INTEGRATIVE INSIGHTS
ON EMERGING OPPORTUNITIES

Integrative research means our extensive company research informs every thesis and perspective. The result is deep industry knowledge, expertise, and trend insights that yield valuable results for our partners and clients.

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, Freeosk, 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
Christopher Stiegal
Vice President
First Analysis Quarterly Insights
Software as a Service
SaaS companies expect growth to slow further in 2024
April 19, 2024
  • The average growth rate indicated by guidance for 2024 was 13.8%, down from 15.9% for 2023. Actual revenue growth in 2023 was 16.9%, well below 2022’s 28.9% growth, and the 1.0 point difference between the 2023 guided and actual growth rates was unusually low: Usually, the actual growth rate exceeds guidance by 2-5 percentage points.
  • Our SaaS universe stocks declined 0.9% on average in the March quarter, underperforming the 10.2% gain for the S&P 500. Stock price performance dispersion was relatively high in the quarter, ranging from the Internet of Things (IoT) group’s 15.4% average gain to the Future of Work group’s 12% average decline.
  • The average enterprise value multiple of estimated 2024 revenue was 7.1 at the end of March, up slightly from 6.7 at the end of December.
  • Correlations between enterprise value multiples of estimated forward revenue and estimated forward revenue growth rates reverted to more normal levels (0.62 for 2024 and 0.63 for 2025) from levels below 0.5 in recent quarters. We believe the higher correlations reflect the fact that more small- and mid-capitalization SaaS companies participated in the market’s strength during the quarter such that enterprise value multiples of revenue better aligned with revenue growth prospects.

TABLE OF CONTENTS

Overview of our analysis

Guidance and the growth curve: Dramatically slower growth in 2023 with even lower guidance for 2024

Interesting M&A twist

Correlations of valuations to growth rates recover

SaaS stocks lagged the S&P 500 in the March quarter

SaaS M&A: Notable transactions include HiredScore and Science 37

SaaS private placements: Notable transactions include Axonius, ExtraHop

Overview of our analysis

For our SaaS universe companies providing annual revenue guidance in both 2023 and 2024, the average growth rate indicated by guidance for 2024 was 13.8%, down from 15.9% for 2023. Actual revenue growth in 2023 was 16.9%, well below 2022’s 28.9% growth. Historically, actual average revenue growth has exceeded the average growth rates implied by guidance by 2-5 points, so the 2023 excess was well below the historical range. We believe the premium multiples accorded to SaaS companies depend on the group sustaining revenue growth rates at or above 20% over the intermediate term.

Our SaaS universe stocks declined 0.9% on average in the March quarter, underperforming the 10.2% gain for the S&P 500. Twelve stocks (13% of our universe) gained over 20%, and 10 declined over 20%. The average enterprise value multiple of 2024 estimated revenue was 7.1 at the end of March, up slightly from 6.7 at the end of December. For 2025 estimated revenue, the multiple is 6.1. The average 2024 estimated revenue growth rate was 13.0% at the end of March, down from 13.3% at the end of December. Revenue growth is expected to accelerate to 15.0% on average in 2025.

To access the full report, please provide your contact information in the form below. A First Analysis representative will follow up with you shortly. Thanks for your interest in First Analysis research.
First Name required!
Last Name required!
Email required!
Industry required!
Unfortunately, your request to access the complete report has failed.

Please check the contact information you have entered.

If the form submission failure persists, please contact Person at (xxx) xxx-xxxx to handle your request. Thank you.
©2024 by First Analysis Corporation.
One South Wacker Drive
  ·  
Suite 3900
  ·  
Chicago, IL 60606
  ·  
312-258-1400