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Removing space debris requires action and caution

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Over the icy tundra of Siberia in 2009, a derelict Russian military satellite, Kosmos-2251, slammed into an active communications satellite, Iridium 33, at speeds in excess of 26,000 miles per hour. Both were immediately smashed to smithereens.

As a result of this single collision, approximately 1,800 large pieces of space debris, each capable of destroying any spacecraft unfortunate enough to cross its path, remain in orbit to this day and for the foreseeable future.

Depending on who you ask, space debris is either a nonissue that will solve itself or a critical problem that threatens the future of space exploration. We interviewed dozens of experts across industry, academia and the regulatory landscape to better understand which of these viewpoints is closer to the truth, and to consider what ought to be done going forward.

What is space debris?

Far from homogenous, space debris includes any nonfunctional human-made object in space, including rocket parts that have been abandoned in orbit after having completed their mission, defunct satellites, fragments from unintentional and intentional orbital collisions and items released during operations. These sources have multiplied to create a large amount of space debris orbiting Earth.

According to NASA, there are over 30,000 objects larger than a softball in orbit, traveling at speeds up to 18,000 miles per hour.

This debris is spread across all three of the main regions of space around Earth: low-Earth orbit (LEO), medium-Earth orbit (MEO) and geosynchronous equatorial orbit (GEO). As its name suggests, LEO is the closest to us, extending up to 2,000 km from the Earth’s surface.

It is the most crowded region of the three and, in addition to hosting the International Space Station, it is the region where SpaceX, OneWeb and other well-funded companies are currently sending tens of thousands of new satellites as part of their constellations. Perhaps not surprisingly, LEO is the region with the most debris. As a result, it tends to be the focus of much of the discussion around the issue.

Above LEO, satellites in MEO and GEO are also threatened by space debris. This is important because these orbits host a number of crucial satellites, including navigation systems in MEO such as the American GPS and European Galileo, and critical GEO-based communication satellites. Satellites in GEO are able to maintain a single point above the Earth (this special orbit is possible because the satellite is orbiting around Earth at the same speed the Earth is rotating).

Given the altitude of both MEO (2,000 km-36,000 km) and GEO (~36,000 km), de-orbiting the satellite is not a viable option — the current solution when satellites retire is to move them to unused orbits called “graveyard orbits,” further contributing to the growth of space debris above us.

Why does space debris matter?

The existence of space debris is concerning for many reasons, with physical collisions being the most obvious. The possible risk caused by space debris is magnified by the incredible speed at which debris typically travels. According to NASA, there are over 30,000 objects larger than a softball in orbit, traveling at speeds up to 18,000 miles per hour. At that speed, any one of these objects is capable of completely destroying a spacecraft.

Even debris just 1 cm in diameter can disable an operational spacecraft, while even smaller fragments can cause huge problems as well. Indeed, a fleck of paint was enough to damage a window on the International Space Station, which has been forced into maneuvers to avoid larger, potentially catastrophic debris 28 times since 1999, including three times in 2020 alone.

Unfortunately, tracking all of this debris has proven to be an arduous challenge. For starters, only objects larger than 10 cm in diameter are currently tracked by the North American Aerospace Defense Command (NORAD). However, there are likely 900,000 objects less than 10 cm but larger than 1 cm, and tens of millions of objects smaller than 1 cm that are not tracked by the current system but that are still capable of causing significant damage. Of particular concern is the range between 1 cm and 10 cm, which has appropriately earned the moniker of lethal nontrackable debris, or LNT.

Space junk poses other challenges as well. Astronomers lament that light pollution from objects in orbit hampers observation of the night sky. The reliance of observatories — often involving equipment costing hundreds of millions of dollars — on long exposures makes debris particularly problematic. Another worry is “Kessler syndrome,” which takes its name from NASA scientist Donald Kessler.

In 1978, Kessler postulated that more space debris would increase the likelihood of collisions, which in turn would lead to more space debris, and so on, in an exponential growth that may end up compromising orbital operations. In other words, the issue could evolve into a never-ending spiral that eventually renders LEO unusable and possibly impenetrable.

