Bear market for SaaS companies justified?

Our SaaS universe stocks declined 24.1% on average in the March quarter, significantly underperforming the the S&P 500’s 4.6% loss. While we generally view the price declines as overdone, we think it’s true that new AI technology will often require changes in companies’ core platforms. We think most companies will be able to survive and thrive in the transition, but some may fall behind newer entrants that can now create software more quickly. The transition may also reduce profit margins.

Given this heightened longer-term uncertainty, the average SaaS enterprise value of estimated 2026 revenue was 3.9 at the end of the quarter, down from 5.5 last quarter. For 2027, the average multiple was 3.4. Correlations between enterprise value multiples of forward estimated revenue and estimated revenue growth also declined.

Relative to the valuation declines, SaaS companies’ recent growth and near-term growth outlook seem to reflect little negative impact from the AI transition: While average revenue growth guidance for 2026 of 13.3% was down from average growth guidance for 2025 of 14.6% and below actual 2025 average revenue growth of 17.0%, the 2025 beat was in the typical range for our universe, and actual 2025 growth was up from 15.4% in 2024. Analysts expect 2027 revenue growth of 12.9% on average, down only slightly from the 13.1% they expect for 2026.

Overview of our analysis

For our SaaS universe companies that provided annual guidance for both 2025 and 2026, average revenue growth guidance for 2026 was 13.3%, down from average growth guidance for 2025 of 14.6% and below actual 2025 average revenue growth of 17.0%. Historically, actual growth is 2 to 5 points above guidance, so the 2025 beat was in the typical range for our universe. Guidance may be conservative for 2026 given the lack of clarity for the U.S. economy, oil prices and the impact of quickly advancing AI capabilities. Average actual 2025 revenue growth for this group was up from 15.4% in 2024. This is clearly better than the overall market.

Despite the relatively strong comparisons, our SaaS universe stocks declined 24.1% on average in the March quarter, significantly underperforming the 4.6% loss for the S&P 500. This followed more modest declines (but still significant underperformance) in the September and December 2025 quarters and brought the total decline over the trailing three quarters to about 30%. This bear-market performance can be attributed to the narrative that AI will have a major negative impact on software companies, a narrative we do not broadly agree with. The weakness was widespread, with only five companies in our 99-company universe appreciating in the March quarter. Among the decliners, 52 dropped over 30%.

Size offered little protection in the quarter as the prices of four of the largest six companies — SAP (SAP), Salesforce (CRM), Snowflake (SNOW) and Workday (WDAY) — all declined by more than 30%. The remaining two suffered more modest declines, albeit still severe: CrowdStrike (CRWD), down 16.7%, and Shopify (SHOP), down 26.3%.

The average SaaS enterprise value of estimated 2026 revenue was 3.9 at the end of the quarter, down from 5.5 last quarter. For 2027, the average multiple was 3.4. Analysts expected average 2027 revenue growth of 12.9%, which does not seem to indicate significant AI disruption yet.

No subgroup was immune from the carnage in the quarter as any subgroup outperformance was related to one or two good stock performances. Even subgroups that should benefit from AI, like cybersecurity, were hard hit. The go-to-market sector lost the most, down 36.7% on average.

We added two companies to our SaaS universe and removed two, leaving the total unchanged at 99. We removed Clearwater Analytics and Confluent due to their acquisitions announced in the December quarter. We added DigitalOcean (DOCN) and Navan (NAVN), which came public in October 2025. Both are in the enterprise productivity group.

TABLE 1: Revenue growth versus guidance

Source: First Analysis, Capital IQ.

Growth holds at the mid-teens level

Despite the rhetoric of software companies being dead, 2025’s 17.0% actual average growth was up from 15.4% in 2024, as shown in Table 1. As noted, average initial 2026 revenue growth guidance, which typically ends up being 2 to 5 points less than realized growth, was 13.3%. And guidance is generally more conservative in turbulent times like we are experiencing now and like we experienced last year. In 2025, actual average growth of 17.0% exceeded initial guidance of 14.6% by 2.4 points.

Revenue growth tends to slow over time as companies get larger. The long-term growth profile (what we call the growth curve) is a critical factor for valuing SaaS companies. Normally, our universe growth rate slows each year, which is what we label the decay rate (annual rate of growth reduction). For the first time in our memory, the actual average growth rate in 2025 increased over the previous year. We have seen a similar phenomenon with individual companies where growth rates slow for a while but level out when they get into the mid-teens (growth rates over 20% seem to be difficult to maintain at larger size).

