Given the continued volatility in the equity markets, we at ScaleView want to provide an update on the important metrics of leading software companies following their second quarter earnings update. Where are the software markets trading?
The CY Q2 2023 market performance shows that SaaS companies that are able to scale and generate high margins are being rewarded and favored by investors over companies achieving high growth. This is due to increasing cloud adoption, promise of artificial intelligence and durability of the SaaS business model.
Even after high volatility of the markets amid rising interests and earning revisions, the public software companies are starting to recover over their historical market performance.
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Highlights from this quarter:
- The median YoY quarterly revenue growth rate stood at 23% YoY, with the top decile growing at >45%. The fastest growing companies were SentinelOne (70%), Snowflake (48%), and Zscaler (46%).
- From June 2021 to June 2023, the market has favored profitability over growth in software businesses. An index of high margin software businesses increased by 6.2% while an index of high growth software businesses decreased by 21.8% over the same period.
- SVP Index companies trade at a median 2023E EV/Revenue of 7.3x and 2023E EV/EBITDA of 26.5x. The broader software market is trading at 4.6x 2023E EV/Revenue and 19.6x 2023E EV/EBITDA.
- Other key operating metrics:
- Median net revenue retention is 112% and 36% of the companies reported an NRR of >120%.
- Median GM-Adjusted CAC payback was 39 months.
- Median Rule of 40 was 20% with top quartile at 39%.
- Median EBITDA margin was 2% and median FCF margin was 20%.
