Multiples for SaaS Turned Lower in Q3

 

 

 

Every quarter we track the revenue multiples of 43 publicly traded SaaS companies to get a sense of where valuations are and where they’re trending.  During Q3, the median revenue multiple was 5.75x.  This marked a decline from Q2’s median of 6.39x and is now below the average median of the past 8 quarters which is 6.09x.  The data is below. 

 

    TTM TTM  TTM  Enterprise Market         EBITDA YOY   Q3 2016 Q2 2016 Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014
Name Ticker Revenue EBITDA FCF Value Cap Debt Cash EV Calc   Margin Rev Growth   EV/Rev EV/Rev EV/Rev EV/Rev EV/Rev EV/Rev EV/Rev EV/Rev
2U TWOU $192 -$20 -$1 $1,260 $1,390 $0 $157 $1,233   -11% 39%   6.43x 8.91x 6.52x 5.84x 5.56x 10.48x 8.83x 7.58x
Athenahealth, Inc. ATHN $1,050 $89 $197 $4,310 $4,280 $291 $130 $4,441   8% 19%   4.23x 5.07x 5.26x 5.49x 6.90x 6.51x 6.14x 6.26x
Bazaarvoice, Inc. BV $201 -$8 $14 $353 $406 $37 $86 $357   -4% 4%   1.77x 2.26x 1.27x 0.99x 1.62x 1.90x 2.15x 2.19x
Benefitfocus, Inc. BNFT $225 -$28 -$27 $899 $893 $70 $55 $908   -12% 32%   4.03x 5.54x 5.34x 5.02x 6.41x 6.46x 6.06x 7.63x
Box, Inc. BOX $374 -$126 -$11 $1,680 $1,990 $65 $168 $1,888   -34% 44%   5.05x 5.27x 4.39x 4.54x 5.92x 6.29x 7.72x 8.14x
BroadSoft, Inc.  BSFT $329 $39 $74 $1,190 $1,260 $198 $249 $1,208   12% 29%   3.68x 4.21x 4.10x 3.80x 3.95x 3.63x 4.16x 4.12x
Castlight Health, Inc.  CSLT $93 -$63 -$47 $397 $513 $0 $116 $397   -68% 37%   4.26x 3.47x 3.54x 1.92x 3.15x 6.59x 11.38x 12.16x
Cornerstone OnDemand, Inc. CSOD $410 -$47 $55 $2,380 $2,360 $236 $237 $2,359   -11% 28%   5.75x 6.51x 5.58x 4.32x 5.93x 6.75x 6.20x 5.74x
Five9, Inc.  FIVN $154 -$2 $4 $739 $752 $45 $57 $739   -1% 27%   4.80x 5.58x 3.67x 3.17x 2.38x 1.65x 2.33x 2.35x
Hortonworks, Inc. HDP $170 -$236 -$100 $260 $529 $0 $84 $446   -139% 72%   2.62x 2.49x 3.85x 3.84x 6.74x 11.26x 20.10x 16.16x
HubSpot, Inc. HUBS $248 -$36 $20 $1,560 $1,700 $1 $114 $1,587   -15% 52%   6.41x 8.56x 7.32x 6.08x 14.04x 9.27x 13.77x 9.72x
IntraLinks Holdings, Inc. IL $290 $20 $36 $804 $776 $80 $48 $809   7% 7%   2.78x 2.17x 1.72x 1.70x 2.08x 2.24x 2.40x 2.44x
Jive Software, Inc. JIVE $203 -$7 -$10 $240 $340 $2 $101 $240   -3% 5%   1.19x 1.12x 0.93x 0.71x 1.47x 1.07x 1.72x 1.51x
Lifelock LOCK $650 $47 -$53 $2,090 $2,270 $0 $166 $2,104   7% 16%   3.24x 2.24x 1.66x 1.32x 1.80x 0.79x 2.28x 2.18x
LivePerson Inc. LPSN $226 $17 $28 $386 $432 $0 $51 $380   7% -5%   1.68x 1.86x 1.47x 0.90x 1.65x 1.96x 2.08x 2.69x
LogMeIN, Inc. LOGM $324 $40 $98 $2,280 $2,500 $38 $217 $2,320   12% 27%   7.16x 6.83x 4.64x 4.09x 5.66x 5.22x 5.84x 5.18x
Marin Software, Inc. MRIN $106 -$4 $11 $57 $93 $3 $36 $59   -4% -1%   0.56x 0.59x 0.47x 0.69x 1.10x 0.85x 1.55x 1.58x
Medidata Solutions, Inc. MDSO $438 $56 $77 $2,700 $2,930 $260 $330 $2,860   13% 14%   6.53x 7.46x 6.18x 4.87x 5.80x 7.19x 8.48x 7.60x
MobileIron, Inc. MOBL $162 -$55 -$28 $200 $347 $0 $80 $268   -34% 12%   1.66x 2.03x 1.03x 1.10x 1.56x 1.41x 2.60x 4.10x
New Relic, Inc. NEWR $222 -$60 $12 $1,280 $1,550 $0 $197 $1,353   -27% 55%   6.09x 8.69x 6.56x 6.91x 10.64x 10.84x 13.68x 13.99x
Proofpoint, Inc. PFPT $344 -$53 $60 $2,950 $3,120 $361 $412 $3,069   -15% 39%   8.93x 9.85x 8.10x 6.49x 10.79x 9.46x 10.64x 10.98x
Qualys, Inc. QLYS $190 $46 $79 $920 $1,160 $0 $210 $950   24% 22%   5.00x 6.25x 4.99x 3.83x 6.77x 5.44x 8.65x 10.43x
RealPage, Inc. RP $541 $75 $133 $2,470 $2,390 $123 $69 $2,444   14% 20%   4.52x 4.16x 3.67x 3.49x 3.56x 3.34x 3.66x 3.81x
RingCentral, Inc. RNG $359 -$10 $25 $1,380 $1,570 $16 $152 $1,434   -3% 30%   4.00x 4.72x 4.00x 3.85x 5.23x 4.23x 4.46x 4.25x
salesforce.com, Inc.  CRM $7,910 $534 $1,870 $49,010 $47,900 $2,520 $1,200 $49,220   7% 32%   6.22x 6.65x 8.03x 7.25x 8.85x 7.30x 9.13x 8.26x
ServiceNow, Inc. NOW $1,290 -$83 $131 $12,030 $12,560 $499 $807 $12,252   -6% 41%   9.50x 10.68x 10.09x 7.85x 13.58x 12.52x 15.64x 16.69x
Splunk, Inc. SPLK $864 -$323 $176 $6,000 $7,120 $88 $1,030 $6,178   -37% 61%   7.15x 8.66x 9.26x 6.63x 11.80x 13.40x 17.39x 14.37x
SPS Commerce, Inc. SPSC $185 $18 $18 $1,070 $1,180 $0 $125 $1,055   10% 21%   5.71x 6.39x 4.66x 3.70x 7.02x 6.88x 7.18x 7.42x
The Ultimate Software Group, Inc. ULTI $741 $65 $125 $5,190 $5,400 $11 $111 $5,300   9% 27%   7.15x 8.32x 8.55x 7.34x 9.83x 8.61x 9.02x 9.25x
Veeva Systems Inc. VEEV $508 $104 $150 $5,070 $5,670 $0 $511 $5,159   21% 42%   10.15x 10.88x 9.37x 7.10x 8.11x 7.76x 10.48x 9.36x
Wix.com Ltd. WIX $263 -$44 $30 $1,760 $1,910 $0 $145 $1,765   -17% 40%   6.72x 7.11x 4.25x 3.16x 4.28x 4.06x 5.65x 4.36x
WorkDay, Inc. WDAY $1,460 -$244 $338 $11,900 $13,740 $528 $1,910 $12,358   -17% 50%   8.46x 12.37x 11.95x 9.19x 14.00x 13.50x 20.34x 18.12x
Zendesk, Inc. ZEN $286 -$83 $14 $1,810 $2,110 $0 $211 $1,899   -29% 55%   6.64x 10.18x 8.36x 6.38x 9.29x 8.98x 11.42x 13.65x
Secureworks SCWX $405 -$32 -$22 $743 $851 $0 $111 $740   -8% ---   1.83x 2.27x 3.37x --- --- --- --- ---
Appfolio, Inc. APPF $98 -$7 $2 $786 $775 $0 $18 $757   -8% ---   7.73x 7.01x 5.43x 9.69x --- --- --- ---
Atlassian Corporation TEAM $492 -$1 $144 $4,550 $5,420 $0 $754 $4,666   0% ---   9.48x 12.55x 9.65x 11.05x --- --- --- ---
Twilio TWLO $247 -$32 $0 $2,260 $2,310 $0 $252 $2,058   -13% ---   8.34x 23.42x --- --- --- --- --- ---
Instructure INST $101 -$50 -$19 $476 $559 $0 $83 $476   -49% ---   4.71x 7.06x 5.28x 6.40x --- --- --- ---
Mindbody, Inc MB $129 -$20 -$9 $792 $877 $16 $86 $806   -16% ---   6.25x 5.91x 4.06x 4.65x --- --- --- ---
Shopify SHOP $329 -$24 $12 $3,410 $3,810 $0 $400 $3,410   -7% ---   10.36x 12.58x 9.40x 11.59x --- --- --- ---
Xactly XTLY $92 -$14 -$6 $317 $343 $14 $41 $316   -16% ---   3.44x 4.85x 3.39x 2.88x --- --- --- ---
Nutanix NTNX $524 -$235 $13 $3,430 $3,740 $0 $347 $3,393   -45% ---   6.48x --- --- --- --- --- --- ---
Xero Limited 0XE.F $174 -$57 -$17 $1,450 $1,590 $0 $95 $1,495   -33% ---   8.61x --- --- --- --- --- --- ---
                                           
