Multiples for SaaS companies growing above the median of 24% are better: 6.5x on median and 7.6x on average. Only 16% of companies are trading at 10x revenue or greater, whereas the peak was 60% in Q4 2020. Only 1 company trades above 20xm whereas 35 traded above 20x in Q4 2020. The data is below.
Negative EBITDA, positive cash flow. The median SaaS business had trailing twelve month revenue of $537mm, EBITDA of -$58mm, but positive operating cash flow of $28mm thanks to up-front collections on annual contracts. So long as you’re growing cash efficiently (the median annual growth rate is 24%), investors will overlook negative EBITDA especially if the business is cash flow positive after working capital changes.
Premium gets a premium. Premium SaaS businesses trade at premium multiples, but the number of premiums is shrinking. In the data set, 19 companies trade at greater than 10x+ revenue, only 2 trade at greater than 15x, and only 1 trades at greater than 20x.
SaaS businesses are healthy. There is less debt on the books ($275mm median) than cash ($459mm median). Median cash of $459mm is 8 years of burn at the current level of EBITDA (-$58mm median). The number of years of cash on the balance sheet is less important given that these businesses are generally cash flow positive (median of $28mm); only 41 out of the 119 companies have negative cash flow. Note that 76 out of the 119 have negative EBITDA, but again that’s acceptable so long as the growth is present and cash flow overall is positive.
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