Quarterly SaaS losses aren’t improving

Are SaaS companies burning less cash? We looked at the operating income and margin of every SaaS company that has IPO’d since October 2017 (64 companies). The data is below and shows that operating margin has improved over the past 5 quarters, but operating loss has not. Below is the detail.



Margin has really improved. In Q1 2022, operating margin on median was -30%. Since then, the margin has improved trending to -20% as of Q1 2023. That’s great progress.

Operating loss has not improved. In Q1 2022, operating loss on median was -$19.8mm and it hasn’t changed. Operating loss in Q1 2023 was -$20.1mm.

So why is operating margin improving dramatically but actually operating loss isn’t? These SaaS companies are growing their revenue. The median revenue of these 64 companies came in at $133mm in Q1 2023 versus $101.6mm in Q1 2022. So the operating expense of these companies has actually increased nearly in lock step with revenue, so the margin has improved but the total level of operating loss hasn’t.

Our view. If the goal is truly profitability, it will be quite a long haul. The first dollar of cost is much easier to cut than the last dollar, and we do expect gains in operating margin to slow. We do not expect the sector to attain profitability on median, but the efficiency at which these companies grow will improve to the point where investors once again get excited about the space. Those that cant improve to an acceptable level will likely be acquired at attractive valuations.

Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures. Visit us at blossomstreetventures.com and email directly at sammy@blossomstreetventures.com. We invest in companies with run rate revenue of $3mm to $30mm, with year over year growth of 20% to 100%+ depending on revenue. We lead or follow in growth rounds and special situations like inside rounds, small rounds, rushed rounds, corralling investors with our term sheet, cap table clean up, and extensions. We can commit in 3 weeks and our check is $1mm to $4mm. Also visit https://blossomstreetventures.com/metrics/ for always up-to-date SaaS metrics.