Rebound for SaaS

Strong performance during the week

The BVP Emerging Cloud Index saw a rebound during the past seven days and has increased by 7%. The public SaaS and Cloud companies have developed relatively flat during the past three months, but the price action has been volatile.

Risk sentiment down, not fundamental

The index has decreased by about -50% during the past twelve months. Core fundamentals have not changed much, Revenue Growth and Efficiency Score, meaning that the decline comes from investor sentiment rather than deteriorating fundamentals. The now much lower Revenue Multiples might indicate that the market expects the fundamentals to start to worsen, but we have yet to see that in the numbers.

Price per Unit of Growth/Efficiency simply divides those figures by the current Forward Revenue Multiple. On a median, the market currently pays 0.18 per unit of growth by that, we are about 30% below the levels we saw over three years ago. The decline in price per unit of Efficiency has declined slightly less, implying that the market prefers profitability compared to a single focus on growth.

The higher interest rate contributes to the lower multiples we see in the current market. When interest rates increase, future cash flows are discounted at higher rates. A SaaS company with little near-term cash flow but with excellent prospects will see more significant declines in valuations compared to a company with more near-term profits.