Cloud software buyers are getting frugal, leading to slower growth at former highfliers
The New York Stock Exchange welcomes Snowflake to usher in the first day of winter on Dec. 21, 2021. To honor the occasion, Snowflake the Bear, joined by Chris Taylor, vice president of NYSE Listings and Services, rings the opening bell.
NYSE
In 2020, as data analytics software vendor Snowflake was hitting the public market, one of the key stats it was touting to investors was net revenue retention.
Snowflake’s NRR at the time was 158%, meaning its existing customer base from a year earlier had increased its total spend by 58%. The measurement reflects demand from clients for more products and services and is beloved by Wall Street because it signifies added revenue without much additional cost.
However, in the quarter that ended in January of this year, Snowflake’s NRR dipped to 131%, a number that is still high by industry standards yet indicates a slowdown in new spending. It is a trend that is popping up across the cloud software industry, as former fast-growing businesses contend with a more conservative approach from the companies, governments and other entities they serve, whether the buyers are finance, marketing or IT departments.
“The median net retention for the software universe has been steadily declining the last few quarters,” Jamin Ball, a partner at tech-focused investment firm Altimeter Capital, wrote in a post on social media site X on Friday. “More pressure on churn (as companies look to reduce point solutions in favor of platforms) and more difficult upsells have pushed net retention down,” Ball added.
Industrywide, the median net retention rate declined to 111% in the fourth quarter, as the number ticks down a bit each period, Ball’s data shows. According to the four-year chart he posted, NRR peaked at 121% in the first quarter of 2022, which was just after tech stocks reached a record and had started a precipitous decline.
The retrenchment has continued even with interest rates stabilizing, the economy showing signs of strength and the Nasdaq wiping out all of its losses from 2022 to reach fresh highs.
Twilio, which sells cloud-based communications software, reported NRR of 102% in February, with just 5% year-over-year revenue growth. Rewind to the fourth quarter of 2020 and the company’s NRR was 139%.
Almost all of Twilio’s revenue comes from its division that contains technology for sending text messages and emails.
“We are seeing low churn in that business, but relative to historical levels kind of pre-2023, just higher contraction and more muted expansion,” Aidan Viggiano, Twilio’s finance chief, said on the company’s earnings call in February.
At Snowflake, Chief Financial Officer Mike Scarpelli told investors last month that NRR will at some point converge with its revenue growth rate, which slowed to 36% in the latest fiscal year from 69% in fiscal 2023 and 106% the year before that.
The topic didn’t get much discussion on Snowflake’s earnings call, as analysts were focused on the announcement that Sridhar Ramaswamy was replacing CEO Frank Slootman, the veteran Silicon Valley executive who led Snowflake through its 2020 initial public offering, the largest ever for a U.S. software company.
Representatives from Twilio and Snowflake declined to comment.
The story is similar at Zoom, which has seen its enterprise net retention rate slip to 101% from more than 130% three years ago.
Zoom has opted to add artificial intelligence features into its premium video-calling plans at no additional cost. That is different than the approach taken by competitors Google and Microsoft, which are generally forcing companies to pay for new AI capabilities.
“Because customers are also trying to reduce the cost, that’s why we do not charge the customers for those features,” Zoom CEO Eric Yuan said on his company’s earnings call last month.
Zoom did not respond to CNBC’s request for comment.
Even Amazon CEO Andy Jassy said “cost optimization” is having an effect on business. Amazon Web Services doesn’t break out NRR, but the division reported annual revenue growth in the fourth quarter of 13%, down from 20% a year earlier. Jassy said he sees the market starting to show signs of a reacceleration.
“I think that the lion’s share of cost optimization has happened,” Jassy said. “It’s not that there won’t be any more or that we don’t see any more. But it’s just attenuated very significantly.”
An AWS spokesperson told CNBC in a statement that “customers are renewing at larger commitments over longer periods.”
‘Additional down-sell pressure’
ZoomInfo, which sells access to data that companies can use to help drive sales, reported a dramatic drop in NRR to 87% at the end of 2023 from 116% two years earlier. That means existing customers are spending less year over year.
Midsize companies, especially in technology, were the customers feeling the most heat in the fourth quarter, ZoomInfo CFO Cameron Hyzer told analysts on last month’s earnings call. ZoomInfo ended the fourth quarter with 1,820 customers holding at least $100,000 in annual contract value on Dec. 31, down from 1,869 clients at that level on Sept. 30.
“We anticipate additional down-sell pressure in Q1 as we are still lapping a peak of negativity from last year and working through the long tail of multiannual contracts that were most recently transacted in a very different operating environment,” Hyzer said. Management expects the retention rate to return to higher levels this year, he said.
DigitalOcean, which competes with AWS, Microsoft and Google in providing cloud computing and storage services, also saw NRR dip below 100% last year. After hitting 112% in the fourth quarter of 2022, the rate dropped to 107% to start 2023 and then fell to 96% in the third and fourth quarters.
Paddy Srinivasan, who was named CEO of DigitalOcean in January, told CNBC in an interview in February that developers are turning off computing instances that they are not currently using.
Like at AWS, Srinivasan said DigitalOcean is “starting to see stabilization.”
Representatives from ZoomInfo and DigitalOcean did not respond to CNBC’s requests for comment.
The Nasdaq MarketSite in New York, June 9, 2023.
Michael Nagle | Bloomberg | Getty Images
Silicon Valley executives and financiers publicly opened their wallets in support of President Donald Trump’s 2024 presidential run. The early returns in 2025 aren’t great, to say the least.
