Samsara (IOT)

IoT solutions provider Samsara (NYSE:IOT) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 30.4% year on year to $391.5 million. Guidance for next quarter’s revenue was better than expected at $399 million at the midpoint, 1.2% above analysts’ estimates. Its non-GAAP profit of $0.12 per share was 65.6% above analysts’ consensus estimates.

Company Overview

From sensors on vehicles to AI-powered cameras that help prevent accidents, Samsara (NYSE:IOT) is a cloud-based Internet of Things platform that helps businesses improve the safety, efficiency, and sustainability of their physical operations.

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 competes with established industrial technology providers like Trimble (NASDAQ:TRMB), Verizon Connect (NYSE:VZ), and Geotab in the fleet management space, as well as Honeywell (NASDAQ:HON) and Rockwell Automation (NYSE:ROK) in industrial IoT applications.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Samsara’s sales grew at an exceptional 38.6% compounded annual growth rate over the last three years. 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 30.4%, and its $391.5 million of revenue exceeded Wall Street’s estimates by 5.2%. 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 20.2% over the next 12 months, a deceleration versus the last three years. Still, this projection is admirable and implies the market sees 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 $1.64 billion in Q2, and over the last four quarters, its growth was fantastic as it averaged 31.8% 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 2,771 enterprise customers paying more than $100,000 annually, an increase of 133 from the previous quarter. That’s in line with the number of contract wins in the last quarter and quite a bit above what we’ve seen over the previous year, confirming that the company is maintaining its sales momentum.

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 26.6 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.

What makes the software-as-a-service model so attractive is that once the software is developed, 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 77% gross margin over the last year. Said differently, roughly $76.99 was left to spend on selling, marketing, and R&D for every $100 in revenue.

Samsara’s gross profit margin came in at 76.9% this quarter, up 1.3 percentage points year on year. Samsara’s full-year margin has also been trending up over the past 12 months, increasing by 1.7 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).

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Samsara’s expensive cost structure has contributed to an average operating margin of negative 8.8% 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 18.8 percentage points. Still, it will take much more for the company to reach long-term profitability.

Samsara’s operating margin was negative 6.8% this quarter.

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 11.9% over the last year, slightly better than the broader software sector.

Samsara’s free cash flow clocked in at $44.19 million in Q2, equivalent to a 11.3% margin. This result was good as its margin was 6.9 percentage points higher than in the same quarter last year. We hope the company can build on this trend.

Over the next year, analysts predict Samsara’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 11.9% for the last 12 months will decrease to 11.3%.

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

Samsara is a well-capitalized company with $701.8 million of cash and $77.18 million of debt on its balance sheet. This $624.6 million net cash position is 3.1% 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.

This was a beat and raise quarter. Revenue and adjusted operating income beat convincingly, which was impressive. We also liked Samsara’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 7.4% to $38.50 immediately after reporting.

Updated: November 16, 2025 at 9:34 PM EST

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

Samsara is truly a cream-of-the-crop software company. First of all, the company’s revenue growth was exceptional over the last five years. And while its operating margins reveal poor profitability compared to other software companies, its surging ARR shows its fundamentals and revenue predictability are improving. On top of that, Samsara’s efficient sales strategy allows it to target and onboard new users at scale.

Samsara’s price-to-sales ratio based on the next 12 months is 12.8x. Scanning the software landscape today, Samsara’s fundamentals clearly illustrate that it’s an elite business, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $48.48 on the company (compared to the current share price of $37.96), implying they see 27.7% upside in buying Samsara in the short term.