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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 supports First Analysis' investments in AmpliFund, Drive My Way, Freeosk, 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 reverse lower, 2025 growth expectations also down
July 31, 2024
  • Our SaaS universe's average enterprise value multiple of 2024 estimated revenue was 6.4 at the end of the June quarter, down from 7.1 last quarter. For 2025 estimated revenue, the average multiple was 5.6, down from 6.1 last quarter.
  • Revenue growth in 2024 is now expected to be 13.4% on average, up from 13.0% last quarter. In 2025, revenue is expected to grow by 14.2% on average, down from 15.0% last quarter.
  • Correlations between enterprise value multiples of revenue and revenue growth rates have returned to more normal levels above 0.6 in the past two quarters.The six largest-capitalization SaaS companies outperformed our general universe. While the outperformance of these larger SaaS names may continue for a while based their relatively high current growth rates, longer-term we expect the growth advantage to return to smaller capitalization stocks that can maintain higher growth rates.

TABLE OF CONTENTS

Overview of our analysis

Correlations of valuation to growth remain higher

Biggest SaaS names outperform

M&A picks up

SaaS stocks down 9.6% on average in June quarter

SaaS M&A: Notable transactions include Darktrace and Squarespace

SaaS private placements: Notable transactions include Cyberhaven, FloQast

Overview of our analysis

Our SaaS universe stocks declined 9.6% on average in the June quarter, underperforming the S&P 500's 3.9% gain that helped boost it to record highs. Only four of the 98 stocks in our universe gained over 20%, and two of those were the subjects of acquisition offers. Twenty-five declined by more than 20% in the quarter, mostly due to soft guidance and worries about enterprise spending on software. The group's average enterprise value multiple of 2024 estimated revenue was 6.4 at the end of the quarter, down from 7.1 last quarter. For 2025 estimated revenue, the average multiple was 5.6, down from 6.1 last quarter. Revenue growth in 2024 is now expected by analysts to be 13.4% on average, up from 13.0% last quarter. In 2025, revenue is expected to grow by 14.2% on average, down from 15.0% last quarter and likely reflecting the influence of softer guidance.

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