Top Performing Product Categories in The SEG SaaS Index

SEG’s August 2020 SEG SaaS Index Update highlights the top performing SaaS product categories based on YTD Price % Change (see slide 10 in the report). 

Many companies in the top performing categories continue to see benefits from mandatory work from home orders due to COVID-19. The four major product categories seeing the largest positive YTD price changes include: Communications and Collaboration (72.4%), ERP & Supply Chain (72.3%), Development Operations & IT Management (72.3%), and Sales & Marketing (58.5%). The YTD price changes within these categories have certainly been impacted by high-flyers who have capitalized on the shift to remote working. Some of these companies include Zoom (Communications and Collaboration, 377.8%), DocuSign (Communications and Collaboration, 200.9%), and Fastly (Dev Ops & IT Mgmt., 362.6%).

Key Findings:

One notable finding is that even the lowest performing categories have seen considerable price gains in the past couple of months. For example, the HCM category was trading 13% below its 2020 BOY price in April; as of August, this category yielded a 13% price gain compared to BOY levels. Similarly, the BI & Analytics category was down nearly 11% YTD in April but is now trading at 17% above BOY levels. 

It is also worth mentioning all of the product categories have seen a positive price increase YTD. Even the lowest performing category (Financial Applications) has seen a 7.3% price increase, largely in line with S&P 500 YTD gains. 

Looking at broader trends among the indices, the tech-focused Nasdaq index has outpaced the S&P 500 and is up 31% YTD, demonstrating the attractiveness of technology companies during the current COVID environment. The SEG SaaS Index has trended even higher (38% increase YTD) than the Nasdaq as SaaS businesses continue to appeal to investors; many believe that SaaS companies are in a comparatively stronger position to weather an economic storm as software companies possess a high percentage of contractually recurring revenue, strong gross profit margin, and high retention rates. Additionally, a high percentage of the typical SaaS company’s operating expenses are attributable to labor, providing the company flexibility to reduce headcount to bring costs in line with decelerating or declining revenue growth.

We will continue to monitor SaaS category performance in Q3 and Q4, but it appears investors are continuing to seek out investments in software companies, especially those operating in key segments providing critical offerings to businesses supporting operations and employees in remote locations.   

For more information, download the report here: August 2020 SEG SaaS Index Update