Public SaaS Company Valuations and What They Mean for Private Companies


SEG’s Annual SaaS Report provides a comprehensive analysis of the public SaaS market’s performance and M&A activity in the software industry. Our report provides context for private companies to better understand factors influencing their valuations and evaluate how they can position themselves within a changing marketplace.

It is no secret that 2022 was a rough year for the stock market. Public SaaS companies enjoyed an unprecedented run from 2009 through 2021, but last year brought a wave of macroeconomic uncertainty, including rising interest rates, record inflation, supply chain problems, and geopolitical unrest. Fears of a recession caused companies to cut back on expenses, including non-mission critical software, and prompted investors in the public markets to forgo high-risk/high-growth companies in favor of safer assets with dependable and predictable cash flow.

Stock prices and valuations of many leading public SaaS companies have fallen drastically from the beginning of 2022—but while that will affect the private market, it does not necessarily spell doom and gloom. This post will examine the current state of public SaaS company valuations and what it means for private companies.

What is the SEG Index?

The SEG Index comprises 116 publicly traded companies that primarily offer solutions via the cloud and may have a subscription or transaction-based pricing model. SEG began tracking these companies in 2010 to keep a finger on the pulse of the broader SaaS market. We review and update the companies within the SEG SaaS Index quarterly.

Valuation Highlights from the Annual SaaS Report

2022 SaaS Stock Prices


2022 was, to put it mildly, a turbulent time for SaaS stock prices. While indexes across the board finished lower, the SEG SaaS Index experienced a particularly sharp decline, down 48.2% from 2021 by the end of the year.

Although severe, the correction should be considered relative to the past few years. The SEG Index posted gains of ~70% over 2020-2021, as low interest rates, low inflation, and heavy investment combined to create exceptional market growth.

SaaS EV/Revenue Multiples


Median monthly EV/Revenue multiples were also a casualty of the overall economic decline.

The monthly revenue multiple of the Index precipitously declined through May of 2022, experienced a slight increase in August, and spent the remainder of the year hovering between 5x and 6x.

As with stock prices, however, EV/Revenue multiples should be considered in the context of 2020-2021, which saw exceptionally high demand for SaaS stocks and, subsequently, high valuations. At the end of 2022, EV/Revenue multiples were still 15% higher than in 2018.

Gross Profit Margin (GPM)


Higher GPMs mean more money available for reinvestment and, in turn, the potential for solid growth prospects. It is not surprising, then, that profitability was closely tied to above-average valuation multiples.

While median EV/TTM revenue was down across the board, businesses with GPMs over 70% outperformed the Index median of 5.4x. Companies exceeding 80% surpassed the Index median by 22%.

Weighted Rule of 40


The Weighted Rule of 40 was strongly correlated with higher valuations, showing an investor preference for businesses growing sustainably. Businesses with a Rule of 40 greater than 30% outperformed the Index median, and those that surpassed 70% saw an average EV/Revenue multiple of 15.2x, almost three times the Index median of 5.4x.

SaaS Revenue Multiple by Product Category


Not all valuations were affected equally in 2022. Although EV/Revenue multiples were down across the board, it is worth noting that the more mission-critical the product, the more likely it was to outperform the broader Index median.

Human Capital Management, ERP & Supply Chain, and Dev Ops & IT Management held on to strong valuations, reflecting the priorities of the current business landscape. Meanwhile, the slowdown in Communications & Collaboration follows an extraordinary run-up during the pandemic, while the drop-off in valuation for Sales & Marketing reflects a pattern of cutting back on S&M in recessionary times.

What Is the Takeaway for Private SaaS Companies?

The SEG Index’s precipitous decline over 2022 may look alarming at first glance, but there are valuable—and optimistic—lessons for private companies.

Diamond Innabi, Vice President at SEG, points out that while there is typically a lag between the public and private markets, “The public markets tend to be more volatile. The private markets don’t move in lockstep with the public markets and don’t always move as aggressively, either.” That said, she adds that public strategic buyers will always partially value acquisitions from the standpoint of how they themselves are valued. When public company valuations are suppressed, there will be downward pressure on private valuations for those companies that public strategics want to acquire.

“This doesn’t mean this is a bad time to sell your business. Private company valuations are a function of more than just how the broader markets perform. We also have seen a lot of activity from private equity investors, who have record amounts of capital to deploy, regardless of public market performance.”

Diamond emphasizes that founders should note the key metrics of companies that have shown the least decline in their valuations: high retention, capital efficiency (profitability/free cash flow), and mission-critical categorization. ERP & Supply Chain, for example, outperformed most other categories, speaking to its value to businesses across the board. Meanwhile, unprofitable or low-growth businesses are seeing a more pronounced effect on their valuations.

Diamond concludes, “If your business has strong fundamentals with good retention, good gross margin, is capital efficient, and plays in a vertical market with mission-critical software, the valuation can stay propped up from an M&A perspective.”

Download the  Annual SaaS Report.

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