David Cummings on Startups

Public SaaS Valuations Hit Hard

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David Cummings

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Clearly my post on Thursday titled SaaS Public Company Valuations Q1 2016 was bizarrely timed as less than 24 hours later the companies in the category lost $28 billion in market cap value that day. Here are a few notes from the Re/Code article:

  • Big drops on Friday:
    • LinkedIn fell 43 percent
    • Salesforce.com fell 13 percent
    • Workday fell 16 percent
    • NetSuite fell 14 percent
    • ServiceNow fell 11 percent
  • Valuations of 47 publicly traded cloud software companies have fallen $66 billion since a mid-December peak
  • As a group, these companies are trading at four times forward revenue (meaning, 4x the revenues expected in the next 12 months)

Long term, I believe we’ll see SaaS companies trade at 4-6x revenue unless they have an exceptional growth rate (see also Quantifying the SaaS Growth Rate Multiplier). While the market likely overcorrected on SaaS valuations, I still see the long-term future of SaaS as incredibly promising.

What else? What are some more thoughts on public SaaS valuations being hit hard?

Comments

3 responses to “Public SaaS Valuations Hit Hard”

  1. Stephen Reid (@smileysteve) Avatar
    Stephen Reid (@smileysteve)

    Tableau (NYSE:DATA) is another worthwhile mention here with a 50% loss on minor earnings disappointment.

    But the macro-market is also needs to be mentioned for context, with a YTD loss of 8% for 2016 through Feb 5th.

    Reply
  2. Tomer Tagrin (@ttagrin) Avatar
    Tomer Tagrin (@ttagrin)

    Hi David, as a SaaS founder and CEO(first time entrepreneur) I think the question is how will it affect private markets? I am less worried on optimizing valuations but more the fundraising ability. I have been hearing horror stories about 2008 🙂

    Reply
  3. MarkTravis&Company (@M_T_n_Co) Avatar
    MarkTravis&Company (@M_T_n_Co)

    David, I’m not sure it’s best to judge fundamentals in this market. The stock prices of drug companies, consumer goods and other industries have been on a steady decline for the last 3 months to the bafflement of financial experts. Personally, I think it’s the unwinding of the Chinese financial market, which is run by relatively unskilled managers, and less about the fundamental economy, which I think is just fine.

    Reply

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