Stakeholders

Before considering how to respond, it is important to understand the landscape of those affected by space debris.

Launch providers are among the most crucial players — after all, their business models hinge on their ability to put payloads into orbit. They are also part of the problem. Launcher parts (i.e., spent upper stages) left in orbit have been, in the words of professor Lorenzo Casalino of the Polytechnic University of Turin, “piling up for decades.”

He believes launch providers have been “among the most critical contributors to space debris.” However, some newer launch companies, such as Rocket Lab, do not leave any piece of their rockets in space. Instead, they de-orbit the stages, which causes them to burn up upon reentry into Earth’s atmosphere.

Satellite operators are also a crucial component of the ecosystem. On one hand, they are the ones most responsible for the overcrowding of space; on the other, they are the most likely victims of space debris. Mike Safyan of Planet, which has over 150 satellites in orbit, notes that mitigating space debris is “in the interest of satellite operators,” and that many are already incorporating maneuverability and de-orbiting technologies into their satellites.

For example, OneWeb, a large constellation operator, is designing its satellites to be “de-orbit ready.” Darren McKnight, Technical Director at Centauri, a satellite operator, explains that operators are faced with a “significant decline in overall reliability” as their systems are increasingly affected by a constantly growing space debris cloud, and thus incentivized to act. Sara Spangelo, CEO and co-founder of Swarm Technologies, says many private companies have already started to implement measures for space debris mitigation. Swarm Technologies has proven that it can consistently track its tiny satellites and recently added active attitude and propulsion control to maneuver out of the trajectory of debris.

These strategies help ensure that while the 10 cm by 10 cm by 2.8 cm (the size of a grilled cheese sandwich) satellites are providing connectivity around the world, they do not contribute to the growth of the space debris cloud.

An interesting role is played by insurance companies. Chris Quilty, a commercial space expert, notes that while satellite insurance remains relatively uncommon — fewer than a tenth of satellites in LEO are covered by insurance — insurers are likely to play an increasingly large role as the risk of collisions becomes more likely. Chris Kunstadter, global head of space at AXA XL, a major commercial insurance provider, adds that insurers have been active in terms of pushing for stricter regulation, as insurance is often a key component of regulatory proposals.

One group that is often overlooked, but that has the potential to strongly affect the future path toward the sustainable use of space, is comprised of the end users of space-based services. This encompasses anyone from telecommunications customers to users of imaging data to transportation companies relying on satellites to track their ships and planes. As OneWeb’s VP of Regulatory Affairs Ruth Pritchard-Kelly points out, if end users demand sustainability, as they have in other sectors (e.g., retail, mining, etc.), it would likely force launch providers and satellite operators to act.

Finally, there is a new stakeholder that is trying to solve the challenge of space debris. Startups such as Astroscale and D-Orbit are making progress toward commercializing the removal, or at least mitigation, of space debris. Another example is LeoLabs, a ground-based space mapping provider, whose phased-array radars are capable of tracking debris as small as 2 cm. Dan Ceperley, founder and CEO of LeoLabs, believes his company’s advanced tracking capabilities will allow launch providers and satellite operators to be responsible for the objects they put into space. If mapping, mitigating and removing space debris turn out to be profitable endeavors, the private sector may already have the incentives it needs to clean up its act.

Regulatory considerations

Notwithstanding the promise of space debris mitigation technology, it is possible that regulators will be forced into action. Due to the intricacies of the space sector and the many stakeholders, regulatory bodies could provide stability and a guiding framework for companies around the world. However, the regulatory picture is uncertain given how decentralized space regulation tends to be.

While the United Nations Office for Outer Space Affairs (UNOOSA) exists to promote international cooperation in outer space, it is lacking in its ability to enforce regulations at the international level, being limited to providing secretarial support to the COPUOS (Committee for Peaceful Use of Outer Space). As a result, regulation in the industry has always been a tricky patchwork of country-level rules, with parties occasionally resorting to adopting “flags of convenience” in search of the nation offering the most favorable regulatory conditions.

