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 - Zuora Subscription Report
Subscriber growth bounced back after initial onset of COVID-19: After a setback in Q1 2020, where net subscriber growth slowed to 3.2%, growth rates increased to 12% in Q2, surpassing rates in the second half of 2019
Subscription businesses used discounts to retain customers: Subscribers receiving discounts grew by 10% in the first 2 quarters of 2020, while the average discount was 18% higher compared to 2019.
Evergreen renewals helped subscriptions grow: In Q2 2020, subscription companies utilized evergreen renewal models more than 9X more than monthly renewal models.
While growth in revenue per account slowed for subscription businesses, it remained positive overall: Average Revenue per Account (ARPA) growth slowed from Q1 to Q2 2020 from 9% to 5%
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 Median: 13.8x
Top 5 Median: 37.0x
3 Month Trailing Average: 13.9x
1 Year Trailing Average: 11.1x
Bucketed by Growth:
High Growth Median: 29.5x
Mid Growth Median: 15.8x
Low Growth Median: 8.3x
Median NTM growth rate: 19%
Median LTM growth rate: 31%
Median Gross Margin: 73%
Median Operating Margin (15%)
Median FCF Margin: 4%
Median Net Retention: 116%
Median CAC Payback: 32 months
Microsoft announced the launch of Azure Communication Services, a new set of features in its cloud that enable developers to add voice and video calling, chat and text messages to their apps, as well as old-school telephony. This new feature set is a clear move against Twilio
Workday released its global Chief Financial Officer (CFO) Indicator Survey, “Finance Digital Transformation,” which reveals a direct link between finance digital transformation and agile business practices, better decision-making, and more efficient reporting, planning, and financial operations—all of which organizations will need to thrive in the new COVID-19 normal.
Rule of 40 shows LTM growth rate + LTM FCF Margin. FCF calculated as Cash Flow from Operations - Capital Expenditures