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 big drawdown in cloud software this week. The current median multiple is 6.2x NTM revenue. This is: 44% below pre-Covid levels in Feb ‘20
"When the dust settles, investors will get back to picking (currently most are risk-off waiting for macro factors to play out). And in my opinion the key attribute to filter for when picking is which companies will actually get to 20-30% FCF margins."
In your view, which companies will meet that 20-30% FCF margin filter?
Seems like there's really a bifurcated SaaS market, with investors having become discerning vs. assuming all SaaS is great.
- The top-quartile, which (to a non-software person) looks like its largely comprises of those cos that are are widely held as 'great' (SNOW, TEAM, DDOG, CRWD, etc) which are still trading at >10x NTM Sales. Investors are willing to pay healthily (vs. insanely) for the future FCF here...
- The rest, trading at a median of <6x, which are back to the 2015-19 range - albeit nearer the bottom. You could argue that makes sense given economic questions, higher discount rates, investor psychology, reduced growth prospects (i.e. if focusing on FCF now), etc.
Striking to see SentinelOne fall off the top 10 list.
Jamin, you stated:
"When the dust settles, investors will get back to picking (currently most are risk-off waiting for macro factors to play out). And in my opinion the key attribute to filter for when picking is which companies will actually get to 20-30% FCF margins."
In your view, which companies will meet that 20-30% FCF margin filter?
Thanks,
Dave
Can you add cash on the books to your excel sheet?
Any reason the mega caps like alphabet are excluded from your analysis? They would be interesting point of comparison
Seems like there's really a bifurcated SaaS market, with investors having become discerning vs. assuming all SaaS is great.
- The top-quartile, which (to a non-software person) looks like its largely comprises of those cos that are are widely held as 'great' (SNOW, TEAM, DDOG, CRWD, etc) which are still trading at >10x NTM Sales. Investors are willing to pay healthily (vs. insanely) for the future FCF here...
- The rest, trading at a median of <6x, which are back to the 2015-19 range - albeit nearer the bottom. You could argue that makes sense given economic questions, higher discount rates, investor psychology, reduced growth prospects (i.e. if focusing on FCF now), etc.