In spite of this patchwork, the United States has emerged as the most powerful potential source of regulation given both its weight within the industry as well as its International Traffic in Arms Regulations (ITAR). ITAR is a U.S. regulatory regime controlling the manufacture, sale, distribution and use of defense and space-related articles that has made it costly and difficult — if not impossible — for U.S. players in the space industry to flag-shop or otherwise do business without adhering to U.S. regulations. As a result, any effective regulations governing space debris are likely to emerge from the U.S.

One of the many observations that has echoed through numerous interviews revolves around how U.S. regulations have not kept up with the rapid development of technology, with rules and guidelines dating back to a period when only NASA and the Soviet space program launched satellites into space, and when the idea of private entities possessing the ability to easily and inexpensively access space was “unthinkable,” in the words of Alessandro Rossi of the Italian National Research Council.

Over the last decade, launch costs have decreased by an order of magnitude; this, combined with the development of CubeSats and other miniature satellites, has dramatically lowered the cost of sending payloads to space. The private sector has responded by promising to send thousands of satellites into LEO over the next few years. It is unlikely that rules designed to regulate a handful of satellites the size of school buses will be adequate for this new reality.

Within the U.S., several agencies deal with the use of space, and the best source of future regulation remains a point of contention. A 2018 White House directive sought to make the Commerce Department the “traffic cop” of space. Meanwhile, some believe the Federal Aviation Administration (FAA), which already regulates launches and reentries, is in the best position to effect change. Another key player is the Federal Communications Commission (FCC), which is responsible for regulating satellite transmissions.

According to Laura Montgomery, an expert in space law and the former head of the FAA’s space law branch, the FCC “certainly interprets its regulatory mandate as extending to space debris.”

The experts we spoke to generally seemed to believe that these agencies are unlikely to aggressively pursue new regulations in the near term. Professor Montgomery noted that regulators “tend to move slowly,” and that the collisions that have happened to date have “yet to lead to Congressional action” on this issue. Professor Zac Manchester of Carnegie Mellon University suggested regulatory agencies are “often understaffed and lacking the technical expertise” to address the problem of space debris anytime soon.

Others noted that while the FCC implemented new rules to mitigate orbital space debris back in April, these rules did little to change the status quo — operators will now be required to submit more safety disclosures, but the body “stopped short of introducing stricter orbital debris criteria.” To summarize, it appears that new overarching regulations are unlikely to be implemented anytime soon.

Where many see regulatory bodies as the ones holding the stick, there has been a push toward the creation of a carrot, an incentive for stakeholders to play an active role in addressing space debris. This is what the World Economic Forum (WEF), together with MIT’s Space Enabled Research Group at their Media Labs, European Space Agency, University of Texas at Austin, and Bryce Space and Technology, has been working on with the development of the Space Sustainability Rating (SSR).

WEF’s Nikolai Khlystov describes the SSR as a voluntary rating system for space (not dissimilar to what already exists for the energy class of home appliances or LEED for buildings) that aims at incentivizing good behavior. The hope is that the SSR, or a similar system, will be widely adopted by the industry. As an example, the WEF sees insurance companies making good use of the rating, as it could be used to determine premiums, offer discounts or even refuse insurance for underperformers.

The case for action

At this point, the space industry and its stakeholders have two options. They can either set up a framework that can address the problem of space debris, or continue on the current path, with little regulatory oversight and even less enforceability on a global level surrounding the sustainable use of space.

Looking at the history of space debris, we can safely assume that if nothing changes, the amount of debris will continue to grow, particularly within the more crowded LEO orbits. Without a comprehensive framework for end-of-life, it is only a matter of time before more collisions like the Kosmos-Iridium one will cause an order of magnitude increase in space debris, making it nearly impossible to clean up LEO.

There is a saying in aviation: “Regulations are written in blood.” The implication is that regulations are often founded on lessons learned from events that cost property or lives. One more major collision could force the hand of the international space community and lead to harsh regulations that could be negative for those within the private space industry that have not already adopted sustainability as a business imperative.

