We’re on the other end of nearly every single SaaS earnings report that you can name, with the exception of Slack, and shares of software companies are holding onto their year’s gains. Which means SaaS and cloud companies have made it through a somewhat steep gauntlet largely unscathed.
There were exceptions, of course, but when we consider public software and cloud companies, the tale of the tape is somewhat clear. And it appears to indicate that today’s huge revenue multiples will stick around for a while yet.
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This is great news for startups, given that delivering software as a managed service (SaaS) has become the most popular business model for upstart tech companies. If the set of public SaaS companies are richly valued, it reflects well on their private peers. Warm public markets can help with exit valuations and provide encouragement to private investors to keep investing in SaaS startups.
The most recent earnings reports tell a somewhat simple story: Generally strong growth, and generally good forecasts. A few weeks back, Appian beat on revenue growth and profitability and guided a bit above market expectations. Given the nearly 50% run company’s stock that it has enjoyed in 2020, the results were welcome.
More recently, Box beat expectations and raised its forecast. And Okta beat market targets in its most recent quarter, guiding higher than what the market expected. Bill.com? More of the same. And, Salesforce broached the $20 billion run-rate mark, also posting a forecast that topped expectations.
And that was all this week. Redpoint’s Jamin Ball managed to find a few misses, including Splunk’s most recent quarter and its guidance for its coming period, and Autodesk’s own forecasts that were a hair under what the market expected. But the results were simply, and generally speaking, pretty good.
The median public SaaS or cloud company is now has an enterprise value multiple of around 23x their present-year’s revenues. I can’t recall seeing that number higher than that, though Bessemer doesn’t graph the revenue multiple calculations it executes for its SaaS index, sadly.
The results and the resulting valuations helped cause one of the most active single-day IPO runs we’ve ever seen, I reckon. S-1 Monday, as I think of it, might have been smaller if more SaaS companies had missed instead of beat, or had seen their prices decline materially.
But as it is, a bunch of VC firms are about to get handed buckets of liquidity as a host of their investments finally get out the door in the next few weeks. And the Nasdaq is at all-time highs.
What does this all mean? A maintenance of present-day conditions, I think. That means public valuations for tech companies stay inflated. It also means that VCs will continue their current, frenetic deal pace. Talk to a VC who invests regularly in cloud and SaaS companies today and they’ll tell you about deals happening so quickly that due diligence is increasingly hard to find time for. Normally we’d call that the market top, but given how long the heated-market has managed its current state, we’ll leave the heralding of an eventual bear market to others.
Growth may not be accelerating at SaaS and cloud companies as many expected, but it seems that the same cohort of companies is doing well enough to stay richly valued when compared to historical norms. So, as we wander into the second half of calendar Q3, expect little to no change until something large and external shakes up the current market dynamic for both public and private SaaS alike.
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