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jmacdonald@firstanalysis.com
- Our SaaS universe gained 9.6% on average in the June quarter and 30.9% in the first half of 2023. Substantially all the gain has been from expansion of enterprise value multiples of estimated revenue, to 7.0 on average for 2023 estimated revenue at the end of the June quarter from 5.2 at the end of 2022. The valuation framework we initially presented in 2019 suggests the 7.0 multiple is fair value now.
- The data visibility group had the largest average stock-price gain for the second quarter in a row, up 19.4% on average, as artificial intelligence continued to drive interest in the group.
- With correlations between revenue multiples and growth rates remaining relatively low, there are many interesting outliers.
- Given the recovery in valuation multiples, we were somewhat surprised that none of our SaaS companies were the subject of newly announced acquisitions in the quarter.
TABLE OF CONTENTS
Overview of our analysis
After large gains so far in 2023, is there room left to run?
Correlations between valuation multiples and growth rates remain low
Acquisitions dry up
Data visibility group again posts largest average price gain
SaaS M&A: Notable transactions include IBM's acquisitions of Polar Security and Apptio
SaaS private placements: Notable transactions include Cart.com and Tipalti
Overview of our analysis
Our SaaS universe gained 9.6% on average in the June quarter, modestly outperforming the S&P 500's 8.3% gain. The median gain for our SaaS stocks was 6.7%, indicating that several large gainers drove the average. Eleven SaaS stocks (12% of our universe) gained over 30% while 34 (36% of our universe) declined as stock picking continued to be critical to investment returns. Surprisingly, there were no acquisitions announced in our universe, although a few companies might be viewed as in play. Our SaaS universe's average enterprise value multiple of 2023 estimated revenue increased to 7.0 from 6.2 last quarter. For 2024, the average multiple of estimated revenue was 5.9, up from 5.2 last quarter.
The data visibility group had the largest average stock-price gain for the second quarter in a row, up 19.4% on average, as artificial intelligence continued to drive interest. The healthcare sector stocks lost an average of 3.1% as Certara (CERT) dropped 24.5% after disappointing results, giving back some of the March quarter's gains.
After removing the companies for which acquisitions were announced prior to the June quarter (Cvent, Momentive Global and Qualtrics), our SaaS universe is down to 94 names from 97. In light of the continued strength of and interest in the SaaS sector, we were somewhat surprised that none of our SaaS companies were the subject of newly announced acquisitions in the quarter.