Following Trump’s sweeping tariff plan announced Wednesday, the Nasdaq suffered steep consecutive daily drops to finish 10% lower for the week, the index’s worst performance since the beginning of the Covid pandemic in 2020.
The tech industry’s leading CEO’s rushed to contribute to Trump’s inauguration in January and paraded to Washington, D.C., for the event. Since then, it’s been a slog.
The market can always turn around, but economists and investors aren’t optimistic, and concerns are building of a potential recession. The seven most valuable U.S. tech companies lost a combined $1.8 trillion in market cap in two days.
Apple slid 14% for the week, its biggest drop in more than five years. Tesla, led by top Trump adviser Elon Musk, plunged 9.2% and is now down more than 40% for the year. Musk contributed close to $300 million to help propel Trump back to the White House.
Nvidia, Meta and Amazon all suffered double-digit drops for the week. For Amazon, a ninth straight weekly decline marks its longest such losing streak since 2008.
With Wall Street selling out of risky assets on concern that widespread tariff hikes will punish the U.S. and global economy, the fallout has drifted down to the IPO market. Online lender Klarna and ticketing marketplace StubHub delayed their IPOs due to market turbulence, just weeks after filing with the Securities and Exchange Commission, and fintech company Chime is also reportedly delaying its listing.
CoreWeave, a provider of artificial intelligence infrastructure, last week became the first venture-backed company to raise more than $1 billion in a U.S. IPO since 2021. But the company slashed its offering, and trading has been very volatile in its opening days on the market. The stock plunged 12% on Friday, leaving it 17% above its offer price but below the bottom of its initial range.
“You couldn’t create a worse market and macro environment to go public,” said Phil Haslett, co-founder of EquityZen, a platform for investing in private companies. “Way too much turbulence. All flights are grounded until further notice.”
CoreWeave investor Mark Klein of SuRo Capital previously told CNBC that the company could be the first in an “IPO parade.” Now he’s backtracking.
“It appears that the IPO parade has been temporarily halted,” Klein told CNBC by email on Friday. “The current tariff situation has prompted these companies to pause and assess its impact.”
‘Cave rapidly’
During last year’s presidential campaign, prominent venture capitalists like Marc Andreessen backed Trump, expecting that his administration would usher in a boom and eliminate some of the hurdles to startup growth set up by the Biden administration. Andreessen and his partner, Ben Horowitz, said in July that their financial support of the Trump campaign was due to what they called a better “little tech agenda.”
A spokesperson for Andreessen Horowitz declined to comment.
Some techies who supported Trump in the campaign have taken to social media to defend their positions.
Venture capitalist Keith Rabois, a managing director at Khosla Ventures, posted on X on Thursday that “Trump Derangement Syndrome has morphed into Tariff Derangement Syndrome.” He said tariffs aren’t inflationary, are effective at reducing fentanyl imports, and he expects that “most other countries will cave and cave rapidly.”
That was before China’s Finance Ministry said on Friday that it will impose a 34% tariff on all goods imported from the U.S. starting on April 10.
At Sequoia Capital, which is the biggest investor in Klarna, outspoken Trump supporter Shaun Maguire, wrote on X, “The first long-term thinking President of my lifetime,” and said in a separate post that, “The price of stocks says almost nothing about the long term health of an economy.”
However, Allianz Chief Economic Advisor Mohamed El-Erian warned on Friday that Trump’s extensive raft of import tariffs are putting the U.S. economy at risk of recession.
“You’ve had a major repricing of growth prospects, with a recession in the U.S. going up to 50% probability, you’ve seen an increase in inflation expectations, up to 3.5%,” he told CNBC’s Silvia Amaro on the sidelines of the Ambrosetti Forum in Cernobbio, Italy.
Former Microsoft CEOs Bill Gates, left, and Steve Ballmer, center, pose for photos with CEO Satya Nadella during an event celebrating the 50th Anniversary of Microsoft on April 4, 2025 in Redmond, Washington.
Stephen Brashear | Getty Images
Meanwhile, executives at tech’s megacap companies were largely silent this week, and their public relations representatives declined to provide comments about their thinking.
Microsoft CEO Satya Nadella was in the awkward position on Friday of celebrating his company’s 50th anniversary at corporate headquarters in Redmond, Washington. Alongside Microsoft’s prior two CEOs, Bill Gates and Steve Ballmer, Nadella sat down with CNBC’s Andrew Ross Sorkin for a televised interview that was planned well before Trump’s tariff announcement.
When asked about the tariffs at the top of the interview, Nadella effectively dodged the question and avoided expressing his views about whether the new policies will hamper Microsoft’s business.
Ballmer, who was succeeded by Nadella in 2014, acknowledged to Sorkin that “disruption is very hard on people” and that, “as a Microsoft shareholder, this kind of thing is not good.” Ballmer and Gates are two of the 12 wealthiest people in the world thanks to their Microsoft fortunes.
C-suites may not be able to stay quiet for long, especially if the recent turmoil spills into next week.
Lise Buyer, who previously helped guide Google through its IPO and now works as an adviser to companies going public, said there’s no appetite for risk in the market under these conditions. But there is risk that staffers get jittery, and they’ll surely look to their leaders for some reassurance.
“Until markets settle out and we have the opportunity to access valuation levels, public company CEOs should work to calm potentially distressed employees,” Buyer said in an email. “And private company managements should refine plans to get by on dollars already in the treasury.”
— CNBC’s Hayden Field, Jordan Novet, Leslie Picker, Annie Palmer and Samantha Subin contributed to this report.
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