On my index of 86 cloud software companies, only 6 (7%) trade above 10x NTM rev. And only 1 trades above 11x. Overall median is 4.4x
— Jamin Ball (@jaminball) November 4, 2022
Bessemer Venture Partners had added a nice newsletter, Parting the Clouds, that’s very metrics-dense.
A few stuck out this week as helpful ways to summarize just what’s happening with SaaS public companies. Two big take-aways from this week:
- 53% of the BVP Cloud Index is trading under 6x ARR, representing 40 companies
- The top tier of public Cloud companies is trading at 12x ARR, but they are growing 50%+ at $500m+ in ARR, with importantly, 15%+ Free Cash Flow margins. So the high multiples come with a lot of, if not profits, then a lot of free cash flow.
The public markets want it all right now — strong growth AND strong cash flow. They want SaaS companies to act like traditional software companies, that mint cash along with revenue.
It’s a high bar. It’s been Growth, Growth, Growth for years. Not today.
You need the full package to be worth 10x or more ARR. Even high growth without a shot at high profits doesn’t cut it.