Little change in SaaS valuations as per-seat model remains in question

The average SaaS company enterprise value multiple of estimated 2025 revenue was 6.4 at the end of the December quarter, flat with last quarter. For 2026 estimated revenue, the average multiple was 5.5, down from 5.6 last quarter.

Our SaaS universe stocks lost 4.3% on average in the December quarter, underperforming the S&P 500’s 2.4% gain. We believe the lackluster performance has resulted in more M&A activity, with offers well above recent market prices.

Given public market valuations of many SaaS companies remain depressed, we expect 5% to 10% of our SaaS universe companies to be acquired in 2026, a continued strong pace. AI may be a key M&A driver, as highly valued AI companies seek to acquire attractively valued existing SaaS companies to monetize their AI capabilities in SaaS applications. At the same time, AI is threatening the relevance of the legacy SaaS per-seat revenue model.

Correlations between enterprise value multiples of estimated forward revenue and revenue growth rates were similar to last quarter, but down from peak levels.

On average, our universe of 99 SaaS companies’ stock prices declined 4.3% in the December quarter, underperforming the S&P 500’s 2.4% gain. The shares of eight companies appreciated by more than 20% in the quarter, and 17 declined by more than 20%. The “other SaaS” group gained the most on average, 10.2%, followed by the e-commerce group with a 1.3% average gain and the vertical SaaS group with a 0.7% average gain. Generally, smaller-capitalization names have begun to participate in the broader market rally, but stock price performance appears highly dependent on quarterly results and guidance.

The biggest decliners were the future of work group, down 18.4% on average, and the healthcare group, down 17.0% on average. The decline in the future of work group was driven by earnings and guidance misses at Workday and Paycom, as well as by concerns that large language models could disrupt demand for more traditional content-driven learning products like those offered by Coursera and Udemy. We also note AI pricing tends to be more aligned with compute power than user seats, so the rise of AI is calling into question the sustainability of legacy SaaS per-seat business models.

The average SaaS company enterprise value multiple of estimated 2025 revenue was 6.4 at the end of the December quarter, flat with last quarter. For 2026 estimated revenue, the average multiple was 5.5, down from 5.6 last quarter. Revenue growth on average was expected to be 16.2% in 2025, up from 14.0% last quarter. In 2026, revenue growth was expected to be 13.2%, an improvement from 12.0% last quarter. We note that 2026 estimates are likely to be conservative at this early date.

We have added 12 names to our SaaS universe, including seven in supply chain software, which constitutes a new grouping in our SaaS universe. Technology continues to transform the logistics industry worldwide, and SaaS applications are being widely adopted in the sector. The new supply chain group consists of Descartes Systems, Kinaxis (KXS), Manhattan Associates (MANH), Oracle (ORCL), ReposiTrak (TRAK), SAP (SAP), and WiseTech Global (WTC).

The other five new companies in our SaaS universe are generally recent IPOs: Alkami Technology (ALKT), which provides bank software, and Cellebrite DI (CLBT), which provides software for criminal legal investigations, both in the vertical SaaS group; Figma (FIG), which provides software for application interface design and prototyping, in the enterprise productivity group; Netskope (NTSK), which provides secure access service edge and zero-trust cybersecurity tools, in the cybersecurity group; and Roblox (RBLX), a platform for creating and sharing online games, in the other SaaS group.

We removed CyberArk and PROS Holdings following their second-quarter acquisition announcements.