Clouded Judgement 12.27.24 - 2024 Year End Review

Every week I’ll provide updates on the latest trends in cloud software companies. Follow along to stay up to date!

2024 Top Performers

This year the median software multiple ended at 6.1x. At the start of the year it was 6.3x. Throughout the entire year there was very little multiple expansion or contraction.

This year there were 3 cloud software companies that traded up >100%! Last year there were 14. The median year-to-date performance was +5% with 55% of companies trading up on the year, and 45% of companies trading down. Pretty even distribution! While the median YTD performance was +5%, the average performance was +10%. There was real dispersion this year! I think that will continue to an even greater extent next year

Below were the top performers for the last couple years. Palantir takes the top spot again in 2024 after topping the charts in 2023!

Top 10 EV / NTM Revenue Multiples

There was conssitency in the Top 10 this year. 5 companies had a top 10 multiple for every day of the year: Cloudflare, CrowdStrike, ServiceNow, Samsara and Datadog.

And below you can see who ended up in the top 10 to end the year in the last couple years. Only 3 companies have ended the year in the top 10 from 2021 to 2024: Snowflake, Datadog and Cloudflare. One interesting call out - in 2021 at the peak the company with the highest multiple to end the year was Snowflake with a 57x multiple. Today the top multiple is 53x. Not that far off!

Top 10 Weekly Share Price Movement

Update on Multiples

SaaS businesses are generally valued on a multiple of their revenue - in most cases the projected revenue for the next 12 months. Revenue multiples are a shorthand valuation framework. Given most software companies are not profitable, or not generating meaningful FCF, it’s the only metric to compare the entire industry against. Even a DCF is riddled with long term assumptions. The promise of SaaS is that growth in the early years leads to profits in the mature years. Multiples shown below are calculated by taking the Enterprise Value (market cap + debt - cash) / NTM revenue.

Overall Stats:

• Overall Median: 6.1x

• Top 5 Median: 18.5x

• 10Y: 4.6%

Bucketed by Growth. In the buckets below I consider high growth >27% projected NTM growth (I had to update this, as there’s only 1 company projected to grow >30% after this quarter’s earnings), mid growth 15%-27% and low growth <15%

• High Growth Median: 10.0x

• Mid Growth Median: 10.7x

• Low Growth Median: 4.5x

EV / NTM Rev / NTM Growth

The below chart shows the EV / NTM revenue multiple divided by NTM consensus growth expectations. So a company trading at 20x NTM revenue that is projected to grow 100% would be trading at 0.2x. The goal of this graph is to show how relatively cheap / expensive each stock is relative to their growth expectations

EV / NTM FCF

The line chart shows the median of all companies with a FCF multiple >0x and <100x. I created this subset to show companies where FCF is a relevant valuation metric.

Companies with negative NTM FCF are not listed on the chart

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

How correlated is growth to valuation multiple?

Operating Metrics

• Median NTM growth rate: 12%

• Median LTM growth rate: 14%

• Median Gross Margin: 76%

• Median Operating Margin (7%)

• Median FCF Margin: 16%

• Median Net Retention: 109%

• Median CAC Payback: 37 months

• Median S&M % Revenue: 40%

• Median R&D % Revenue: 25%

• Median G&A % Revenue: 17%

Comps Output

Rule of 40 shows rev growth + FCF margin (both LTM and NTM for growth + margins). 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.

Sources used in this post include Bloomberg, Pitchbook and company filings

The information presented in this newsletter is the opinion of the author and does not necessarily reflect the view of any other person or entity, including Altimeter Capital Management, LP ("Altimeter"). The information provided is believed to be from reliable sources but no liability is accepted for any inaccuracies. This is for information purposes and should not be construed as an investment recommendation. Past performance is no guarantee of future performance. Altimeter is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.

This post and the information presented are intended for informational purposes only. The views expressed herein are the author’s alone and do not constitute an offer to sell, or a recommendation to purchase, or a solicitation of an offer to buy, any security, nor a recommendation for any investment product or service. While certain information contained herein has been obtained from sources believed to be reliable, neither the author nor any of his employers or their affiliates have independently verified this information, and its accuracy and completeness cannot be guaranteed. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, timeliness or completeness of this information. The author and all employers and their affiliated persons assume no liability for this information and no obligation to update the information or analysis contained herein in the future.