In 2025, the average revenue growth rate in the data visibility and healthcare groups fell short of initial guidance. This has historically been relatively rare among SaaS subgroups but has become more frequent in recent years. However, the data visibility shortfall was completely due to a big miss at C3.ai (AI). In all, 18 out of 99 companies in our current universe missed guidance in 2025, somewhat better than in 2024 but still higher than normal levels around 10%.

Two SaaS groups provided average guidance for 2026 revenue growth that was higher than average guidance for 2025 (for companies giving guidance in both periods, excluding the “other” group). Go-to-market companies expected 13.3% average growth in 2026, up from 10.1% expected for 2025, and e-commerce companies expected 11.9% average growth, up from 11.6% for 2025. The groups expecting the highest average growth were IoT, 17.6%, and cybersecurity, 17.2% (again excluding the “other” group). Healthcare SaaS companies expected only 4.1% average growth for 2026, and future-of-work companies expected 7.1% average growth.

Fifteen companies provided 2026 revenue growth guidance that was at least 5 points below average 2025 revenue growth guidance (excluding one company where an acquisition was a factor). Notable among them were C3.ai (AI), which is in the midst of a management change, and Rubrik (RBRK), which provided 30.1% growth guidance for 2025 and 21.7% for 2026. Supply chain companies ReposiTrak (TRAK), SAP (SAP) and WiseTech Global also forecasted significant slowing.

Correlation of valuation to growth drops in SaaS market turmoil

The correlations between enterprise value multiples of forward estimated revenue and estimated revenue growth declined (shown in Tables 2 and 3). For 2026 estimated revenue, the correlation declined to 0.48 from 0.56, excluding Block (XYZ), MongoDB (MDB), PowerFleet (AIOT) and Roblox (RBLX). For 2027 estimated revenue, the correlation was 0.52. We think the reduced correlation reflects the diminished importance of near-term growth prospects in the face of the increased long-term uncertainty prompted by AI and its impact on the growth curve.

While we generally view the price declines as overdone, we think it’s true that new AI technology will generally require changes in companies’ core platforms. We think most companies will be able to survive and thrive in the transition, but some may fall behind newer entrants that can now create software more quickly. The transition may also reduce profit margins as the per-seat business model may need to change for many companies and the cost of tokens will need to be incorporated. Companies with deep domain expertise, suites of integrated functionality, and mission critical (and money-moving) applications will likely bring AI to their customers. For example, we do not expect companies to even consider using vibe-coded software for cybersecurity and payroll applications due to the high cost of errors and vulnerabilities.

TABLE 2: Enterprise value/revenue versus estimated revenue growth 2026

Source: First Analysis, Capital IQ; as of March 31, 2026.
Notes: Excludes AIOT, MDB, NET, RBLX and XYZ.

TABLE 3: Enterprise value/revenue versus estimated revenue growth 2027

Source: First Analysis, Capital IQ; as of March 31, 2026.
Notes: Excludes AIOT, MDB, NET, RBLX and XYZ.

One M&A deal before the collapse

On Jan. 5, Hg Capital announced it would buy OneStream (OS) in an all-cash transaction that valued the company at $6.4 billion, or about 10.8 times 2025 estimated revenue and 9.1 times 2026 estimated revenue. This now looks like a solid multiple compared to current valuation levels. Normally, we expect 5% to 10% of our SaaS universe to be acquired each year. After the recent sell-off, that expectation could be in jeopardy. Not only are companies trading well below levels they would be willing to sell at, but buyers may not be able to get as much financing in the private credit markets. As such, we expect acquisition activity will be on hold until the market consolidates. One possible exception is high-priced AI companies that use their stock as currency to buy low-priced SaaS application providers.

SaaS universe decline was 5x S&P 500 decline

The average stock in our SaaS universe lost 24.1% in the March quarter, underperforming the 4.6% decline for the S&P 500. The carnage was relatively indiscriminate.

The “other” group gained the most, benefitting from Fastly’s (FSLY) 185.5% gain, the most in our SaaS universe, following stronger-than-expected revenue growth and guidance. The gain brought its enterprise value multiple of 2026 estimated revenue to 6.3 from 2.4 at the end of December. The enterprise productivity group declined the least, losing 22.2% on average. It was supported by DigitalOcean, which posted the second-largest gain in the universe, 78.3%, likely as a result of its favorable AI positioning. The go-to-market group lost the most, 36.7% on average, and the data visibility group declined 31.5% on average, with no company gaining in either group.

Eight companies lost over 50% in the quarter: Domo (DOMO), down 63.7%; Atlassian (TEAM), down 57.9%; Asana (ASAN), down 53.3%; Monday.com (MNDY), down 53.2%; recent IPO Netskope (NTSK), down 51.6%; CS Disco (LAW), down 50.8%; Unity Software (U), down 50.3%; and Yext (YEXT), down 52.4%. Generally, companies selling applications that may be replaced by AI were hardest hit, especially in areas targeted by new offerings from AI providers, like legal software and internet gaming platforms. Over half the companies in our universe declined by over 30% in the quarter.

