Samsara (IOT)

Internet of Things company Samsara (NYSE:IOT) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 30.7% year on year to $366.9 million. Guidance for next quarter’s revenue was better than expected at $372 million at the midpoint, 0.7% above analysts’ estimates. Its non-GAAP profit of $0.11 per share was 91.6% above analysts’ consensus estimates.

Company Overview

One of the few public companies where Marc Andreessen is a Board member, Samsara (NYSE:IOT) provides software and hardware to track industrial equipment, assets, and fleets.

Organizations generate a lot of data that is stored in silos, often in incompatible formats, making it slow and costly to extract actionable insights, which in turn drives demand for modern cloud-based data analysis platforms that can efficiently analyze the siloed data.

Samsara’s competitors include Fleetmatics and Verizon Connect, which are owned by Verizon (NYSE:VZ). Other competitors include private companies Omnitracs, Geotab, and MiX Telematics.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, Samsara grew its sales at an incredible 40.3% compounded annual growth rate. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.

This quarter, Samsara reported wonderful year-on-year revenue growth of 30.7%, and its $366.9 million of revenue exceeded Wall Street’s estimates by 4.4%. Company management is currently guiding for a 23.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 21.1% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is admirable and indicates the market is baking in success for its products and services.

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

Samsara’s ARR punched in at $1.54 billion in Q1, and over the last four quarters, its growth was fantastic as it averaged 33.3% year-on-year increases. This performance aligned with its total sales growth and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes Samsara a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue.

This quarter, Samsara reported 2,638 enterprise customers paying more than $100,000 annually, an increase of 132 from the previous quarter. That’s a bit fewer contract wins than last quarter but quite a bit above what we’ve seen over the last 12 months, suggesting its recent sales momentum is still healthy but softening after a tough comp quarter from the prior year.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Samsara is very efficient at acquiring new customers, and its CAC payback period checked in at 27.5 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Samsara more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

Software is eating the world. It’s one of our favorite business models because once you develop the product, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

Samsara’s robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an excellent 76.7% gross margin over the last year. Said differently, roughly $76.68 was left to spend on selling, marketing, and R&D for every $100 in revenue.

This quarter, Samsara’s gross profit margin was 77.3%, up 1.8 percentage points year on year. Samsara’s full-year margin has also been trending up over the past 12 months, increasing by 2 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Samsara’s expensive cost structure has contributed to an average operating margin of negative 11.8% over the last year. This happened because the company spent loads of money to capture market share. As seen in its fast revenue growth, the aggressive strategy has paid off so far, and Wall Street’s estimates suggest the party will continue. We tend to agree and believe the business has a good chance of reaching profitability upon scale.

Over the last year, Samsara’s expanding sales gave it operating leverage as its margin rose by 19.2 percentage points. Still, it will take much more for the company to reach long-term profitability.

This quarter, Samsara generated a negative 9.1% operating margin.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Samsara has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.4% over the last year, slightly better than the broader software sector.

Samsara’s free cash flow clocked in at $45.69 million in Q1, equivalent to a 12.5% margin. This result was good as its margin was 5.8 percentage points higher than in the same quarter last year. Its cash profitability was also above its one-year level, and we hope the company can build on this trend.

Over the next year, analysts’ consensus estimates show they’re expecting Samsara’s free cash flow margin of 10.4% for the last 12 months to remain the same.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Samsara is a well-capitalized company with $698.1 million of cash and $82.1 million of debt on its balance sheet. This $616 million net cash position is 2.3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by Samsara’s optimistic EPS guidance for next quarter, which beat analysts’ expectations. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its billings missed. Overall, we think this was still a mixed quarter. The market seemed to be hoping for more, and the stock traded down 12% to $41.69 immediately following the results.

Updated: June 16, 2025 at 10:20 PM EDT

Before deciding whether to buy Samsara or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Samsara is an amazing business ranking highly on our list. First of all, the company’s revenue growth was exceptional over the last three years. On top of that, its expanding operating margin shows it’s becoming more efficient at building and selling its software, and its ARR has surged, showing its fundamentals are improving because it’s becoming a more predictable business.

Samsara’s price-to-sales ratio based on the next 12 months is 13.6x. Looking at the software landscape today, Samsara’s fundamentals really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $48.45 on the company (compared to the current share price of $39), implying they see 24.2% upside in buying Samsara in the short term.