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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 serves on the boards of Amplifund, Fleetworthy, Freeosk, Mediant, 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
Valuations plunge despite stronger growth expectations
April 13, 2022
  • A group of SaaS companies we consider most relevant for analyzing SaaS company growth expectations provided average 2022 revenue growth guidance of 25.7%, 2.6 points higher than the average for 2021 guidance.
  • Despite this, the average stock price for our broad SaaS universe declined 20.2% in the March quarter, making it one of the hardest-hit groups in the recent market downturn. The average enterprise value multiple of estimated 2022 revenue for the group at the end of the March quarter dropped to 11.2 versus 13.9 last quarter.
  • Given the generally solid guidance provided by our SaaS universe companies, which are also growing much faster than the broad market, we believe investors will migrate back to the sector once they are convinced price bottoms are in place and positive momentum has returned.


Overview of our analysis

Guidance and the growth curve

Growth impact on valuation

20% average Q1 price decline for our SaaS universe

Q1 SaaS M&A: Notable transactions include acquisitions of EdCast and Analytical Wizards

Q1 SaaS private placements: Notable transactions include Zuora and ConcertAI

Overview of our analysis

We assessed the change in SaaS company revenue expectations by analyzing the data from a representative subset of our SaaS universe companies: those that provided annual revenue guidance in both 2021 and 2022 excluding companies we categorize as vertical SaaS and other. This subset of companies issued 2022 revenue growth guidance averaging 25.7%, 2.6 points higher than the average 2021 revenue growth guidance of 23.1%. Much of the increase comes from companies in the data visibility, cybersecurity and future-of-work sectors. As usual, 2021 guidance turned out to be conservative: Actual average revenue growth was 33.2%, 10.1 points better than initial guidance.

SaaS stocks were one of the hardest hit sectors in the recent downturn. Our broad universe of SaaS stocks dropped an average 20.2% in the March quarter compared to a 4.9% loss for the S&P 500. Losses were significantly worse before an upturn at the end of March. The quarter-end average enterprise value multiple of 2022 estimated revenue dropped to 11.2 from 13.9 last quarter. The average revenue multiple is 8.7 for 2023. The two subgroups that lost the least were vertical SaaS, down 6.7% on average, and cybersecurity, down 10.1% on average. The two subgroups that lost the most were Internet of Things, down 32.2% on average, and "other," down 27.2% on average. Anaplan (PLAN) was the stock that gained the most, 41.9%, due to a proposed acquisition, followed by Splunk (SPLK), which was up 28.4% as it named a respected new CEO. The biggest declines were Weave Communication's (WEAV) 60.7% and Expensify's (EXFY) 60.1%; both companies came public at high multiples in the September 2021 quarter.

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