Back

Public SaaS Valuation Update & Post-Q1 Earnings (Part 2/2)

By 

Alex Clayton

Max Motschwiller

Jul 1, 2020

All 50+ of the pure-play SaaS companies that we track have reported Q1 earnings results. Even companies with April 30 quarter ends have performed well and have seen their forward revenue multiples continue to expand, irrespective of guidance. As I mentioned in part 1 of our post here, the outlooks of most of these businesses haven't changed much even as valuation multiples have continued to rise. As an update to part 1, historical multiples are still at all-time highs, which is being dragged up by fast-growing and large companies like Zoom, CrowdStrike and Datadog*. These companies grew LTM revenue 111%, 89% and 86% year-over-year respectively. Again, high-growth SaaS businesses (public and private) are usually valued on a multiple of forward revenue, i.e. enterprise value divided by NTM (next-twelve-months) revenue. The chart below shows the equity value weighted average, straight average and median forward revenue multiples for all SaaS companies over the last 5 years.

We are even higher now than where we were in mid-May.

Source: Wall Street Research, company filings and S&P Capital IQ. Market data as of 29-Jun-2020.

Q1 Performance and Outlooks

The following analysis uses consensus estimates and looks at the entire comparable set as a whole and includes 49 companies (my last report had only 29 companies which were all March 31st quarter-ends). As you can see, almost every company beat consensus estimates (47 out of 49) and simultaneously withdrew or lowered their guidance for the full year. With that said, for Zoom, which beat consensus estimates by 61%, the mid-point of Q2 guidance was 122% higher than consensus estimates and the mid-point of their revised full-year guidance was 96% above consensus estimates. It's probably the largest beat and raise in public SaaS history. It's almost as if they're pulling 4-5 years of new customers into a few quarters.

Source: Wall Street Research, company filings and S&P Capital IQ. Market data as of 29-Jun-2020. ESTC not included in this analysis as their Q4 ends July-31 so no prior FY guidance was given.

How much better (or worse) were the revenue results vs. consensus estimates? The chart below shows each company and the percentage they beat (or missed) consensus revenue estimates. The median beat was 4% and as you can see, there wasn't a marked difference in March or April quarter ends. Both groups of companies performed well against consensus estimates. The red bars indicate companies with April quarter ends and the green bars indicate companies with March quarter ends.

Source: Wall Street Research, company filings and S&P Capital IQ. Market data as of 29-Jun-2020.

Changes in Valuation Based on Guidance Outlook

Similar to my last post, it's clear investors are buying into SaaS companies irrespective of guidance. The chart below looks at the average increase in share price and multiple for this group of companies, sorted by what type of guidance was given. While companies rose more that raised their guidance, those that lowered or withdrew were still up on share price and multiple.

Source: Wall Street Research, company filings and S&P Capital IQ. Market data as of 29-Jun-2020.

Multiples are also much higher than pre-COVID and pre-earnings. The median EV/NTM revenue multiple is 16.0x, up 23% from pre-COVID levels. Below are the medians by time period of the 49 companies that have reported Q1 earnings.

Source: Wall Street Research, company filings and S&P Capital IQ. Market data as of 29-Jun-2020.

Change in 2021 Revenue Estimates, Share Price and Forward Revenue Multiples (Pre-COVID --> Today)

Even with the rest of the group reporting, the story is the same around dollars flowing from the most negatively impacted companies to those that are neutral or positively impacted by COVID. The below regression chart plots the change in share price and change in 2021 consensus revenue estimates; the correlation is high with the r-squared at 0.59. This makes sense, as the value of a business is determined by its long-term performance. Zoom was excluded due to their dramatic change in estimates.

Source: Wall Street Research, company filings and S&P Capital IQ. Market data as of 29-Jun-2020.

The next three charts show the individual % change in 2021 consensus revenue estimates, % change in share price and % change in NTM (next-twelve-months) revenue multiples. I sorted each of the following three charts by descending order of change in 2021 consensus revenue (for all three charts, the companies are in the same order).

Below shows the % change in 2021 consensus revenue estimates.

Source: Wall Street Research, company filings and S&P Capital IQ. Market data as of 29-Jun-2020.

Similar to the last analysis, companies with upward revisions to 2021 revenue estimates are seeing the most increase in share price and companies with relatively low downward revisions are also seeing increases in share price.

Source: Wall Street Research, company filings and S&P Capital IQ. Market data as of 29-Jun-2020.

Not surprisingly, multiples are also up for perceived winners. Interestingly, Zoom's estimates went up so dramatically (~2x) that their forward revenue multiple was flat.

Source: Wall Street Research, company filings and S&P Capital IQ. Market data as of 29-Jun-2020.

There wasn't a huge difference in March or April quarter ends for these businesses and there was an even larger median percentage beat for companies with April-30 quarter ends, more evidence that COVID is having a more limited impact on many public SaaS companies. The median percentage beat on revenue was 3.7% for March-30 quarter ends vs. 4.8% for April quarter ends. While it's skewed by companies like Zoom that beat by 60%+, multiples are up across the board. Given the economics of these businesses; 80-90%+ of the revenue base recurring and net new logos having a more limited impact on quarterly revenue, it would take a few quarters to see the true business impact of COVID (or really any negative economic hardship) on net new business. Q2 might be more informative but we likely won't see the true impact until later this year. As I mentioned before, there's been no better time than now to be a high-growth public SaaS company that is enabling the digital-first world.

To sign up to receive these posts over email, sign up here.

Special thanks to my colleague Anthony DeCamillo for his help on this post.

‍*Meritech is an investor in Datadog and Anaplan. Note multiples over time charts includes the following companies: all high-growth SaaS / cloud IPOs since Salesforce’s IPO in 2004 including those which were subsequently acquired: Alteryx, Anaplan, AppFolio, Appian, Apptio, Atlassian, Avalara, Bill.com, BlackLine, Box, Carbon Black, Cloudera, Cloudflare, Cornerstone OnDemand, Coupa, CrowdStrike, Cvent, Datadog, Demandware, DocuSign, Domo, Dropbox, Dynatrace, Elastic, Eloqua, ExactTarget, Fastly, Five9, Fleetmatics, HubSpot, Instructure, LogMeIn, Marketo, Medallia, Mimecast, Mindbody, MongoDB, MuleSoft, NetSuite, New Relic, Okta, OPOWER, PagerDuty, Paycom, Paylocity, Ping Identity, Pivotal, Pluralsight, Q2, Qualys, Rally, Responsys, RingCentral, Salesforce, SendGrid, ServiceNow, Shopify, Slack, Smartsheet, Splunk, Sprout Social, SuccessFactors, SurveyMonkey, Tableau, Talend, Tenable, Twilio, Veeva, Wix, Workday, Workiva, Yext, Zendesk, Zoom, Zscaler, Zuora.

Read next