In 2011, the median EV/Revenue multiple of the 26 pure-play public SaaS providers comprising our SEG SaaS Index rose markedly to 4.5x, up from 3.6x in 2010 and 2.7x in 2009 (Figures 15 and 16). The 4.5x median multiple was the highest since the heady, pre-Recession days of 2007, when public SaaS companies boasted a median 6.4x EV/Revenue multiple.
There were six SaaS overachievers that closed 2011 with a multiple equal to or greater than that 2007 benchmark of 6.4x (Figure 17). NetSuite’s 11.7x EV/Rev multiple led the pack, as investors applauded its success in the upper tier of the mid-market and recent successful price increase. Not far behind was Cornerstone OnDemand (10.7x), followed by Salesforce.com (8.0x), RealPage (7.5x), SuccessFactors (6.7x) and Concur (6.4x).
It appears investors in 2011 rewarded those SaaS providers that outperformed their peers in growing revenue, but the Street was a bit more circumspect about SaaS than in years past. The six SaaS providers with highest EV/Rev multiples had median TTM revenue growth in 4Q11 of 37% compared to 25.4% median TTM growth for all SaaS companies in the final quarter. What’s interesting is that five of the six saw their EV/Rev multiples actually decline in 4Q11 from a year ealier, even though each had grown its year-over-year TTM revenue growth.
Even more surprising: of the five public SaaS companies that outperformed their peers in 2011 in both median TTM revenue growth and median EBITDA margin, only RealPage achieved a median EV/Revenue multiple above the overall SEG SaaS median, finishing 4Q11 at 7.5x. Underperforming public SaaS companies, with either TTM revenue growth rates or EBITDA margins below that median, drew the ire of investors and posted a median year end EV/Revenue multiple of 2.8x (Figures 18 and 19).