EBITDA margins in SaaS are terrible

We hear too often about how “SaaS has great margins”, but that’s just not true.  The margins in SaaS are terrible as the data below show.  The table has 72 publicly traded SaaS companies growing on average 41% YOY with a median enterprise value of $1.6bln – in other words, they’re well past the startup stage of burning cash on sales & marketing just to grow.  Even though they’re past the high burn growth stage, the median EBITDA margin is -9% as 45 of the 75 companies are not EBITDA positive. 

 

    TTM TTM  TTM    Market         EBITDA
Name Ticker Revenue EBITDA FCF   Cap Debt Cash EV Calc   Margin
2U TWOU $223 -$18 -$13   $2,430 $14 $143 $2,301   -8%
Athenahealth, Inc. ATHN $1,150 $128 $169   $5,590 $280 $71 $5,799   11%
Bazaarvoice, Inc. BV $202 -$5 $15   $400 $32 $91 $341   -2%
Benefitfocus, Inc. BNFT $243 -$13 -$10   $1,130 $109 $58 $1,181   -5%
Box, Inc. BOX $426 -$116 $12   $2,600 $80 $183 $2,497   -27%
BroadSoft, Inc.  BSFT $348 $26 $67   $1,350 $204 $300 $1,255   8%
Castlight Health, Inc.  CSLT $107 -$50 -$34   $548 $0 $103 $445   -47%
Cornerstone OnDemand, Inc. CSOD $435 -$42 $43   $2,300 $241 $290 $2,250   -10%
Five9, Inc.  FIVN $171 $3 $7   $1,210 $46 $56 $1,199   2%
Hortonworks, Inc. HDP $199 -$233 -$56   $859 $0 $84 $775   -117%
HubSpot, Inc. HUBS $294 -$36 $35   $2,650 $1 $123 $2,528   -12%
IntraLinks Holdings, Inc. IL --- --- --- --- --- --- --- ---   ---
Jive Software, Inc. JIVE --- --- --- --- --- --- --- ---   ---
Lifelock LOCK --- --- --- --- --- --- --- ---   ---
LivePerson Inc. LPSN $216 $6 $0   $795 $0 $54 $740   3%
LogMeIN, Inc. LOGM $618 $128 $221   $6,140 $0 $286 $5,855   21%
Marin Software, Inc. MRIN $93 -$9 $4   $45 $3 $33 $15   -9%
Medidata Solutions, Inc. MDSO $509 $77 $106   $4,500 $271 $367 $4,404   15%
MobileIron, Inc. MOBL $172 -$50 -$1   $419 $0 $89 $330   -29%
New Relic, Inc. NEWR $263 -$49 $19   $2,560 $0 $206 $2,354   -19%
Proofpoint, Inc. PFPT $442 -$17 $135   $3,750 $378 $429 $3,698   -4%
Qualys, Inc. QLYS $205 $49 $83   $1,490 $0 $245 $1,245   24%
RealPage, Inc. RP $593 $89 $141   $3,200 $121 $60 $3,261   15%
RingCentral, Inc. RNG $405 -$12 $34   $2,620 $0 $150 $2,470   -3%
salesforce.com, Inc.  CRM $8,860 $445 $2,340   $6,465 $2,540 $3,220 $5,785   5%
ServiceNow, Inc. NOW $1,630 -$32 $546   $1,871 $1,140 $1,690 $1,321   -2%
Splunk, Inc. SPLK $1,010 -$288 $208   $8,320 $84 $1,090 $7,314   -29%
SPS Commerce, Inc. SPSC $207 $23 $28   $992 $0 $158 $834   11%
The Ultimate Software Group, Inc. ULTI $823 $63 $167   $6,720 $9 $84 $6,645   8%
Veeva Systems Inc. VEEV $582 $141 $177   $8,920 $0 $664 $8,256   24%
Wix.com Ltd. WIX $356 -$39 $66   $2,790 $1 $186 $2,605   -11%
WorkDay, Inc. WDAY $1,700 -$242 $366   $21,080 $541 $2,120 $19,501   -14%
Zendesk, Inc. ZEN $337 -$84 $27   $2,900 $0 $248 $2,652   -25%
Secureworks SCWX $443 -$27 -$10   $887 $0 $92 $795   -6%
Appfolio, Inc. APPF $115 $0 $16   $1,190 $0 $27 $1,163   0%
Atlassian Corporation TEAM $620 -$16 $199   $8,070 $0 $550 $7,520   -3%
Twilio TWLO $305 -$41 $7   $2,640 $0 $289 $2,351   -13%
Instructure INST $122 -$49 -$31   $934 $0 $39 $895   -40%
Mindbody, Inc MB $160 -$9 $4   $1,200 $15 $224 $991   -6%
Shopify SHOP $444 -$30 $17   $9,100 $0 $396 $8,704   -7%
Xactly XTLY $97 -$12 $1   $504 $13 $44 $473   -13%
