| 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.
jmacdonald@firstanalysis.com
- The market and business disarray caused by the tariff war has made it difficult to assess prospects for many sectors, including SaaS companies. Our analysis of SaaS market conditions through March 31 may provide some helpful insight, since it provides a snapshot of conditions just prior to the tariffs.
- The average growth rate indicated by guidance for 2025 was 10.5%, down from 14.0% for 2024. Actual average revenue growth in 2024 was 15.1%, continuing a downtrend over the past few years.
- Our SaaS universe stocks declined 11.7% on average in the March quarter, underperforming the S&P 500’s 4.6% loss. Weakness was widespread with only 15 stocks in our 92-stock universe posting gains. The cybersecurity group led for the quarter, gaining 1.6% on average, and the Future of Work group lost only 2.6% on average in the quarter. The e-commerce group lost 17.6% on average, perhaps reflecting its relatively higher exposure to the risk of a soft economy.
- The average SaaS company enterprise value multiple of 2025 estimated revenue was 5.4 at the end of the March quarter, down from 6.0 last quarter. For 2026 estimated revenue, the average multiple was 4.7. Analysts expect average revenue growth of 12.4% in 2025, somewhat more optimistic than management guidance.
- Correlations between enterprise value multiples of estimated forward revenue and revenue growth rates were similar to recent quarters’ solid levels. For both 2025 and 2026 estimated revenue, the correlation was 0.60.
TABLE OF CONTENTS
Overview of our analysis
Growth continues to slow for our SaaS universe
Correlation of valuations to growth steady at quarter end
Three M&A transactions to start the year
SaaS stock decline more than doubles S&P 500 loss
SaaS M&A: Notable transactions include Greenphire and Wiz
SaaS private placements: Notable transactions include Manas AI and ReliaQuest
Overview of our analysis
For our SaaS universe companies providing annual revenue guidance in both 2024 and 2025, the average growth rate indicated by guidance for 2025 was only 10.5%, down from the 13.8% we calculated for 2024 guidance in last year’s report and below actual 2024 growth of 15.1%. Historically, actual average revenue growth for any given year is typically 2 to 5 points above guidance, so 2024’s 1-point beat was low for our universe and matched the 2023 beat. We suspect 2025 guidance reflects more than usual conservatism given the significant lack of clarity for the global economy, although our SaaS universe tends to have highly recurring revenue.
The 15.1% actual average revenue growth for 2024 was down from the 16.9% we reported for 2023 in our April 2024 report and the 18.9% we calculate for 2023 for our current universe composition. We think SaaS companies need to sustain revenue growth rates at or above 20% over the intermediate term to maintain premium multiples.
Our SaaS universe stocks declined 11.7% on average in the March quarter, underperforming the S&P 500’s 4.6% loss. Weakness was widespread with only 15 stocks in our 92-stock universe (16.3%) posting gains. Stock picking continued to be critical with nine companies (9.8%) having declined by more than 30% in the March quarter. The cybersecurity group led for the quarter, gaining 1.6% on average due primarily to Okta’s (OKTA) 33.5% gain, which likely reflected strong quarterly results and 2025 guidance. The cybersecurity group is expected to be relatively immune to economic issues. The Future of Work group lost only 2.6% on average in the quarter, in part due to Paycor’s (PYCR) 20.8% gain on the announcement it would be acquired by Paychex (PAYX). The “other SaaS” group lost the most, 20.6% on average, followed by the e-commerce group, which lost 17.6% on average, likely reflecting its relatively higher exposure to the risk of a soft economy.
The average SaaS company enterprise value multiple of 2025 estimated revenue was 5.4 at the end of the March quarter, down from 6.0 last quarter. For 2026 estimated revenue, the average multiple was 4.7. Revenue on average was expected to increase 12.4% in 2025 and 12.9% in 2026.
We added one company and removed two from our SaaS universe, bringing the total to 92. We removed SecureWorks (SCWX) and Zuora (ZUO) due to their pending acquisitions, announced in the December quarter. We added ServiceTitan (TTAN), which had its initial public in December, to the Internet of Things group.