The case for caution

On the other hand, the space industry and regulatory bodies could come together to shape guiding transparent rules to deal with the challenges posed by space debris without hindering progress in the private space sector.

Any framework addressing the issue of space debris should be a cooperative, international effort. Regulatory bodies can leverage the fact that the sustainable use of space is in the interest of all market participants — after all, space debris is a costly problem, as well as a potential safety issue, for both operators and users. Today, many companies in the private space sector are in favor of greater accountability for this reason.

In addition, the case could be made that private companies would be more effective than governments at removing space debris from highly congested orbits. The technology of space debris removal is still in its early stages — Astroscale and other startups have not yet launched their services. However, they are beginning to make significant progress, and it is hard to imagine a future where this industry will not be critical in cleaning up space debris.

The path forward

Ideally, we hope to see the private sector rise to the occasion. Surely market participants acknowledge the long-term importance of keeping space free of debris, and we believe this represents an attractive problem for startups to tackle. We would also welcome creative ideas, such as prizes for researchers who come up with the best solutions for removing space debris.

However, at some point, it is likely that the issue of space debris will need to be addressed with regulation. In particular, we would urge the regulators best-positioned to act — those in the United States — to tackle the issue, as they stand the best chance of crafting enforceable regulation.

One of the biggest obstacles currently is that different agencies touch different parts of the satellite ecosystem (e.g., the Commerce Department, the FAA and the FCC) and responsibilities often overlap. We would encourage Congress to clarify this issue and empower a single agency to take the lead in setting rules to address the issue of space debris.

We would, however, caution against sweeping regulation that fails to consider the long-term consequences of such action. Professor Montgomery puts it best, “As a former writer of regulations, I know that they tend to get set in stone, and this has the potential to hamper innovation.”

This was the key issue with the debacle surrounding the Kicksat-2 project, says Professor Manchester. The project was meant to demonstrate the cutting-edge technology of microsatellites in a safe manner, but was delayed for years due to concerns from the FCC before being approved in 2019 with zero modifications to the original design. Montgomery adds that, “If regulators act too quickly, they run the risk of creating rules that are not ideal and that are almost impossible to fix.”

For this reason, we would encourage regulators to take their time to understand the issue and to work closely with other stakeholders to develop a set of guidelines over time, rather than rushing to a conclusion too soon.

Ultimately, we hope regulators and the commercial players can work together to find a lasting solution in the relatively near future, rather than waiting for a catastrophic failure before taking action.

Lyron Foster is a Hawaii based African American Musician, Author, Actor, Blogger, Filmmaker, Philanthropist and Multinational Serial Tech Entrepreneur.

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The one-shot vaccine from Johnson & Johnson now has FDA support in the US

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An advisory board to the US Food and Drug Administration voted unanimously in favor of the first single-shot covid-19 vaccine, clearing the path for the health agency to authorize its immediate use as soon as tomorrow.

The one-shot vaccine, developed by Johnson & Johnson, has the additional advantage of being easy to store, because it requires nothing colder than ordinary refrigerator temperatures. It stopped 66% of mild and serious covid-19 cases in a trial carried out on three continents.

It will join a US covid arsenal that already includes authorized vaccines from Moderna and Pfizer. Those vaccines, which use messenger RNA, were significantly more effective (they stopped about 95% of cases), but they require two shots, and the doses need to be stored at ultra-cold temperatures.

Globally, a growing list of injections developed in Russia, China, India, and the United Kingdom all are starting to see wide use.

While the new J&J vaccine isn’t as effective as those made using messenger RNA technology, health officials said that shouldn’t dissuade people from getting it, since it still sharply reduces the chance of illness and death.

“To have two is fine, and having three is absolutely better,” Anthony Fauci, the country’s chief virologist, said during an interview on NBC. “It’s more choices and increases the supply. It will certainly contribute to getting control.”

In the US, there have been approximately 28 million confirmed cases of covid-19 and 500,000 deaths.

