Clouded Judgement 1.28.22
Every week I’ll provide updates on the latest trends in cloud software companies. Follow along to stay up to date!
Update on Multiples
Another down week for cloud software. When looking at median multiples we’re now below where we were pre-covid. The overall median multiple is 13% below pre-covid highs, 5% above where we were on Jan 1, 2020, and 14% below the previous peak in August 2019.
However, high growth software multiples are still elevated. Looking at high growth software median only - we are still 26% above pre-covid highs, 49% above where we were on Jan 1, 2020, and right in line with the previous peak in September 2019.
Quarterly Reports Summary
Earnings season has officially kicked off! Some very strong reports so far. As multiples for cloud software companies continue to normalize down, it’s important to take a look under the hood of these businesses. I’d argue cloud software companies have never preformed as well as they are now. While multiples are coming down, the future looks bright for cloud software fundamentals.
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 Median: 9.4x
Top 5 Median: 30.5x
3 Month Trailing Average: 13.0x
1 Year Trailing Average: 15.2x
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: 17.9x
Mid Growth Median: 8.7x
Low Growth Median: 4.2x
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
Median NTM growth rate: 24%
Median LTM growth rate: 34%
Median Gross Margin: 74%
Median Operating Margin (19%)
Median FCF Margin: 4%
Median Net Retention: 119%
Median CAC Payback: 25 months
Median S&M % Revenue: 44%
Median R&D % Revenue: 26%
Median G&A % Revenue: 19%
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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