While SaaS valuations have gone down a bit from their all-time highs, they have held up well in this era of global pandemic. According to the BVP NASDAQ Emerging Cloud Index, the average public SaaS company is trading at 12.7x their enterprise value to revenue. What gives?
Talking to a variety of SaaS entrepreneurs, I’ve heard everything from the pandemic isn’t going to affect our growth rate to we’re expecting a 50%+ reduction in bookings this year and a 30%+ increase in churn. One SaaS entrepreneur in the ecommerce area said while many customers had sales fall off a cliff, other customers are seeing Black Friday-like volumes making the overall sales across the customer base even better than forecast. This gives a hint as to why SaaS valuations have held up so well.
The global pandemic, while hurting growth for many SaaS businesses in the near-term, is believed to have accelerated the growth of SaaS over the mid and long-term. With so many layoffs across the entire economy, and a tremendous amount of working from home, companies are going to invest in making their current workforce more productive with greater urgency than before. Now, companies are more focused on metrics like revenue and profit per employee. Investing in SaaS is one of the best ways to improve a business.
Just look at how fast people adopted SaaS products like Zoom and Calendly as the pandemic spread. Virtual meetings were steadily growing, and now without in-person meetings, they’ve become the norm. Fully 25% of meetings scheduled on Calendly are for Zoom meetings.
Of course, SaaS adoption is going to take time. There’s too much uncertainty in the world, too much expense cutting, and tremendous fighting to hold onto customers. But, this too shall pass, and when it does, upgrading systems and tools is going to be high on the list.
SaaS is well positioned for long-term growth and the pandemic accelerates the shift to the cloud. SaaS valuations have held up well and should continue to do so, especially with a variety of government programs propping up the economy.