Every week I’ll provide updates on the latest trends in SaaS valuations, earnings announcements, and highlight any significant news. Follow along to stay up to date!
Cloud Multiples Correlation With 10 Year Treasury
Over long periods of time the 10 Year Treasury and cloud multiples aren’t very correlated. However, there are times of extreme correlation. Since cloud multiples peaked in February the correlation between the 10 Year and cloud multiples is -0.95. This level of correlation is extremely high. Some attribute the start of the correlation to the point in time when the 10 Year started to maintain (and grow) above 1%. Even in the last 2 days you can see the 10 Year dip a bit, and multiples come back up
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. In the buckets below I consider high growth >30% projected NTM growth, mid growth 15%-30% and low growth <15%
Overall Median: 15.0x
Top 5 Median: 36.4x
3 Month Trailing Average: 17.0x
1 Year Trailing Average: 14.2x
Bucketed by Growth:
High Growth Median: 25.0x
Mid Growth Median: 14.4x
Low Growth Median: 6.4x
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: 23%
Median LTM growth rate: 29%
Median Gross Margin: 74%
Median Operating Margin (12%)
Median FCF Margin: 9%
Median Net Retention: 117%
Median CAC Payback: 21 months
Median S&M % Revenue: 44%
Median R&D % Revenue: 25%
Median G&A % Revenue: 18%
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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