At the end of the quarter, 43 companies traded at enterprise value multiples of 2026 estimated revenue less than 3, up from 26 last quarter. Fifty-eight companies traded at multiples less than 3 times 2027 estimated revenue.

SaaS stock performance before and after December 31, 2025*

Source: First Analysis, Capital IQ.
Notes: *For the period Oct. 1, 2025, through March 31, 2026.

SaaS stock quarterly performance

Source: Capital IQ, First Analysis.

SaaS public comparables ($ in millions)

Source: Capital IQ, First Analysis.
Notes: Public comparable company data shown above is as of March 31, 2026. (1) EBITDA multiples less than 0 and greater than 35 labeled “not meaningful” (NMF). LTM = last 12 months. EBITDA = earnings before interest, taxes, depreciation and amortization.

SaaS M&A: Notable transactions include SGNL and OneStream

We highlight two noteworthy merger and acquisition announcements from the first quarter.

On Jan. 8, CrowdStrike (CRWD) announced it had signed a definitive agreement to acquire SGNL, which provides continuous identity security software, in a transaction valued at approximately $650 million. SGNL’s continuous identity authorization layer is designed to secure modern enterprise environments where human, non-human and AI agents operate. SGNL’s runtime enforcement engine sits between identity providers and cloud resources, eliminating gaps exploited by credential-based attacks. The acquisition helps strengthen CrowdStrike’s flagship Falcon platform, bolstering its identity security capabilities and helping the platform better manage identity access requests in the AI era.

SGNL’s Continuous Access Evaluation Profile (CAEP) Hub enables systems to share security events in real time to manage user access and session security continuously

Source: SGNL.

Also in January, OneStream (OS) announced it would be acquired by private equity firm Hg in an all-cash transaction valuing the company at about $6.4 billion, or 9.1 times estimated 2026 revenue. General Atlantic and Tidemark also participated as significant minority investors. The per-share purchase price was 31% higher than OneStream’s closing price the day prior to the announcement. Prior to its initial public offering in 2024, OneStream was owned primarily by KKR. OneStream provides enterprise software that unifies financial and broader operational data and processes and embeds AI for improved planning and forecasting. By partnering with Hg, OneStream aims to advance its AI-enabled go-to-market strategy, expand its finance AI capabilities at a faster pace and scale its platform. The transaction closed on April 1.

OneStream’s SensibleAI is a composable AI stack combining quantitative, generative, and agentic intelligence to help finance teams forecast, analyze, and act with confidence

Source: OneStream.

Select recent M&A transactions (sorted by date of announcement, $ in millions)

Source: Capital IQ, First Analysis.

SaaS Private Placements: Notable transactions include Upwind Security and Lindus Health

We highlight two noteworthy private placement announcements from the first quarter.

On Jan. 26, Upwind Security, a cloud-native run-time security platform, announced it had raised $250 million in a Series B funding led by Bessemer Venture Partners with participation from Salesforce Ventures, Picture Capital, Greylock Partners, Cyberstarts, Leaders Fund, Craft Ventures, TCV, Alta Park Capital, Cerca Partners, Swish Ventures and Penny Jar Capital. This funding brought the company’s total funding to $430 million since its founding in 2022. Upwind Security provides cloud security capabilities that help organizations detect malicious activity in public cloud environments by correlating cloud telemetry and run-time signals. Its platform also uncovers surface vulnerabilities present in continuous integration and continuous delivery pipelines before code reaches production. The proceeds will be used to expand product development and scale globally.

Upwind identity authorization graph

Source: Upwind Security.

Also in January, Lindus Health raised $55 million in a Series B round led by Balderton Capital, with participation from Visionaries Club and existing investors. The company is redefining the traditional contract research organization model through a fully integrated, technology-first approach aimed at delivering faster, higher-quality, and more cost-efficient clinical trials for biopharmaceutical sponsors. By combining in-house clinical operations with its proprietary AI-enabled eClinical platform, Citrus, Lindus streamlines study design, patient recruitment, centralized monitoring and statistical analysis within a unified system. The new capital will be used to further enhance its AI and automation capabilities, expand its clinical operations team and scale the Citrus platform to support a growing number of global studies. The funding will also enable Lindus to deepen its therapeutic expertise and continue modernizing trial execution across additional indications and geographies.

Lindus Health platform in action

Source: Lindus Health.

Select recent private placements (sorted by date of announcement, $ in millions)

Source: Capital IQ, First Analysis.