Earnings Report: SEG SaaS Index Top 20 by EV/Revenue

Analysis of first quarter earnings calls from the top twenty public SaaS companies by EV/Revenue.

Software Equity Group reviewed select company earnings calls to track how public SaaS companies performed in 1Q20, how they handled full year financial guidance, and how stock prices changed as a result. In a previous blog, Earnings Report: First Quarter Forecasts for Public SaaS Companies, we looked at the top twenty companies by market capitalization in the SEG SaaS Index. We now analyze how the top twenty companies by EV/Revenue reacted during the first quarter and how the two groups stack up.

The Results:

The top twenty companies by EV/Revenue, on average, performed very well during the first quarter, as shown by the average stock price increase of 5.4% the day after earnings. Of the seventeen companies that reported full fiscal year guidance, 100% met or beat guidance for 1Q20, and 61% either kept or raised their full fiscal year guidance for 2020. Many companies reported a significant increase in subscription revenue, driving a strong first quarter.  

Companies that Pulled Guidance

On an EV/Revenue basis, only three companies pulled full fiscal year guidance: Shopify, Paycom Software, and AppFolio. Shopify reported uncertainty around the macro economic environment and withdrew guidance. Paycom Software also cited COVID-19 as the reason for withdrawing guidance. However, the company reported a 21% growth in revenue during the first quarter of 2020, higher than what they had guided in 4Q19. AppFolio cited that it is unable to predict with any certainty the full extent of the pandemic and withdrew guidance.

Companies that Lowered Guidance

The only companies that lowered full fiscal year guidance were RingCentral, Veeva Systems, Smartsheet, and ServiceNow.

RingCentral increased subscription revenue guidance in support of new logos being added. However, the company reduced non-recurring revenue guidance, pushing fiscal year 2020 guidance below previous expectations. The reduction in non-recurring revenue was due to the expected decrease in desktop phone demand. The company previously guided to $1.135B and lowered guidance by 0.9% to $1.125B.

Veeva Systems reported a marginal decrease of 0.7% for fiscal year guidance. The company cited the impact of COVID-19 in certain segments of the business where it previously made revenue from in-person events and travel.

Smartsheet withdrew full year billings and free cash flow guidance but still provided full fiscal year revenue guidance of $370M. Smartsheet only reduced full fiscal year guidance by 2.1%, citing COVID-19 as the reasoning.

ServiceNow reported a strong 1Q20 revenue, beating previous guidance and consensus, but still reduced guidance by 2%. ServiceNow stated it assumes the headwinds from the virus will impact Q2 and Q3 earnings more significantly than Q1. Subsequently, the company reduced guidance as a pre-emptive measure.

Companies that Raised Guidance

Many companies many felt subscription billings would increase in response to the macro environment. As a result, they were comfortable enough to report a fiscal year forecast. The largest increases in fiscal year 2020 forecast were from Zoom and CrowdStrike.

CrowdStrike stated there was no meaningful impact to churn as a result of COVID-19. The Company felt optimistic about the demand for its offerings. Crowdstrike’s first quarter results were 6% above expected revenue, driving a strong outlook for the rest of the fiscal year.

Stock Price Performance:

Compared to our previous earnings blog, which tracked the top twenty companies by market capitalization, the stock price changes for the top twenty companies by EV/Revenue were much more positive. For this top twenty EV/Revenue cohort, the average increase in stock price after earnings was 5.4%.

The stock prices for the top twenty companies continued to grow after their respective earnings calls, with an average increase of 6.4% five days after the earnings call and 9.0% ten days after the earnings call. The three companies that withheld guidance still saw an increase to stock prices five and ten days after respective earnings calls.

What this Means for Public SaaS Companies:

The top twenty companies by EV/Revenue in the SEG SaaS Index fared much better through respective earnings calls than the top twenty companies by market capitalization. On average, excluding Zoom, the top twenty by EV/Revenue reduced full fiscal year guidance by 0.2% but still saw an average stock price increase of 5.4%. While the rest of the year may be uncertain, many are optimistic about the future trajectory of top-performing public SaaS companies. For now, we look forward to seeing what the 2Q20 reports show as it will be a better indication of how companies are truly faring during the pandemic.

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⁽¹⁾ EV/Revenue is reported as of 7/24/20.