| 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
- 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.
TABLE OF CONTENTS
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.