The limited supplies of the Moderna and Pfizer shots mean most Americans are still waiting to be vaccinated. About 1.4 million doses of those two vaccines were given each day last week in the US. At that pace it would take about a year to vaccinate the whole nation.

In theory, an easily stored single-shot vaccine could kick up the pace. In practice, though, supply shortages of the J&J vaccine could limit the role it plays in the US vaccination campaign. In testimony before Congress this week, Johnson & Johnson said it had only 4 million shots ready to go, a third of the initial supply promised, and would deliver only 20 million doses by the end of March.

“I wonder if the J&J vaccine is going to be a significant part of the US landscape,” says Eric Topol, a doctor at the Scripps Research Institute, who called initial supplies “paltry” given that the company received extensive government support.

The vaccine also has what Topol called a “notable dropdown in efficacy overall” compared with messenger RNA shots, although many health experts this week rushed to defend the vaccine against any suggestion it was inferior.

“Everything we’ve seen so far says these are excellent vaccines,” Ashish Jha, a health policy researcher and doctor at Brown University, wrote on Twitter, where he argued that comparing “headline efficacy” among vaccines can be misleading since “they all are essentially 100% at preventing hospitalizations [and] deaths once they’ve kicked in.”

New shot

The new one-shot vaccine, called Ad26.COV2.S, was developed by Johnson & Johnson using work from Beth Israel Deaconess Medical Center in Boston. It employs a harmless viral carrier, adenovirus 26, which can enter cells but doesn’t multiply or grow. Instead, the carrier is used to drop off gene instructions that tell a person’s cells to make the distinctive coronavirus spike protein, which in turn trains the immune system to combat the pathogen.

The New York Times published a detailed graphical explanation of how the vaccine works.

Richard Nettles, vice president of US medical affairs at Janssen, a J&J subsidiary, told Congress during testimony on February 23 that production of the vaccine is “highly complex” and said the company was working to manufacture the shots at eight locations, including a US site in Maryland.

The manufacturing is complicated because the vaccine virus is grown in living cells before it is purified and bottled. Making a batch of virus takes two months, which is why there is no way to immediately increase supplies if timelines are missed.

Indeed, the biggest disappointment around the new vaccine is a supply shortfall caused by manufacturing problems. Jeffrey Zients, coordinator of President Biden’s covid-19 task force, said during a White House press conference on Wednesday, February 24, that the new administration had only “learned that J&J was behind on manufacturing” when it took office five week ago.

“It was disappointing when we arrived,” he said. “The initial production ramp … was slower than we’d like.”

Pretty effective

In late January, the company announced results from a 45,000-person study it carried out in the US, South Africa, and South America, in which people got either the vaccine or a placebo.

Overall, the vaccine was 66% effective in stopping covid-19, and somewhat better at stopping severe disease. In the trial, for instance, seven people died of covid-19, but all of these were in the placebo arm. Also, its effects increased with time—after a month, no one in the vaccine arm had to go to the hospital for covid-19.

Johnson & Johnson claims it will not be making a profit from the vaccine, which will also be sold outside the US. Instead, Nettles said, the vaccine will be sold at a single “not-for-profit” price to all countries “for emergency pandemic use.”

Nettles didn’t say what that price would be, but the US agreed last year to pay the company about $1 billion for a guarantee of 100 million doses and has given the company a similar amount of development funding, making it one of the major investments of Operation Warp Speed, as the vaccine effort was known during the Trump administration.

Shortage to surplus

At least for the moment, vaccine supply remains a limiting factor in the US inoculation campaign, which has seen 70 million doses administered since it began in December, according to Bloomberg. “I don’t see an excess of vaccine for a while,” says Peter Hotez, a virologist and vaccine developer at the Baylor College of Medicine.

All told, the US will have received enough shots to fully vaccinate 130 million Americans by the end of March, when projected supplies from Pfizer, Moderna, and J&J are tallied together.

Still, vaccine shortages could turn to excess before summer, creating a situation in which it’s no longer vaccines that are in short supply, but people willing or eligible to receive them.

