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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, Netchex, 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
SaaS companies guide low for 2023; how much is conservatism?
April 14, 2023
  • Our SaaS companies that provided guidance for both 2022 and 2023 expect 2023 revenue to grow on average only about two-thirds as fast as they expected revenue to grow in 2022. The magnitude of guidance declines was relatively consistent across companies and groups, leading us to think conservatism is a significant factor.
  • The average SaaS stock in our universe appreciated 19.4% in the March quarter, well ahead of the S&P 500's 7.0% gain.
  • In our analysis of revenue multiples versus estimated revenue growth rates for 2023 and 2024, the correlations remained low at 0.49 for 2023 (down from 0.52 last quarter) and 0.38 for 2024.

TABLE OF CONTENTS

Overview of our analysis

Guidance and the growth curve

Acquisitions expected to continue

Growth impact on valuation

Data visibility, IoT groups lead in Q1 with average 30%+ gains

Q1 SaaS M&A: Notable transactions include acquisitions of Qualtrics, Cvent

Q1 SaaS private placements: Notable transactions include Cart.com and ShiftKey

Overview of our analysis

Our SaaS companies that provided guidance for both 2022 and 2023 expect 2023 revenue to grow on average only about two-thirds as fast as they expected 2022 revenue to grow: 17.4% in 2023 versus 27.5% in 2022. (This excludes companies in the vertical SaaS and other groups.) The lower growth outlook comes despite the fact these companies grew revenue by 29.3% on average, 1.8 points above guidance in a slowing economy during 2022. We believe the lower guidance is due to generally slowing growth as companies mature (2022's 29.3% average revenue growth rate was down from 38.6% in 2021), economic weakness, and conservatism due to uncertainty over the economy; the fact that the magnitude of guidance declines was relatively consistent across companies and sectors suggests to us conservatism was a significant factor.

The average SaaS stock in our universe appreciated 19.4% in the March quarter, well ahead of the S&P 500's 7.0% gain. Once again, performance varied widely among the 97 companies in the universe, with 28 stocks gaining over 30% and 22 stocks declining. Surprisingly, none of the top three gainers were acquisition targets. The average enterprise value multiple of 2023 estimated revenue increased to 6.2 from 5.2 last quarter. For estimated 2024 revenue, the average multiple was 5.2.

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