Clouded Judgement 7.23.21
Every week I’ll provide updates on the latest trends in cloud software companies. Follow along to stay up to date!
Highlight of the Week - Zoom Agrees to Acquire Five9 for $14.7B
This is Zoom’s first large M&A deal and is quite the splash. The transaction is an all stock deal (Five9 shareholders will receive 0.5533 shares of Zoom stock for each Five9 share). So the headline purchase price of $14.7B can change from now until the acquisition closes (which is expected in the first half of 2022). Zoom released a presentation on the acquisition you can find here. Two of my favorite slides are below:
Quarterly Reports Summary
This week kicked of Q2 earnings season! Qualtrics was the only company to report, their results are below
Top 10 EV / NTM Revenue Multiples
I should have SentinelOne consensus estimates by next week. They would certainly be top 10 (and top 5) given where they’re trading today
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: 16.1x
Top 5 Median: 52.2x
3 Month Trailing Average: 15.5x
1 Year Trailing Average: 15.6x
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: 27.8x
Mid Growth Median: 14.5x
Low Growth Median: 5.7x
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: 23%
Median LTM growth rate: 31%
Median Gross Margin: 74%
Median Operating Margin (14%)
Median FCF Margin: 9%
Median Net Retention: 118%
Median CAC Payback: 25 months
Median S&M % Revenue: 44%
Median R&D % Revenue: 25%
Median G&A % Revenue: 18%
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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