A Comparison of Today’s Public SaaS Valuations to Historical Valuations.
COVID-19 has created fear and panic globally. Stock markets hate uncertainty and as a result, sold off dramatically, pushing valuation multiples lower as well. The median EV/Revenue multiple of the SEG SaaS Index was 7.9x at the end of 4Q19 (SEG SaaS Index) and 6.5x as of 4/9/2020, a drop of 22% (see below).
Sudden drops in multiples make it difficult to look beyond the fear in day to day headlines, but a long-term view can provide better perspective. So if we analyze the past ten years, where do we stand?
SEG SaaS Index: Historical Analysis
Just prior to the Global Financial Crisis, the median EV/Revenue multiple of the SEG SaaS Index was 4.7x in 3Q08. The multiples finally recovered in 1Q11 to 4.8x. Today’s multiple of 6.5x is 35% higher than 1Q11. Since 1Q11, the median EV/Revenue multiple for the SEG SaaS Index was below the levels from 4/9/2020 in 22 out of 36 quarters, or 61% of the time.
Multiple Expansion: 1Q16 to Today
During that time, there was a period of strong multiple expansion from 1Q16 to 4Q19. Between 1Q16 to 4Q19, median EV/Revenue multiples expanded 88% from 4.2x to 7.9x. Entering 2020, and well before COVID-19 was a daily headline, the majority of pundits suggested the market was due for a 10% – 20% correction. As of 4/9/2020, the median EV/Revenue multiple of the SEG SaaS Index is down 22%. Excluding the climax like run up over the past three years, a median EV/Revenue multiple of 6.5x would be the 4th highest median multiple out of the 21 quarters from 1Q11 to 1Q16.
SaaS Index Revenue Growth
Multiple expansion beyond 1Q16 levels is certainly warranted given the strong growth and scale SaaS companies achieved since that time. Remarkably, the SEG SaaS Index median revenue growth rate has held at roughly 25% while median TTM revenue increased from $182M to $473M, up 159%. How much higher than 1Q16 should public market mulitples be? Are today’s levels at the proper correction point many pundits were suggesting prior to 2020?
It is unclear where SEG SaaS Index multiples will stabilize near-term. However, stepping back and viewing through a long-term perspective illustrates that, despite a sudden and shocking recent drop, multiples remain relatively strong from a historical perspective.
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