Bonus Clouded Judgement - 11.4.22 (End of Day Update)

Lots of movement today, so thought I’d update the charts / tables for the days close. Today felt like a double whammy from the more hawkish Fed + market saying forward estimates need to come down more. Atlassian seemed to be the big domino on the “numbers need to comes down more” train. They’d been more macro resilient than most, but their weak guide plus acknowledgement of macro headwinds spooked the market. This week Datadog and Confluent seemed to be the bright spots, but they are seeing macro effects as well (just not as pronounced as the rest of the software market). Are we entering the capitulation phase? Hard to say. There’s definitely a reality where higher rate environment + estimate revisions warrant multiples we’re seeing today and we’re actually at “fair” prices / multiples.

Top 10 EV / NTM Revenue Multiples

Top 10 Weekly Share Price Movement

Update on Multiples

SaaS businesses are valued on a multiple of their revenue - in most cases the projected revenue for the next 12 months. Multiples shown below are calculated by taking the Enterprise Value (market cap + debt - cash) / NTM revenue.

Overall Stats:

• Overall Median: 4.5x

• Top 5 Median: 11.1x

• 10Y: 4.2%

Bucketed by Growth. In the buckets below I consider high growth >30% projected NTM growth, mid growth 15%-30% and low growth <15%

• High Growth Median: 7.8x

• Mid Growth Median: 4.9x

• Low Growth Median: 2.5x

Scatter Plot of EV / NTM Rev Multiple vs NTM Rev Growth

How correlated is growth to valuation multiple?

Growth Adjusted EV / NTM Rev

The below chart shows the EV / NTM revenue multiple divided by NTM consensus growth expectations. The goal of this graph is to show how relatively cheap / expensive each stock is relative to their growth expectations

Operating Metrics

• Median NTM growth rate: 21%

• Median LTM growth rate: 31%

• Median Gross Margin: 74%

• Median Operating Margin (25%)

• Median FCF Margin: 0%

• Median Net Retention: 120%

• Median CAC Payback: 33 months

• Median S&M % Revenue: 48%

• Median R&D % Revenue: 28%

• Median G&A % Revenue: 19%

Comps Output

Rule of 40 shows LTM growth rate + LTM FCF Margin. FCF calculated as Cash Flow from Operations - Capital Expenditures

GM Adjusted Payback is calculated as: (Previous Q S&M) / (Net New ARR in Q x Gross Margin) x 12 . It shows the number of months it takes for a SaaS business to payback their fully burdened CAC on a gross profit basis. Most public companies don’t report net new ARR, so I’m taking an implied ARR metric (quarterly subscription revenue x 4). Net new ARR is simply the ARR of the current quarter, minus the ARR of the previous quarter. Companies that do not disclose subscription rev have been left out of the analysis and are listed as NA.

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