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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, 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
SaaS outperforms in volatile quarter; many big winners and losers
October 17, 2022
  • Our SaaS universe's average 1.6% stock price decline in the September quarter belies the market turmoil in our current 98-stock universe, as seven stocks gained over 30% and 10 stocks lost over 30%.
  • The universe's average enterprise value multiple of 2022 estimated revenue declined to 6.9 from 7.5 last quarter. The reduction reflects a combination of stock price declines and generally increasing 2022 revenue estimates, as the average 2022 estimated revenue growth rate increased to 30.0% from 28.8% last quarter.
  • While the correlations between the universe's estimated revenue growth and revenue multiples improved from the very low levels last quarter, we still view the correlations as abnormally low. An eventual reversion to more normal levels will likely be one of the key drivers of future SaaS stock price moves.


Flattish Q3 SaaS performance belies market turmoil

Larger SaaS stocks that previously held up better were hit more in Q3

Growth impact on valuation

Nearly a third of 2023 multiples below 3.0

Q3 SaaS M&A: Notable transactions include acquisitions of Billtrust and Reposify

Q3 SaaS private placements: Notable transactions include Klaviyo, HiBob and Upland Software

Flattish Q3 SaaS performance belies market turmoil

Our SaaS universe stocks dropped 1.6% on average in the September quarter, better than the 5.3% drop for the S&P 500. The average masks the market turmoil in our 98-stock universe, as seven stocks gained over 30% and 10 stocks lost over 30%. Our average SaaS enterprise valuation multiple of 2022 estimated revenue dropped to 6.9 from 7.5 last quarter, and for 2023 estimated revenue, it dropped to 5.5 from 5.9 last quarter.

Our SaaS subgroups also performed disparately, with the enterprise productivity group gaining 4.0% on average in the September quarter after big declines last quarter and the healthcare group declining 17.9% on average after being the best performer last quarter. We believe the bear market hit some companies and sectors earlier than others. Weave Communications (WEAV) bounced 66.1% off its depressed level last quarter, and ChannelAdvisor (ECOM) gained 55.4% on a takeover offer. On the downside, Agora (API) dropped 44.7% as China concerns continued, and 2U (TWOU) dropped 40.3%.

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