Samsara: Ongoing Digital Transformation A Big Tailwind (NYSE:IOT)

Samsara: Ongoing Digital Transformation A Big Tailwind (NYSE:IOT)

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Overview

I think Samsara (NYSE:IOT) is underestimated. Samsara aims to improve the efficiency, sustainability and security of operations that drive the global economy. As an IoT pioneer, Samsara’s solution consists of a Connected Operation Cloud. It makes it possible for businesses in a number of industries unlock the value of IoT data and improve their operations. IOT purpose-built platforms provide a digital hub for physical operations, which sets it apart from the competition.

Business description

Samsara is the pioneer in Connected Operations Cloud. It enables businesses (which rely on physical operations) to use Internet of Things (IoT) data to provide actionable business insights and improve performance. The company’s Connected Operation Cloud consolidates data from its IoT devices, making it easy for organizations to access, evaluate and act on data insights using the cloud dashboard, custom reports and alerts, workflows and mobile apps.

The company delivers end-to-end solutions for operations. The company’s differentiated, purpose-built portfolio of solutions enables organizations to adopt and implement a cloud-connected digital strategy throughout their business. The solution connects physical operational data to the “Connected Operations Cloud”, which consists of the company’s data platform and applications. The data platform ingests, collects and enriches data from its IoT devices. However, the growing ecosystem of connected assets and third-party systems makes the data actionable for the use cases through the applications.

IoT allows customers to run their businesses more safely, make their businesses more efficient and achieve their sustainability goals, all of which improve the lives of their employees and the people they serve.

Dissertation on investments

Digital transformation is an unstoppable force

Digital transformation is essential for companies to be able to compete. Companies that successfully transform their operations through modern applications, digital workflows and intuitive user experiences often benefit from loyal customers. Furthermore, innovative products and scalable business models also increase companies’ profitability. The growth of smart devices, cloud applications, diversification of user groups and increasing customer expectations are driving digital transformation. In the retail, advertising, media and information technology industries, for example, digital-first entrepreneurs have completely changed the way businesses have been run for decades.

Many industries (including transportation, wholesale and retail) that rely on physical operations have been slow to embrace digital transformation. These industries represent a significant, untapped opportunity for digital transformation. Despite their size and crucial role in the global economy, many businesses in these sectors still rely heavily on manual processes, archival data, spreadsheets and legacy software. These physical operations can be more manual, efficient and suitable for providing consumers with actionable insights. Businesses that rely on physical operations are in a unique position to use connected IoT assets to create real-time operational data and use AI to gain insights, experiment with automation and make business processes more efficient.

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Furthermore, many operationally intensive companies depend on expensive equipment and assets. These operations-intensive companies deploy a significant field workforce that requires coordination, handle the demanding accuracy of intricate logistics, and manage industry-specific workflows that require specialist knowledge. These companies must comply with various regulatory requirements while emphasizing sustainability, efficiency and safety. However, certain disadvantages of these businesses (including inefficient energy use, maintenance downtime, misallocation of resources, security breaches, complacency and risky work practices) can lead to significant business risks, including high costs, high turnover and reduced profits. Adoption of digital technology is essential for operation-intensive companies to remain competitive and adaptable.

However, industries that rely on physical operations face many challenges today, including:

  1. Lack of data access and hidden systems: Many physical operational assets (such as fleets of vehicles, industrial equipment, factories and remote equipment) produce vast amounts of operational data that are often inaccessible. Even when the data is available, it is spread across several siled systems consisting of hardware and software components from different manufacturers. Combining data in the cloud and creating useful business insights is challenging due to limited data access and siled systems.
  2. Breadth and diversity of data: Users’ ability to combine different data types and make better operational decisions is limited by the breadth and diversity of data collected from physical operations. It can be challenging to clean up and normalize this structured and unstructured data before analysis. Organizations need to be able to normalize the data and understand the relationships between different disconnected data sets to get value from the data. To identify areas for improvement, businesses should be able to benchmark themselves against best-in-class performers and competitors.
  3. Rely on legacy tools: Many operations-intensive companies rely on legacy tools to monitor and perform discrete jobs. These older tools, created decades ago, were not designed for scale analysis. In contrast, other companies continue to use paper and spreadsheets.

