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About the Author:
James Macdonald
Managing Director
Jim Macdonald has over two decades of experience at First Analysis, working with entrepreneurs as an investor and as an advisor on growth transactions to help build leading software-as-a-service (SaaS) businesses. With his widely read “SaaS Quarterly Insights” report, he is a thought leader in the area, and his work has been cited for excellence in the Wall Street Journal’s “Best on the Street” survey, in Forbes and in other publications. He supports First Analysis' investments in AmpliFund, Drive My Way, Fleetworthy Solutions, Freeosk, Mediant, Netchex, QPS Pharmaceutical, SynergySuite, Transformative Pharmaceutical Solutions, ViralGains and Yello. Prior to joining First Analysis in 1997, he was a general manager at Nalco Chemical Co., where he played a key role in expanding Nalco’s service offering to include operating and leasing equipment at customer sites. This led to formation of a joint venture with U.S. Filter Co. Earlier, he was with a subsidiary of Ecolab Inc. He earned an MBA from Harvard University and a bachelor’s degree in civil engineering from Cornell University, where he also earned the university’s highest award in that discipline.
First Analysis SaaS Team
Matthew Nicklin
Managing Director
James Macdonald
Managing Director
Corey Greendale
Managing Director
Howard Smith
Managing Director
Richard Conklin
Managing Director
Andrew Walsh
Managing Director
David Gearhart
Senior Vice President
Terry Kiwala
Vice President
First Analysis Quarterly Insights
Software as a Service
Valuation multiples contract again, but correlation to forward growth highest in a year
January 18, 2023
  • The average stock in our SaaS universe declined 3.6% in the December quarter, underperforming the 7.1% gain for the S&P 500. Five companies gained over 30% and nine lost over 30% in our current 96-company universe, about the same as the tally in the September quarter.
  • The average SaaS enterprise value multiple of estimated revenue was 6.3 for 2022, down from 6.9 last quarter, and 5.2 for 2023, down from 5.5 last quarter. The decline likely in part reflects a reduction in average 2023 growth estimates, from 22.5% last quarter to 19.2% as of Dec. 31, but also a continued correction from what we view as excessive valuation levels a year ago plus perhaps some tax-loss selling.
  • The correlation between enterprise value multiple of 2023 estimated revenue and 2023 estimated revenue growth was 0.52, up from 0.48 last quarter. This was the highest correlation level for forward-year revenue figures we’ve shown since the December 2021 quarter.

TABLE OF CONTENTS

Thoma Bravo acquisitions drive three of top five gainers

Outlook for 2023

Growth impact on valuation

Modest average SaaS stock price decline belies range of +92% to -74%

Q4 SaaS M&A: Notable transactions include acquisitions of Coupa, SkillSurvey

Q4 SaaS private placements: Notable transactions include Elastic Path and Icertis

Thoma Bravo acquisitions drive three of top five gainers

The average stock in our SaaS universe declined 3.6% in the December quarter, underperforming the 7.1% gain for the S&P 500, which recovered somewhat from its October lows. Once again, performance varied much more widely for individual companies, with five gaining over 30% and nine losing over 30% in our current 96-company universe. (The tally was seven and ten in the September quarter.) Three of the five biggest gainers were the subject of acquisition announcements. The average SaaS enterprise value multiple of estimated revenue was 6.3 for 2022, down from 6.9 last quarter, and 5.2 for 2023, down from 5.5 last quarter.

The vertical SaaS group had the largest average share price decline over the quarter: 15.8%. The future-of-work group gained the most: 4.8%. After several quarters of outperformance, the average cybersecurity company share price declined 8.4%. UserTesting (USER) gained 91.6% on a takeover offer. Science 37 (SNCE) dropped 74.2% as growth slowed and losses increased.

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