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About the Author:
James Macdonald
Managing Director
James Macdonald is a managing director specializing in research and investment in software-as-a-service (SaaS) businesses and related business services. He uses his industry knowledge and expansive network to uncover promising investment opportunities and help companies navigate their strategic paths and accelerate growth. His work has been cited for excellence in the Wall Street Journal’s “Best on the Street” survey, in Forbes, and in other publications. 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
Vice President
Terry Kiwala
Vice President
First Analysis Quarterly Insights
Software as a Service
SaaS stocks outperform as the market searches for growth
July 15, 2020
  • As we forecast last quarter, our publicly traded SaaS universe outperformed the market during the pandemic, gaining 59.3% for the June quarter compared to 20.0% for the S&P 500. While many SaaS companies withdrew guidance, we expect most will grow revenue in 2020. What we did not expect was that many SaaS stocks would reach new highs despite the uncertainty.
  • We have updated our enterprise-value-to-revenue versus growth graphs, which reflect the impact of higher share prices despite lower expected growth rates. The average EV/2020 revenue multiple increased to 14.5x from 8.6x last quarter due to higher stock prices and lower growth rates. Due primarily to the pandemic, the average growth rate is down about 2 points since last quarter to 20.0% for our SaaS universe. A select group of stocks viewed to be pandemic beneficiaries drove the revenue multiple increase. In particular, four companies ended the quarter with EV/2020 revenue multiples in the 37-50 range, while the highest multiple was 21.2 last quarter.
  • We have added 10 names to our SaaS universe and defined a new category for vertical SaaS (companies that target specific sectors). The vertical SaaS category initially includes CarGurus (autos) and AppFolio (real estate). Other additions are SurveyMonkey (SVMK) in the renamed future-of-work category (was human capital technology); Appian, Square and ZoomInfo in enterprise productivity; CrowdStrike in cybersecurity; MongoDB and Splunk in data visibility; and Wix in e-commerce.


EV/revenue multiples skyrocket for some companies

SaaS universe significantly outperforms with data visibility and e-commerce

Q2 SaaS M&A weaker, likely due to pandemic

Q2 SaaS private placements appear stable

EV/revenue multiples skyrocket for some companies

We expected our SaaS universe to outperform when the stock market recovered from the pandemic as investors sought growth in a troubled environment. SaaS companies also can generally be operated remotely so are less likely to be disrupted in the work-from-home world, and SaaS cloud delivery likewise works well for SaaS customers with a remote workforce. Nonetheless, we have been surprised that valuations have generally exceeded pre-pandemic levels and many companies now have record-high EV/revenue multiples.

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