IOT connects relevant data points to provide a bird’s eye view of physical operations

Samsara’s cloud-based data platform is where the data collected by their solutions is stored and analyzed. Samsara uses self-installed, plug-and-play IoT devices to retrieve information from assets that do not have built-in sensors. Offline assets with built-in sensors can be connected to the internet via these. Then, Samsara’s data platform, which collects data from many IoT sources, gives customers a “single pane of glass” view of their physical operations across the entire organization.

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Samsara also integrates with key systems such as ERP and work order applications to merge operational IoT data with customer IT data. With that, Samsara provides users with a unified computer operating system, so you don’t have to deal with multiple software and hardware systems. It also gives you a full overview of your assets by prioritizing and benchmarking them.

IOT solutions improve operational efficiency and reduce costs

Samsara’s data platform enables customers to increase productivity by automating previously manual operations and making data-driven decisions. The end results are making decisions in real time and using time and resources more efficiently.

For example, the IOT routing and dispatch program helps its customers choose routes that use less gas by leveraging real-time information about traffic conditions and delivery delays. IOT customers also benefit from productivity gains by automating procedures and digitizing documentation for regulatory compliance.

Furthermore, IoT enables customers to actively monitor security risks by using IoT data and AI to identify patterns and improve their security programs. For example, IOT processed more than 38 billion minutes of video in 2020. That video contained sudden braking, distracted driving, sudden turn events, and people and movement alerts, and the company used them all to track and improve the physical operations of its customers. By providing video evidence of incidents, IOT also helps defend its customers against erroneous claims, which can result in lower insurance costs for them.

IOT purpose-built platform sets it apart from its peers

The cloud-based IOT data platform allows companies to improve their processes. In order for the IoT data platform to be able to extract value from the trillions of IoT data points at its disposal, a thorough understanding of operations via cases and data is required. For example, the IOT Data Platform can correlate hard braking data with video safety data to determine whether a braking event was safe or not. By integrating multiple data sources and taking into account the environment, IOT users can determine whether the driver’s stopping habits require inspection.

Moreover, the company has leveraged the growing power of IoT computing, recognizing that this will allow it to offer its customers instant access to in-depth analytics. The edge computing capabilities of IoT are tailored to the specific requirements of physical operations. For example, IoT can ingest video and immediately analyze it at the edge to alert drivers or security operators of tailgating, safety risks, unsafe work settings and distracted driving in real time. With the daily data it collects, the company can improve its AI algorithms and provide better insights and alarms that match the physical operation at the edge.

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To collect and process critical data in real time, even in low bandwidth or latency situations, IoT devices use edge computing.

Forecast

My model suggests that IOT has the potential to increase by 100% from today’s share price. This is based on consistently high growth rates, and no change in valuation multiples. Below are the most important assumptions:

  1. Historical growth has been very strong, indicating success and progress. Since there are no structural changes in the business, growth should remain at high rates
  2. IOT-differentiated product should make it possible to maintain high growth rates
  3. The growth rate for FY22 is based on management’s guidance, which was raised from the previous guidance. This is a clear indication of momentum

Using these assumptions, IOT could be worth 100% more than the current share price of 9.67.

Valuation

Author’s estimate

red flags

Inherent risk

Reputational damage can occur to IoT if a security breach or incident compromises customer data, company data, IoT devices or the data platform.

Rapid technological change

The company participates in industries that are exposed to rapid technological changes. The competitive environment will continue to be significantly affected by the advent of new technology. The company must continue to provide more value to customers by coming up with new apps that help IOT customers track and manage their fleets, equipment, sites and other related assets.

Competition

IOT competes in new and rapidly developing markets for applications and areas of use. Some of its competitors are more financially stable and have more recognizable brands, larger sales teams, larger marketing budgets and wider distribution networks than IOT. Large organizations in particular used distribution networks and established connections to offer fleet management solutions and solutions in other business verticals that were already offered to customers.

Conclusion

IOT has the potential to increase by 100% from today’s share price. By combining IoT connectivity, AI, cloud computing and video imagery, IOT is digitally transforming physical operations. It strives to help many industries streamline their operations while improving efficiency, sustainability and security by connecting the IoT. The company offers a unique advantage to keep investors interested.

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