Public SaaS Valuations Hit Hard

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?

3 thoughts on “Public SaaS Valuations Hit Hard

  1. 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 🙂

  2. 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.

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