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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 rise again with modest SaaS stock appreciation
October 18, 2024
  • Our SaaS universe's average enterprise value multiple of 2024 estimated revenue was 6.8 at the end of the September quarter, up from 6.4 last quarter. For 2025 estimated revenue, the average multiple was 6.0, up from 5.6 last quarter.
  • Revenue growth in 2024 is now expected to be 13.2% on average, down from 13.4% last quarter. In 2025, revenue is expected to grow 13.0% on average, down from 14.2% last quarter.
  • Correlations between enterprise value multiples of revenue and revenue growth rates remain at or near longer-term normal levels.
  • Our SaaS universe stocks appreciated 3.0% on average in the quarter, lagging the S&P 500's 5.1% gain. Merger and acquisition activity among the public companies remains solid with continued purchases by private equity funds.

TABLE OF CONTENTS

Overview of our analysis

Correlation of valuations to growth drops modestly

M&A activity remains solid

Average 3% Q3 SaaS stock price gain lagged the S&P 500

SaaS M&A: Notable transactions include Recorded Future and Instructure

SaaS private placements: Notable transactions include Protect AI, Spring Health

Overview of our analysis

Our SaaS universe stocks gained 3.0% on average in the September quarter, underperforming the S&P 500, which continued to make new highs with a 5.1% gain. While the average gain was low, results varied widely for many stocks in our SaaS universe, with eight stocks gaining over 30% and six losing over 30%. Once again, positive performance generally depended on good earnings and solid forward guidance. The average SaaS enterprise value multiple of estimated 2024 revenue at the end of the quarter was 6.8, up from 6.4 last quarter. For 2025, the average multiple was 6.0, up from 5.6 last quarter. Revenue growth in 2024 was expected by analysts to be 13.2% on average, down from 13.4% last quarter. In 2025, growth was expected to decrease to 13.0% from 14.2% last quarter, reflecting the influence of softer guidance.

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