That is because in the US, children under 18 make up about a quarter of the population but aren’t yet allowed to receive the shots. As well, about 30% of American adults claim they won’t get a covid-19 vaccine at all. Children and vaccine doubters together make up half the population.

By August, the three companies say, they will deliver the US enough vaccines for 400 million people, or more than the country’s population. That does not account for a fourth vaccine, manufactured by Novavax, that may also win US authorization.

“By the summer we will be in good shape. The question is how we navigate this space between now and June,” says Hotez.

Growing arsenal

The Johnson & Johnson shot joins a growing worldwide list of approved vaccines that includes the two messenger RNA vaccines, injections from AstraZeneca and Chinese manufacturers, and Russia’s “Sputnik” vaccine, all of which are in use outside the US.

People who get any of the vaccines will, on average, see their chance of dying from covid-19 plummet to near zero. That is down from an overall death rate of around 1.7% of diagnosed cases in the US—and a risk several times higher in elderly people.

The J&J shot has fewer side effects than the mRNA vaccines and has also proved effective against a highly transmissible South African variant of the virus that has accumulated numerous mutations.

The South Africa variant has alarmed researchers because it clearly decreases the effectiveness of some vaccines. A study in South Africa by AstraZeneca found its vaccine didn’t offer protection against the variant at all, causing officials to scrap a plan to distribute the shot there.

According to health minister Zweli Mkhize, South Africa is instead pivoting to the J&J vaccine, with a plan to vaccinate 80,000 health-care workers in the next two weeks.

This week, Moderna also said it would develop a shot tailored against the South African variant, and Pfizer indicated it was also preparing to counter new strains as they arise. Another strategy being contemplated to fend off variants is to give people extra booster doses of the current vaccines.

Some experts in the US continue to urge the government to adopt faster-paced vaccine schemes, like delaying second doses of the messenger RNA shots or using half doses, arguing that the more people who have “good enough” protection, the sooner the pandemic will end.

So far, though, it’s not clear what agency or official would be ready, or even legally authorized, to make that call.

“We are all scratching our heads about who could make that decision,” says Hotez. “And it all depends on how much urgency you feel. The big picture is if you know the numbers are going down, and feel they are going to stay down due to seasonality, then you have some breathing space. But if you are worried about variants, then you have a problem, and you want to vaccinate ahead of schedule.”

On NBC, Fauci said people shouldn’t wait for the best vaccine but take what’s offered. “Even one that may be somewhat less effective is still effective against severe disease, as we have seen with the J&J vaccine,” he said. “Get vaccinated when the vaccine is available to you.”

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Daily Crunch: Facebook launches rap app

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Facebook unveils another experimental app, Atlassian acquires a data visualization startup and Newsela becomes a unicorn. This is your Daily Crunch for February 26, 2021.

The big story: Facebook launches rap app

The new BARS app was created by NPE Team (Facebook’s internal R&D group), allowing rappers to select from professionally created beats, and then create and share their own raps and videos. It includes autotune and will even suggest rhymes as you’re writing the lyrics.

This marks NPE Team’s second musical effort — the first was the music video app Collab. (It could also be seen as another attempt by Facebook to launch a TikTok competitor.) BARS is available in the iOS App Store in the U.S., with Facebook gradually admitting users off a waitlist.

The tech giants

Atlassian is acquiring Chartio to bring data visualization to the platform — Atlassian sees Chartio as a way to really take advantage of the data locked inside its products.

Yelp puts trust and safety in the spotlight — Yelp released its very first trust and safety report this week, with the goal of explaining the work that it does to crack down on fraudulent and otherwise inaccurate or unhelpful content.

Startups, funding and venture capital

Newsela, the replacement for textbooks, raises $100M and becomes a unicorn —  If Newsela is doing its job right, its third-party content can replace textbooks within a classroom altogether, while helping teachers provide fresh, personalized material.

Tim Hortons marks two years in China with Tencent investment — The Canadian coffee and doughnut giant has raised a new round of funding for its Chinese venture.