Average   $549 -$20 $84 $3,368 $3,568 $128 $274 $3,422   -12% 30%   5.42x 6.65x 5.28x 4.87x 6.29x 6.30x 7.97x 7.71x
Median   $286 -$20 $14 $1,450 $1,590 $2 $145 $1,495   -8% 29%   5.75x 6.39x 4.83x 4.54x 5.92x 6.51x 7.18x 7.58x

 

We don’t believe the decline will necessarily continue or exacerbate: SaaS has tended to trade in a band of 4.54x to 7.58x over the past 8 quarters so we remain comfortably at the midpoint.  Indeed over the past 10 years, multiples generally fall in a band between 4x and 6x, so 5.75x is quite healthy in our view. 

 

 

 

A few more observations:

 

-Median and average revenue for the past 12 months of the 43 company data set was $286mm and $549mm respectively (the data is skewed by SalesForce which has $8bln of revenue).  Year over year revenue growth is about 30%. 

 

-From an EBITDA perspective, 30 of the 43 companies are burning cash with median trailing 12 month EBITDA of -$20mm.  From an operating cash flow perspective, the metrics are better with 13 of the 43 companies burning cash – median operating cash flow was $14mm. 

 

-SaaS companies continue to employ very little debt, with a median of only $2mm which is equivalent to 1% of enterprise value.    

 

So what’s this mean for entrepreneurs? In our view the revenue multiple is stable and barring a recession, we don’t see a reason for a decline.  Similarly, we don’t see much potential for a material increase in the multiple either.   Now is as good a time as any to raise money so do it now while capital markets have the appetite.      

 

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