Every week I’ll provide updates on the latest trends in cloud software companies. Follow along to stay up to date! Happy 4th! Declining Growth Everyone knows that growth as declined across the board over the last couple years. But by how much? I wanted to share a couple charts. The chart below shows the median NTM growth rate of the software basket I track. I add companies to this basket as they go public, and remove them as they get acquired. Outside of the obvious macro conditions, another reason for the median declining is that we haven’t had many new higher growth IPOs. As you can from the chart below, the median growth rate has fallen by ~50% in the last 2 years from ~25% to ~12%
How timely! Yesterday, I received a question on this topic of software company valuations from one of my readers. Here is my take on the matter...I think enterprise software has lower to go..the category is overvalued even now considering their forward growth rates and current stock proces. e.g. When I look at companies like CFLT IOT SNOW MDB CRM NOW etc. A recent Bain AI survey showed that a large % of enterprise tech budgets are going to AI POCs (proof of concept projects). 2025 tech budgets are being decided now and will also go to AI. CFOs typically give new strategic initiatives about 2 years to deliver returns. I think the shit hits the fan for AI in Q1 2025...ROI questions will be asked all around. So the question remains about how will enterprise s/w perform over the next 3-4 quarters when the funding is relatively lower and drying up. Cheers and Happy 4th!
Great insight!
How timely! Yesterday, I received a question on this topic of software company valuations from one of my readers. Here is my take on the matter...I think enterprise software has lower to go..the category is overvalued even now considering their forward growth rates and current stock proces. e.g. When I look at companies like CFLT IOT SNOW MDB CRM NOW etc. A recent Bain AI survey showed that a large % of enterprise tech budgets are going to AI POCs (proof of concept projects). 2025 tech budgets are being decided now and will also go to AI. CFOs typically give new strategic initiatives about 2 years to deliver returns. I think the shit hits the fan for AI in Q1 2025...ROI questions will be asked all around. So the question remains about how will enterprise s/w perform over the next 3-4 quarters when the funding is relatively lower and drying up. Cheers and Happy 4th!