Clouded Judgement 7.31.20
Every week I’ll provide updates on the latest trends in SaaS valuations, earnings announcements, and highlight any noteworthy news. Follow along to stay up to date!
Highlight of the Week - Earnings Season Begins!
This week we saw a number of cloud businesses report their earnings for the quarter ending June 30th. So far every every company has beaten consensus estimates. While this may seem impressive, my takeaway is that estimates had been revised too low making these beats the expectation. That’s the only way Shopify could beat consensus estimates by 38%, and only watch their stock go up by ~7%. The street had clearly baked in a significant beat into their quarter expectations. Speaking of Shopify… Their run rate revenue is close to $3B, and in this last quarter they grew 97% YoY. That level of growth, at their revenue scale is staggering. They’re growing so fast they can’t even predict with a reasonable level of accuracy their targets for next quarter (they did not provide guidance). Below you can see a summary of earnings reports for the cloud businesses to report so far:
Top 10 EV / NTM Revenue Multiples
*Please note consensus estimates have not been updated post-earnings announcements. Companies like Shopify (who have reported) have higher estimates because NTM estimates have not been revised up (yet)
Top 10 Weekly Share Price Gains
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 Stats:
Overall Median: 13.7x
Top 5 Median: 40.1x
3 Month Trailing Average: 12.4x
1 Year Trailing Average: 10.6
Bucketed by Growth:
High Growth Median: 29.9x
Mid Growth Median: 16.0x
Low Growth Median: 8.3x
Operating Metrics
Median NTM growth rate: 18%
Median LTM growth rate: 31%
Median Gross Margin: 73%
Median Operating Margin (15%)
Median Net Retention: 117%
Median CAC Payback: 28 months
News
SAP announced their plans to spin out Qualtrics (who they acquired in 2018 for $8B) and take them public through an IPO
Cloudflare announced Workers Unbound, the next evolution of its Serverless platform in its efforts to compete with AWS Lambda
Comps Output
Not all forward estimates have been revised following earnings. Shopify, for example, NTM growth rates looks quite low, but this is because LTM revenue was incredibly high, and NTM estimates have not been updated to reflect this. This means when we calculate growth (NTM / LTM -1) the denominator has been adjusted up, but the numerator has not, thus lowering the growth rate shown.
Rule of 40 shows LTM growth rate + LTM GAAP Operating Margin