Sources: Lightspeed is close to hiring a new London-based partner to put down further roots in Europe — According to multiple sources, Paul Murphy is being hired away from Northzone.

Advice and analysis from Extra Crunch

In freemium marketing, product analytics are the difference between conversion and confusion — Considering that most freemium providers see fewer than 5% of free users move to paid plans, even a slight improvement in conversion can translate to significant revenue gains.

As BNPL startups raise, a look at Klarna, Affirm and Afterpay earnings — With buy-now-pay-later options, consumers turn a one-time purchase into a limited string of regular payments.

(Extra Crunch is our membership program, which helps founders and startup teams get ahead. You can sign up here.)

Everything else

Jamaica’s JamCOVID pulled offline after third security lapse exposed travelers’ data — JamCOVID was set up last year to help the government process travelers arriving on the island.

AT&T is turning DirecTV into a standalone company — AT&T says it will own 70% of the new company, while private equity firm TPG will own 30%.

How to ace the 1-hour, and ever-elusive, pitch presentation at TC Early Stage — Norwest’s Lisa Wu has a message for founders: Think like a VC during your pitch presentation.

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 3pm Pacific, you can subscribe here.

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Salesforce delivers, Wall Street doubts as stock falls 6.3% post-earnings

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Wall Street investors can be fickle beasts. Take Salesforce as an example. The CRM giant announced a $5.82 billion quarter when it reported earnings yesterday. Revenue was up 20% year over year. The company also reported $21.25 billion in total revenue for the just closed FY2021, up 24% YoY. If that wasn’t enough, it raised its FY2022 guidance (its upcoming fiscal year) to over $25 billion. What’s not to like?

You want higher quarterly revenue, Salesforce gave you higher revenue. You want high growth and solid projected revenue — check and check. In fact, it’s hard to find anything to complain about in the report. The company is performing and growing at a rate that is remarkable for an organization of its size and maturity — and it is expected to continue to perform and grow.

How did Wall Street react to this stellar report? It punished the stock with the price down over 6%, a pretty dismal day considering the company brought home such a promising report card.

2/6/21 Salesforce stock report with stock down 6.31%

Image Credits: Google

So what is going on here? It could be that investors simply don’t believe the growth is sustainable or that the company overpaid when it bought Slack at the end of last year for over $27 billion. It could be it’s just people overreacting to a cooling market this week. But if investors are looking for a high growth company, Salesforce is delivering that

While Slack was expensive, it reported revenue over $250 million yesterday, pushing it over the $1 billion run rate with more than 100 customers paying over $1 million in ARR. Those numbers will eventually get added to Salesforce’s bottom line.

Canaccord Genuity analyst David Hynes Jr wrote that he was baffled by investor’s reaction to this report. Like me, he saw a lot of positives. Yet Wall Street decided to focus on the negative, and see “the glass half empty” as he put it in his note to investors.

“The stock is clearly in the show-me camp, which means it’s likely to take another couple of quarters for investors to buy into the idea that fundamentals are actually quite solid here, and that Slack was opportunistic (and yes, pricey), but not an attempt to mask suddenly deteriorating growth,” Hynes wrote.

During the call with analysts yesterday, Brad Zelnick from Credit Suisse asked how well the company could accelerate out of the pandemic-induced economic malaise, and Gavin Patterson, Salesforce’s president and chief revenue officers says the company is ready whenever the world moves past the pandemic.

“And let me reassure you, we are building the capability in terms of the sales force. You’d be delighted to hear that we’re investing significantly in terms of our direct sales force to take advantage of that demand. And I’m very confident we’ll be able to meet it. So I think you’re hearing today a message from us all that the business is strong, the pipeline is strong and we’ve got confidence going into the year,”Patterson said.

While Salesforce execs were clearly pumped up yesterday with good reason, there’s still doubt out in investor land that manifested itself in the stock starting down and staying down all day. It will be as Hynes suggested up to Salesforce to keep proving them wrong. As long as they keep producing quarters like the one they had this week, they should be just fine, regardless of what the naysayers on Wall Street may be thinking today.

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