Following a few twitter conversations between our own Mark Clare, technology commentator & investor Ben Kepes, corporate finance associate Sam Stewart and Mindscape CEO JD Trask, Clare Capital charted key EV and Revenue metrics for 50 listed SaaS companies with the results below:
Note: All data has been taken directly from Factset as at 27 May 2015.
Clare Capital would have preferred to use ACMR as the Revenue number as it is the most appropriate measure of revenue for a SaaS company; however, Factset doesn’t have that option available.
There appears to be a certain correlation between how fast a SaaS company is growing compared to how the market is valuing the company through an EV/Revenue multiple along the corridor shown in the chart above. Outside the corridor could mean an opportunity to buy/sell, as a company is overpriced given its current growth rate in the top left or underpriced in the bottom right.
Given the smaller dataset of only publicly listed SaaS companies, Clare Capital would expect to see an exponential curve trending up – the greater the growth rate, the greater the multiple.