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jmacdonald@firstanalysis.com
- The average growth rate indicated by guidance for 2024 was 13.8%, down from 15.9% for 2023. Actual revenue growth in 2023 was 16.9%, well below 2022’s 28.9% growth, and the 1.0 point difference between the 2023 guided and actual growth rates was unusually low: Usually, the actual growth rate exceeds guidance by 2-5 percentage points.
- Our SaaS universe stocks declined 0.9% on average in the March quarter, underperforming the 10.2% gain for the S&P 500. Stock price performance dispersion was relatively high in the quarter, ranging from the Internet of Things (IoT) group’s 15.4% average gain to the Future of Work group’s 12% average decline.
- The average enterprise value multiple of estimated 2024 revenue was 7.1 at the end of March, up slightly from 6.7 at the end of December.
- Correlations between enterprise value multiples of estimated forward revenue and estimated forward revenue growth rates reverted to more normal levels (0.62 for 2024 and 0.63 for 2025) from levels below 0.5 in recent quarters. We believe the higher correlations reflect the fact that more small- and mid-capitalization SaaS companies participated in the market’s strength during the quarter such that enterprise value multiples of revenue better aligned with revenue growth prospects.
TABLE OF CONTENTS
Overview of our analysis
Guidance and the growth curve: Dramatically slower growth in 2023 with even lower guidance for 2024
Interesting M&A twist
Correlations of valuations to growth rates recover
SaaS stocks lagged the S&P 500 in the March quarter
SaaS M&A: Notable transactions include HiredScore and Science 37
SaaS private placements: Notable transactions include Axonius, ExtraHop
Overview of our analysis
For our SaaS universe companies providing annual revenue guidance in both 2023 and 2024, the average growth rate indicated by guidance for 2024 was 13.8%, down from 15.9% for 2023. Actual revenue growth in 2023 was 16.9%, well below 2022’s 28.9% growth. Historically, actual average revenue growth has exceeded the average growth rates implied by guidance by 2-5 points, so the 2023 excess was well below the historical range. We believe the premium multiples accorded to SaaS companies depend on the group sustaining revenue growth rates at or above 20% over the intermediate term.
Our SaaS universe stocks declined 0.9% on average in the March quarter, underperforming the 10.2% gain for the S&P 500. Twelve stocks (13% of our universe) gained over 20%, and 10 declined over 20%. The average enterprise value multiple of 2024 estimated revenue was 7.1 at the end of March, up slightly from 6.7 at the end of December. For 2025 estimated revenue, the multiple is 6.1. The average 2024 estimated revenue growth rate was 13.0% at the end of March, down from 13.3% at the end of December. Revenue growth is expected to accelerate to 15.0% on average in 2025.