Clouded Judgement 8.28.20

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!

Highlight of the Week - SEC Approves NYSE proposal for new Direct Listing structure

We saw a number of software companies file their initial S-1 this week (if you’re wondering why here’s a quick aside. The day after Labor Day is generally thought to be the best time to launch a roadshow for an IPO. Once companies publicly file their initial S-1 statement they must wait at least 15 days before launching their roadshow. This past Monday happened to be 15 days before the day after Labor Day!). While many of these offerings will attract attention, the bigger news in my opinion was the SEC approving the NYSE proposal to alter the Direct Listing mechanism to allow companies to raise primary capital (issue new shares) through a direct listing. The current IPO process has been under heavy scrutiny lately with huge IPO “pops” the norm. Large institutions buy IPO shares the day before the stock starts trading, and then watch their positions grow sometimes >100% in 1 day! Currently, the only alternative (aside from a SPAC), is to skip the standard IPO process and instead float your existing shares on an exchange without hiring banks to underwrite the transaction. The price at which shares are then sold is determined by typical market dynamics. The HUGE downside to direct listings is that currently they don’t allow companies to issue new shares and raise money. All of the shares listed on a direct listing are owned by existing shareholders, and they receive the proceeds from the sale. Many companies need to raise capital and thus the direct listing is not an option for them. With the most recent NYSE proposal companies will be permitted to issue new shares as part of the direct listing which let’s them rise money. To me, this is incredibly significant as it now makes direct listings incredibly more attractive.

Earnings Summary

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 Stats:

Bucketed by Growth:

  • High Growth Median: 31.8x

  • Mid Growth Median: 17.5x

  • Low Growth Median: 9.4x

Operating Metrics

  • Median NTM growth rate: 19%

  • Median LTM growth rate: 31%

  • Median Gross Margin: 73%

  • Median Operating Margin (16%)

  • Median FCF Margin: 4%

  • Median Net Retention: 116%

  • Median CAC Payback: 29 months


  • BigCommerce Teams Up with Facebook to Unlock Checkout on Instagram Feature for US Merchants

  • Fastly announced their acquisition of Signal Sciences for $775M. Signal Sciences provides a modern web application and API security platform offering a modern WAF, RASP, bot protection, API protection and DDOS products

  • Smartsheet announced their acquisition of Brandfolder, a digital asset manager (DAM). Purchase price was roughly $155M

Comps Output

Rule of 40 shows LTM growth rate + LTM FCF Margin. FCF calculated as Cash Flow from Operations - Capital Expenditures