Arjun Bhatia: Congrats on a good quarter. I wanted to touch on the product verticalization efforts. I think you mentioned that a little bit in the shareholder letter, but I’m curious what your roadmap is on verticalization and maybe what role the partners can play there, if any, in helping to reach verticals where you may not have a presence right now.
Roy Mann: We are relying a lot on the partners to both expand our marketplace offerings and also to provide a lot of services and help us with customers in territories we are not present in. And I think it’s a great power that we have that we have so many engaged partners. Just recently, a lot of them, like 170 of them flowing to Israel, we had a large event here. And it was very exciting to see how they’re going to build on us. And really, we shared with them the roadmap of the marketplace and how much they can do there. So it’s really exciting.
Arjun Bhatia: One follow-up for Eliran. As you think about just the sales and marketing spend going into next year, obviously, you’re seeing efficiency there on customer acquisition, but how do you think about the tradeoff between performance marketing and sales-led spend on the go-to-market side in 2023?
Eliran Glazer: The short answer is that it will be pretty much in the same ratio that we saw in the past. I would say around 30% is going to be performance marketing based on efficiency and around 70% is sales and partners. So this is kind of the ratio that we believe is going to continue also this year.
Operator: The next question is from Robert Simmons from D.A. Davidson.
Robert Simmons: Nice quarter. For the year, our retention number, particularly in the large enterprises, and what you disclosed as the fourth quarter number, can you talk about what you actually saw in the quarter itself in terms of how that trended in the December quarter? And then also the gross retention, what you saw there?
Eliran Glazer: From an overall, the NDR remains 20% And gross churn has held up well. We’re still seeing solid new customer demand and overall sales keeps going. On the larger accounts, we saw a decline. As I said at the beginning of the call, the reminder is that we’re coming off historical highs. We see larger customers that become more cautious with the budgets, they are more conscious with the level of spend, and we do see a slowdown in expansion of it, mostly driven, we believe, by current market uncertainty that is driving this behavior.
Robert Simmons: Would it be possible at all to get any quantification on any of those factors?
Eliran Glazer: Can you repeat the question please?
Robert Simmons: Would it be possible to get a quantification on any of those factors in the quarter?
Eliran Glazer: I don’t have it right now with me, the quantities of each contribution.
Roy Mann: To the NDR, so the larger one would be the slowdown in expansions. So, this is the main factor that drove the NDR. You could see that the NDR of larger customers slowed down more sharply than the other ones.
Operator: The next question is from Jason Celino from KeyBanc.
Jason Celino: Very nice to see the you’re on the cusp of winning at a major financial institution in the prepared remarks. When we think about the slowdown in seat expansions at the enterprise, has been mainly limited to your tech exposure? Curious there.
Eran Zinman: I would say the tech sector, again, like the thing that drives NDR up, is mostly companies expanding, meaning hiring more people, getting more people onboard into the product. Definitely the tech sector suffer more. But just as a reminder, it’s only 30% of our customers. The other 70% or more are less impacted, but it’s something we are seeing across the board within companies. And again, it’s hard to tell how much is that larger organizations being more cautious and how much is that €“ will stay with us going into 2023. But this is the current trend we’re seeing.
Jason Celino: If I were to kind of summarize the top of funnel trends, it sounds like things are still very strong. I’m curious on the linearity that you saw in Q4. I guess how did some of that top of funnel look in December versus maybe early in the quarter?
Roy Mann: Historically, we’ve seen that the first quarter is much stronger, people coming back from vacation and new years. And so, this first quarter, we actually anticipated it will be less strong than it is. So we do see it as a very positive sign. We see a very strong demand. And so, that’s super positive for.
Operator: The next question is from Andrew DeGasperi from Berenberg.
Andrew DeGasperi: I know you’ve talked a lot about net retention rate. And I know this being a 12 month trailing metric, I guess what I’m trying to get at is, is this metric going to step down sequentially for the larger cohorts, the over 10 users?
Roy Mann: We anticipate that it might go down in the larger accounts, between 5% to 10% more this year. There is a lagging effect, have in mind, at weighted average. So, obviously, the impact is going to be throughout the year. So I believe this is probably the trend that we’re seeing.
Andrew DeGasperi: Secondly, on the sales and marketing savings, I know you mentioned performance marketing, competitors pulling back. I just wanted to dig a little deeper in terms of who those competitors are. Are we talking about other collaboration work management platforms? Is it a bigger cohort of that?
Roy Mann: Generally, when we say that, we mean the overall competition on the keywords and on those ads. So we don’t necessarily know who they are. We just see that we are getting more customers for less money.
Operator: The next question comes from Shebly Seyrafi from SBN Securities.
Shebly Seyrafi: It looks like you’re going to be hiring in product and R&D in 2023. Does that mean you’re going to have lower sales and marketing headcount at the end of 2023? Just talk about how you intend to invest in sales marketing this year?
Eliran Glazer: We said that we are going to focus on product and R&D. It does not necessarily mean that we’re going to have lower headcount with sales and marketing. If we need to hire, there is going to be hiring there as well. Currently, we are continuing with the number that we have, but we see the bulk of the investment in R&D.
Shebly Seyrafi: I just want to elaborate on the competitor pullbacks. You just answered it, a prior question. But just if you can elaborate on that. For example, do you have a number of competitors that you saw pull back? When did you see it if there was a time that was more noticeable? And what is your response? Are you going to be more aggressive now against your competition and just describe how you might become more so?
Roy Mann: I’ll elaborate more on that. So, essentially, we bid on ads in Google and Facebook and YouTube in all those areas of performance marketing. And we see that we can get the same ad placements for a lower cost. So that’s essentially what we say when we say less competition. So, like to be in first place, we need to pay way less. And then we get a lot more customers in because of that, and our approach is that we have a BigBrain, we have our own measurement, internal measurement tools that we’ve built that show us exactly the ROI on every dollar we spend on marketing. So we know what’s working. So if there is a campaign that is working less good, we will lower the bid automatically, almost. And so, I think this is a competitive advantage we have over others where they needed to cut back, so they just did.
And we know what’s working. And so, what’s happened is that we’ve even increased the budget we have for performance marketing in January and February because we know and we see what’s working and we have internal predictions to what we’ll get out of it. So I think we’re doing it super responsibly. We know exactly what the ROI is. And that’s the strategy and what it’s been up until now.
Operator: The next question comes from Scott Berg from Needham.
