, but you got to have controls. So, I tell people this, assume you're vulnerable, assume agents go rogue, assume they do what you don't want them to do. You need to survive and have security in that environment to protect that.
Right. Sanjay, I do want to ask, I mean, so cybersecurity companies have seen a lot of momentum in the stock market. Investors have sold off shares of your company this year largely. What do you chalk that up to?
Yeah, I mean, we're up probably 30, 40% in the last 6 months. And so, we see obviously some growth back as well, but we're new, right? We're not even past a year in our public company journey. And so, we're still getting out there. We're getting our first few quarters out. We are one of the fastest growing cyber companies out there. Gross margins trending towards 80%. Our operating margins is increasing, going through our free cash flow inflection with the annual billings. And so, all the metrics are moving in the right direction. And similarly, we're beating our guidance every quarter. We beat it every single guide metric we had, we beat. And so, I think just continuing to deliver that is the game. And I played a long game. I'm here to win for customers and winning for customers.
Speaking of the long game, I mean, you know, we're both Toronto natives. Every time you come on the show, we talk about Toronto sports. And I'd be remiss if we don't acknowledge the Kawhi Leonard scandal that we have found ourselves. He's back now. He's back. He's back in Toronto. You know, we got the claw back, but man, what a road it's been.
[laughter] It has been a road. It has been a road. In fact, if you see over my shoulder, there's a Raptors painting and if you look closely, there's the shot from Kawhi.
Yeah, [laughter] yeah. Yeah, there's the shot. I know. It's... Yeah.
Okay. And now we know we seldom know what's behind the biggest shots, but...
Sanjay, I want to thank you for coming on. That is Sanjay Beri, CEO of Netskope here on TITV.
DocuSign reported second quarter results. The company grew top line 9%, the same rate as last quarter. Free cash flow margin was about 34%, also the same as last quarter. Want to bring on Allan Thygesen, CEO of DocuSign for a conversation. Allan, welcome back to the show. It's great to have you here.
Yeah, likewise. Thank you.
So, can you remind us DocuSign I mean, look, everybody knows the DocuSign product very well. We all use it probably every week. It's much broader now than just the core signature product. So, walk us through the product stack and then we'll talk about the results shortly.