Nutanix NTNX $681 -$351 $10   $2,560 $0 $350 $2,210   -52%
Apptio APTI $168 -$23 -$2   $705 $0 $111 $594   -14%
Blackline BL $135 -$14 -$2   $1,990 $0 $101 $1,889   -10%
Coupa Software COUP $145 -$32 -$4   $1,620 $0 $238 $1,382   -22%
Okta OKTA $182 -$86 -$37   $2,090 $0 $224 $1,866   -47%
Alarm.com ALRM $276 $47 $23   $1,760 $74 $63 $1,771   17%
Alteryx Inc AYX $96 -$20 -$4   $1,180 $0 $164 $1,016   -21%
Amber Road AMBR $75 -$12 -$2   $254 $24 $15 $263   -16%
Appian Corporation APPN $135 -$15 $0   $1,170 $20 $35 $1,155   -11%
Blackbaud BLKB $745 $126 $160   $4,330 $356 $14 $4,672   17%
Callidus Software CALD $216 -$8 $29   $1,580 $0 $183 $1,397   -4%
Channel Advisors ECOM $115 -$7 $9   $275 $1 $63 $213   -6%
Cloudera CLDR $284 -$333 -$88   $2,270 $0 $222 $2,048   -117%
Ebix EBIX $306 $111 $89   $1,820 $309 $123 $2,006   36%
Ellie Mae ELLI $394 $82 $114   $2,970 $0 $334 $2,636   21%
Everbridge Inc EVBG $83 -$10 $10   $659 $0 $40 $619   -13%
FireEye FEYE $720 -$219 -$9   $2,610 $751 $875 $2,486   -30%
HealthStream HSTM $238 $24 $47   $753 $0 $116 $637   10%
J2 Global JCOM $928 $376 $269   $4,080 $828 $187 $4,721   40%
Kinaxis KXSCF $121 $20 $33   $1,500 $0 $142 $1,358   17%
Medidata Solutions MDSO $509 $77 $106   $4,470 $271 $367 $4,374   15%
Mimecast MIME $187 $2 $33   $1,580 $2 $112 $1,471   1%
Mulesoft MULE $235 -$54 $1   $2,820 $0 $256 $2,564   -23%
NantHealth NH $103 -$147 -$65   $520 $192 $125 $587   -142%
Paycom Software PAYC $359 $79 $109   $4,170 $32 $93 $4,109   22%
Paylocity Holding PCTY $284 $17 $47   $2,340 $0 $101 $2,239   6%
Q2 Holdings QTWO $161 -$19 -$7   $1,600 $0 $82 $1,518   -12%
Tabula Rasa Healthcare TRHC $102 $4 $4   $269 $2 $3 $267   4%
Talend TLND $116 -$26 $4   $1,090 $0 $95 $995   -22%
The Trade Desk TTD $226 $59 $35   $2,260 $26 $107 $2,179   26%
Upland Software UPLD $78 $9 $9   $500 $57 $19 $538   11%
Workiva WK $186 -$34 $11   $807 $21 $65 $763   -18%
Yext YEXT $134 -$45 -$24   $1,130 $0 $134 $996   -33%
Zix ZIXI $62 $12 $15   $290 $0 $23 $267   20%
                       
                       
Average   $471 -$10 $84   $2,655 $126 $274 $2,508   -9%
Median   $237 -$12 $16   $1,790 $1 $124 $1,644   -6%

 

Why are these companies burning cash? Because while the variable costs of SaaS are very low (hosting, servers, etc), the fixed costs are very high, especially for engineering talent and developers.  Given the speed at which technology becomes obsolete, the hiring of engineering/dev talent never really ends as each company has to constantly improve and evolve its product. 

 

So why does SaaS work? Because traditionally SaaS companies collect their bookings up front.  In other words, if you sell a 1 year contract for your software, the norm is to collect the cash up front for all 12 months as opposed to collecting 1/12th of the contract each month.  It’s the reason that even though 45 of the 75 companies are EBITDA negative, only 19 of the 75 are cash flow positive.  Likewise, while the median EBITDA of the data set is -$12mm, the median cash flow is $16mm. 

 

Make sure as a SaaS business you’re collecting the full amount of the booking up front if your clients are enterprises.  They’re used to paying for software up front, so don’t let them get away with monthly payment terms. 

 

Blossom Street Ventures. All Rights Reserved.
Web Site Design by Idealgrowth