Former highfliers in the cloud software industry are experiencing slower growth due to buyers becoming more frugal.

• Cloud software businesses are experiencing a decline in net revenue retention rates, indicating a focus on cost-cutting measures.
• In the fourth quarter of 2022, the median NRR decreased by 10% compared to its peak of 121% in the first quarter, as per data released by Altimeter Capital's Jamin Ball.
• Ball wrote that increased pressure on churn and challenging upsells have led to a decline in net retention as companies shift from point solutions to platforms.

In 2020, the key stat that the data analytics software vendor highlighted to investors was its net revenue retention rate.

Snowflake's NRR was 158%, indicating that its existing customer base from the previous year had increased its total spend by 58%. This measurement reflects the demand from clients for more products and services and is highly valued by Wall Street as it indicates added revenue with minimal additional cost.

In the quarter ending January of this year, Snowflake's NRR decreased to 131%, which is still a high number but suggests a slowdown in new spending. This trend is evident across the cloud software industry, as companies that were previously fast-growing now face a more conservative approach from their clients, whether they are finance, marketing, or IT departments.

Jamin Ball, a partner at Altimeter Capital, stated on social media site X that the median net retention for the software industry has been decreasing in recent quarters. He attributed this decline to increased pressure on churn and more challenging upsells, which have caused net retention to decrease.

The median net retention rate decreased to 111% in the fourth quarter, with a slight decline each period, according to Ball's data. According to his four-year chart, NRR peaked at 121% in the first quarter of 2022, coinciding with the decline of tech stocks after reaching a record.

Despite the stabilization of interest rates, the economy's strength, and the Nasdaq reaching new highs, the retrenchment has persisted.

In the fourth quarter of 2020, the company's NRR was 139%, while in February 2021, it reported an NRR of 102% with only 5% year-over-year revenue growth.

Most of Twilio's earnings originate from its text messaging and email technology division.

Twilio's finance chief, Aidan Viggiano, stated on the company's earnings call in February that while there is low churn in that business, it is relative to historical levels pre-2023, with a higher contraction and more muted expansion.

Last month, Mike Scarpelli, Chief Financial Officer at Snowflake, informed investors that NRR will eventually align with the company's revenue growth rate, which decreased to 36% in the most recent fiscal year from 69% in fiscal 2023 and 106% the year prior.

The topic of Snowflake's earnings call was overshadowed by the announcement that Sridhar Ramaswamy would replace CEO Frank Slootman, who led the company through its 2020 IPO, the largest ever for a U.S. software company.

Representatives from Twilio and Snowflake declined to comment.

The enterprise net retention rate of the company has decreased from over 130% three years ago to 101%.

Unlike its competitors, Zoom is offering artificial intelligence features in its premium video-calling plans at no extra cost.

Zoom CEO Eric Yuan stated on the company's earnings call last month that the reason they do not charge customers for certain features is because customers are also trying to minimize expenses.

Zoom did not respond to CNBC's request for comment.

Andy Jassy, CEO of Amazon Web Services, stated that "cost optimization" is positively impacting the business. Although AWS does not disclose NRR, the division reported a 13% annual revenue growth in the fourth quarter, a decrease from the previous year's 20%. Jassy believes the market is showing signs of a reacceleration.

"Jassy stated that the majority of cost optimization has already occurred, although there may still be some more in the future. However, the impact of cost optimization has significantly decreased."

AWS stated that customers are committing to larger contracts for longer durations, according to a spokesperson who spoke to CNBC.

'Additional down-sell pressure'

In 2023, the company that provides access to data for sales purposes experienced a significant decrease in NRR from 116% to 87%, indicating that existing customers are spending less annually.

In the fourth quarter, technology midsize companies experienced the most pressure, according to ZoomInfo CFO Cameron Hyzer, who shared this information on the company's earnings call last month. ZoomInfo's fourth quarter ended with 1,820 customers holding at least $100,000 in annual contract value on December 31, which was a decrease from 1,869 clients at that level on September 30.

Management anticipates a decrease in retention rate in Q1 due to lingering negativity from the previous year and ongoing challenges with multiannual contracts that were recently transacted in a different operating environment, Hyzer stated.

In 2023, the NRR of the cloud computing and storage service provider, which competes with AWS, Microsoft, and Google, dipped below 100%. The rate had been 112% in the fourth quarter of 2022, but fell to 107% in the first quarter and then to 96% in the third and fourth quarters.

In an interview with CNBC in February, Paddy Srinivasan, who became CEO of DigitalOcean in January, revealed that developers are frequently shutting down computing instances that they are not actively utilizing.

Srinivasan stated that DigitalOcean is experiencing stabilization, similar to AWS.

CNBC did not receive any responses from ZoomInfo or DigitalOcean regarding their requests for comment.

Akamai CEO Tom Leighton stated that cloud computing is the company's fastest-growing segment during the Q4 results.